AWAIR International has become the first significant casualty of a bitter price war that has broken out in Indonesia, suspending all services to carry out an operational restructuring.

AWAIR, launched in 2000 as the first new scheduled airline in Indonesia in more than a decade, suspended operations on 8 March. It said the suspension would be for nearly three months while it restructured with smaller aircraft.

Around a dozen new carriers have been launched in Indonesia or have been prepared for launch since mid- 2000, and many industry observers have predicted that the market will not be able to sustain so many. "Competition has become cut-throat," AWAIR concedes. It complains that competitors "offer prices that are unbelievable compared to costs".

AWAIR and other observers also predict that there will be more casualties in the coming months. Many believe that the price war will become even fiercer. From 1 March, restrictions on minimum fares on most domestic routes were removed. Now the government only sets caps on maximum fares that can be charged.

The Indonesian National Air Carriers' Association has its own price guidelines that it wants members to abide by, but most airlines have ignored them, sending prices down. Some observers believe, however, that the price war will in some ways be a benefit, as it will force out weaker airlines and bring longer-term stability to the increasingly fractured market.

Indonesia's domestic air transport market was one of the hardest hit during the regional economic downturn that hit much of Asia between 1997 and 1999. At the time there were six scheduled airlines in the country but this was reduced to five when decades-old Sempati was forced out of business.

As air travel started to recover in Indonesia, the government began to aggressively encourage the launch of new airlines and traffic figures began to rebound more strongly. The numbers are still below pre-1997 levels, however.

Source: Airline Business