Indonesia will lower the price ceiling on domestic air tickets by up to 16% from 18 May due to public concerns about the higher cost of fares in recent months.
The country's transport minister Budi Karya Sumadi says that the reduction of the price ceiling comes despite Indonesian carriers pricing fares within the previous price ceiling rates set in March.
"After we did an evaluation and persuaded [the key industry players], it turned out that air tickets have remained unaffordable for many. We received complaints from the public, [as well as] from the tourism and hotel industries, and [this had also caused] inflation," says Sumadi.
In March, the ministry raised the price floor on over 1,000 domestic routes in March, and had signalled at that time of its intention to review the floor regularly to ensure the country’s airlines remain viable.
This time around, however, the ministry did not publicly disclose the new price floor for the domestic routes, and did not respond to FlightGlobal's request for a copy of the enacting ministerial order.
Director general of civil aviation Polana Pramesti says the 12-16% reduction in the price ceiling was made after considering "substantial factors" including safety and security. It also noted an improved on time performance by domestic carriers during the January-March quarter.
"We hope that the public would understand [the situation] as ticket prices can fluctuate. Changes in the tariff are based on multiple factors, including the operating cost of a flight, passenger service charge, air navigation service, taxes, insurance and others. Some of these components are influenced by the dollar exchange rate against the rupiah," adds Pramesti.
Meanwhile, Sumadi expressed hope that low-cost carriers would also adjust their ticket prices, by selling tickets at a 50-80% of the price ceiling rate, and give consumers more choice.
Garuda Indonesia has expressed concern about the impact of the lower floor price on its revenue stream, and called for a reduction in government taxes and charges on airlines, airports and air navigation service providers to assist in lowering their operating costs.
The airline's vice-president for corporate secretary Ikhsan Rosan was quoted in a detikFinance report as saying that the lowering of the price floor would impact its revenue stream, and reduce its margins to around 2%.