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.