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JAKARTA (TheInsiderStories) – Indonesian Vice President Jusuf Kalla said that the rate reduction would cause losses to airlines if they were generally accepted. A decrease of up to 50 percent for airplane ticket prices only functions like promo rates, he told the media in Jakarta on Tuesday (07/2).

Kalla explained that cheap tickets are arranged only for certain times and special amounts, not valid for all types of departures. Flight ticket costs depend on the dollar or the exchange rate.

“In addition, high aircraft maintenance costs are considered difficult to reduce flight ticket rates. That is the reason that the price of airplane tickets is no longer possible to reduce, except in the form of discounts,” Kalla adds.

Previously, the government asks airlines to reduce the price of low-cost carrier (LCC) tickets to 50 percent of the upper limit tariff for flights at certain hours. This became a conclusion in further coordination meeting to re-evaluate the policy of decreasing air transport ticket prices. The meeting was attended by management representatives of  PT Garuda Indonesia Tbk (IDX: GIAA), Lion Air Group, PT Angkasa Pura I, PT Angkasa Pura II, and PT Pertamina.

“The decision, to ensure the availability of low-cost flights for the public, the government and all related parties committed to providing low-cost domestic LCC flights,” said Secretary of the Coordinating Ministry for Economic Affairs Susiwijono at a press conference.

Furthermore, Susiwijono explained that since the decision LCC tariff reduces on June 20, the average Lion Air Group tickets price to upper limit tariff dropped from 54.2 percent to 42.7 percent or ticket prices reached 11 percent decrease.

With the value of Lion Air tariff which has reached 42.7 percent from the upper limit and PT Air Asia Indonesia Tbk’ (IDX: CMPP) which reaches 38.3 percent from the Upper Limit Tariff, it can be concluded that the price of economy class LCC airline tickets serving domestic flights in Indonesia can move below 50 percent the upper limit tariff.

The increase in airplane ticket prices since November 2018 does affect the number of domestic air transport passengers. Recorded, the number of domestic air transport passengers January-May 2019 reached 29.4 million people, down 21.33 percent compared to the same period last year of 37.4 million people.

“The largest number of passengers recorded in Soekarno Hatta-Jakarta reached 7.2 million people or 24.50 percent of the total domestic passengers, followed by Juanda-Surabaya 2.3 million people or 7.94 percent,” explained Susiwijono.

In its implementation the government, together with all relevant parties, formulates upper limit tariff policies such as providing low-cost flights every Tuesday, Thursday and Saturday each departure time is between 10: 00-14: 00 (local time based on each airport). Other than, the specific seat allocation of the total aircraft capacity is given a 50 percent discount from the upper limit tariff.

The low-cost airline will be jointly borne by the airline, airport managers, fuel and air supply providers

“We are committed to providing low-cost flights to the public. Regarding the flight schedule and sharing costs specifically, we will discuss it again in the next meeting,” Susiwijono said.

Previously, the government and all related parties are finalizing the policy to impose domestic LCC airplane tickets, for certain flight schedules. Responding to this, Lion Air Group imposed 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 said the cost of tickets for direct flights consists of components, the 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, Garuda Indonesia, 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.

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.

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.

Written by Willy Matrona, Email: theinsiderstories@gmail.com