Lower fares opening up the domestic skies

Lower fares opening up the domestic skies

Burhanuddin Abe, Contributor, Jakarta

The open sky policy introduced in Indonesia has literally
opened up the skies with a large number of new airlines entering
the market.

Traffic in the air is also becoming more congested and,
according to the latest data from the Communications Ministry, 57
airlines are in competition, operating a total of 414 planes.

The increased number of aircraft and passengers have
transformed airports here into crowded terminals that bear a lot
of similarities to local bus and railway stations.

Deregulations of air transportation since 1999 has resulted in
an increase in the number of passengers from 6.6 million in that
year to 16 million in 2003. The estimate for this year is about
20 million. Based on conservative estimates, growth in passengers
is normally about three times the pace of growth in the economy.
But in Indonesia, passenger growth is exceeding economic growth
twofold every three years.

It is only natural, then, that there is heavy competition in
the airline business. The ensuing cuts in airfares have
ultimately benefited customers. Thus today, traveling by air is
no longer considered something that only the rich can afford.

Malaysia's budget airline Air Asia, for example, has for the
past several months been flying customers from Jakarta and
Bandung to Johor Bahru and Kuala Lumpur with its super low air
fares.

A one-way ticket for Jakarta-Kuala Lumpur, for example, costs
only Rp 242,000 (about US$27.5), although these cheap tickets are
available in limited quantities and subject to conditions applied
by the airline. Those passengers who are unable to avail of the
special offer have to pay double.

On the domestic market, Lion Air can be safely called the
pioneer of low fares. The company's owner, Rusdi Kirana, said
that the fare battle among airlines here should not be perceived
as something negative. Similar fare battles happened in both
Europe and the United States several years ago and, he added, to
a certain extent were still taking place even today.

A number of marketing observers and experts, including Rhenald
Kasali, have said that Lion Air's marketing strategy involving an
innovative pricing game, which gave it a first-move advantage,
such as in its being the first domestic company to successfully
launch a low-fare airline and take a sizable market share as
compared to other players or even major names that have been
around for quite some time, like Garuda Indonesia.

The privately owned airline had its maiden flight on June 30,
2000, and today its fleet consists of 10 MDs (the 82 series) and
one Boeing 737-200 aircraft. Flying an average of between 5,000
and 8,000 passengers daily, Lion Air is currently the second
largest airline in the country after Garuda.

Lion Air's successful marketing efforts, as embodied in its
slogan, "We Make People Fly,", have prompted Garuda to launch a
new low-fare service called Citilink. Other domestic airlines
have had no other option but to jump on the bandwagon, while low-
fare airlines are also springing up around the region, like Air
Asia, and Tiger Airways from Singapore and Virgin Blue
(Australia).

Besides being low-fare airlines (LFA), they also aggressively
cut their costs at every opportunity, and hence have also been
dubbed low-cost airlines (LCA).

Flying on these airlines simply means being transported from
one place to another, minus the "royal treatment" associated with
flying for years, such as fancy food and drink, complimentary
newspapers, movies, etc. You can forget about facilities like an
airbridge or VIP lounge, and so forth. You do not even get a
ticket as you can make a reservation from an ATM (automated
teller machine) and the slip with the confirmation code serves as
your boarding pass. Purchasing tickets via telephone, SMS (Short
Messaging Service) or Internet, and the almost instantaneous
confirmations, are other efficient, paperless methods that
greatly cut costs as well as paperwork. So, just like some of
their down-to-earth taglines sum it up: No frills. Now everyone
can fly.

The director of air transportation, S. Eddy Wibowo at the
ministry of communications, however pointed out that local
airlines could still compete with those from the region as long
as they cleverly catered to the specific needs of Indonesian
customers, who had a different attitude and culture, including
having regard to what flying means for many of them. For many
Indonesians, flying remains a luxurious and prestigious way of
traveling. This can be seen from how they still expect full-
service flights and the fact that they often carry more baggage
than is allowed on no-frills flights.

But, he added, quite a significant number of passengers no
longer care about the perks, as getting to their destinations
quickly and more economically is much more important to them. In
this respect, local airlines have beaten the competition from
executive-class trains and ferries. The fierce competition has
clearly benefited airline passengers as competition usually
results in greater efficiency and innovation.

Garuda commercial director Bachrul Hakim, meanwhile, said that
some domestic airlines were still stuck on the low-fares strategy
without fully understanding that the low-cost concept has to be
applied in every aspect of operation, maintenance, and so forth,
so as to produce efficiency and, ultimately, a reasonable profit.

Albert Widjaya, an observer of the airline business, said that
domestic airlines would have to roll up their sleeves to get
ready for tougher competition from within the region, both on
local and regional routes. While the growth in passenger numbers
in the Asia Pacific region, based on projections from Boeing, is
estimated at about 14 percent (twice that of the global
increase), he said that government support would be required to
boost the competitiveness of local airlines.

Economist Faisal Basri said during a recent discussion on the
airline business and management held in Jakarta that there were
at least four aspects that would have to be heeded by both the
government and the airline companies: creating the market,
nurturing the market, stabilizing the market and legitimizing the
market.

"So far, the market has been created. But, if there are no
drastic and appropriate changes in the way this business is
managed and in the relevant regulations, then instead of soaring
sky-high, the new airlines may fall flat on the ground," he
warned.