Local carriers add flights amid tight competition

Rudijanto, Contributor, Jakarta

After been bloodied by a long-running, no-holds-barred price war with one another, Indonesian airlines are now looking forward to a brief respite provided by higher ticket prices and loads during next month's school vacation peak season.

The months of June and July are peak season for airlines as the school vacations take place during these months. Passenger numbers are expected to rise as students and their parents travel on holiday or prepare for the new school year.

Merpati Nusantara Airlines' marketing general manager Jaka Pujiyono says that the number of passengers is expected to rise by between 10 percent and 15 percent to certain destinations, especially tourist spots.

No wonder the airline is more than happy to provide additional flights.

"We will have additional flights to Denpasar, Manado and Pangkal Pinang. As for other destinations, we have a system that tells us whether there is a big enough demand for extra flights or not. If the demand is big, we will certainly provide extra flights," Jaka said.

Another domestic airline, PT Star Air, is also planning to increase its flights on the Jakarta - Denpasar route from three per day to four per day starting on June 11. The airline will also start flying to Singapore and Kuala Lumpur in July.

"There is growing demand from travel agents for the coming peak season from June 24 to July 24. I think our load factor for some routes will increase to more than 90%," says Star Air's public relations manager Nurwulan Handayani.

AdamAir is planning to add more routes to its existing lineup, including to Makasar, Manado, NTB, Batam, Riau and even Singapore. To be able to serve all of these routes, the airline is expecting the delivery of three more Boeing 737-400 and 737- 500 aircraft starting next month.

Aside from religious and festive holidays, such as Idul Fitri, Christmas and New Year, school-vacation time provides a boost for airlines. Increased load factors and above normal ticket prices provide a long awaited breathing space for domestic airlines, used to low margins in a highly competitive environment.

The Indonesian airline industry is now the scene of a deadly price war between more than 20 companies. Some airlines, such as Bayu Air, AW Air and Indonesian Airlines, have been forced to close down, for the time being at any rate, but more new airlines keep appearing.

The government, through the Directorate General of Air Transportation at the Ministry of Communications, has issued licenses for dozens of new companies. There is apparently no effort from the government to limit the number of players in this industry.

Without any entry barriers and no minimum fare regulations, the existing airlines have been forced to fight in order to maintain their load factors and attract more passengers. The price war has led to severe difficulties for other transportation modes, particularly passenger ships, buses and trains.

According to data quoted by AdamAir, the number of air passengers rose from 10.6 million in 2001 to 11.6 million in 2002, and 15 million in 2003.

"That is spectacular growth, particularly the 2003 figure. This year, we are expecting the figure to increase again to between 18 million and 19 million," Leo said.

The market for air travel is indeed increasing rapidly. But with more players set to enter the market, not only sea and land transportation firms are appealing for help but also some of the new airlines.

"The government has to sit down with the legislature, carriers' association (INACA), and operators to set fares. Currently, the government only fixes the upper limit for fares, but we also need minimum fares," Leo added.

Leo says that current ticket prices are not favorable. For instance, on the Jakarta-Pangkal Pinang route and the Jakarta- Medan route, his company charges fares of slightly over Rp 200,000 and Rp 300,000 respectively.

"We are not afraid of competition. We can survive with the current fares but, of course, we have to tighten our belts and reduce costs, without compromising as regards the safety of passengers," he said.

Old players such as Merpati also say that if there is no change in the existing regulations, many airlines will have to close down their operations.

"In short, only a small number of airlines will be able to remain healthy in this unhealthy environment," Jaka said.

Though admitting that many of the newcomers are highly efficient due to low manpower costs, Jaka doubted that the various cost-cutting measures effected by them would be able to cut their operational costs by up to 70 percent. Without government intervention, Jaka believes that the price war will last longer than many expect.

Believing that the price of airline tickets to certain destination were unacceptably low, Nurwulan also said that Star Air hopes the government will set minimum prices for airline tickets.

Although the country's Business Competition Supervisory Commission (KKPU) says that the setting of minimum fares would go against the principle of fair competition, she insists that the KPPU sould also investigate allegations of unfair competition.

Weary of the price war, Indonesian airlines are preparing to enjoy a little breathing space during next month's peak holiday season. But they will certainly have to tighten their belts once again after the respite is over should the government fail to intervene. If the government refuses to act, then it will be once again a question of how low can you go?