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PT Garuda Indonesia Tbk (GIAA).

JAKARTA (TheInsiderStories) – Indonesian government and all related parties are finalizing the policy to impose domestic low-cost carriers (LCC) airplane tickets, for certain flight schedules. This policy will be effective in the next week, the coordinating economic ministry announced in Jakarta on Thursday (06/19).

“To maintain the sustainability of the air transport industry, all parties involved, such as air carriers, airport managers, and aviation fuel providers, have jointly committed to reducing costs associated with aviation operations,” the minister Darmin Nasution told media.

Responding to this, Lion Air Group will impose a selling price of promo tickets up to 50 percent of the upper limit tariff, applied to the schedule time departure and certain conditions, and following certain terms and conditions. The amount varies depending on the airport in each city.

However, the applicable rates do not include carrying baggage rates, passenger service charges, taxes, and insurance fees. In addition, promo ticket reservations must be made no later than 10 days before departure.

Lion Air Group’s spokesman Danang Prihantoro on Friday (06/20) said, the cost of tickets for direct flights consists of components, basic fare for airplane tickets by distance, government tax with a range of 10 percent of the basic fare of airline tickets, mandatory contributions insurance, airport tax is included directly in the cost of flight tickets.

Meanwhile, PT Garuda Indonesia Tbk (IDX: GIAA), the holding company of Citilink Indonesia, believes that this policy is fairer for airlines because not all routes have good levels of filling. Airlines can subsidize certain routes, so prices can be more affordable.

“The reduction in ticket prices is a joint venture, not only airlines that bear the burden themselves. At present we are still making preparations and processes related to adjusting ticket selling prices,” said Garuda’ corporate secretary Iksan Rosan.

Rosan explained, not all routes opened by airlines could be profitable. Meanwhile, each route has its own market characteristics, so not all are sold at low prices.

These characteristics consisted of the ability of the purchasing power of the people and the availability of other modes of transportation. For example, the route with these characteristics is intra-Java which has other modes of transportation such as buses and trains that are no less comfortable. On other routes where the mode of transportation is only airplanes, it is necessary to get affordable prices, he added.

Separately, PT AirAsia Indonesia Tbk’ (IDX: CMPP) CEO Dendy Kurniawan felt there was no need to reduce ticket prices again. The airline ticket price is claimed to be quite affordable. Some time ago, AirAsia held a ticket price promo for international and domestic routes that claimed to reach 5 million seats.

The government said, to help with cost efficiency in the airline, the government is preparing a fiscal incentive granting policy: Aircraft rental, maintenance, and repair services. Also, aircraft rental services from outside the customs area, as well as import and delivery of aircraft and spare parts.

The main reason the government decided to reduce the price of airplane tickets on LCC flights was that it wanted to accommodate the wishes of the people and maintain the sustainability of the aviation industry.

“The government wants to give, respond to the expectations of the community. But on the other hand, the government must also pay attention to the sustainability of our aviation industry,” Nasution said.

The increase in airplane ticket prices since November 2018 has a direct impact on the number of passengers. There has been a decline in the last four months (January – April 2019) by 28 percent. This year the number of passengers decreased quite low, namely as many as 5.63 million passengers in February 2019, or down 14.7 percent compared to the previous month.

Previously, the government had decided to reduce the flight ticket tariff in May. However, this has not had a significant impact on the decline in airplane ticket prices. The high prices have upset the public, caused a 30 percent decline in domestic travel and significantly decreased the occupancy rates of star-rated hotels.

But, domestic airfares have remained punitively high, much higher than comparable international flight services. The government initially argued it could not interfere with ticket pricing because the fares were still below the government-set ceiling. Airlines argue they have done nothing wrong for the same reason, but the public’s outcry made the government revisit the issue.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com