Indonesian president Joko Widodo perceives a lack of competition in Indonesia's airline market, and hopes to find ways to make the industry more efficient.
In an interview with local news portal Kumparan, Widodo says allowing foreign carriers to set up their own units in Indonesia is aimed at offering greater options for consumers, lowering the airfares on domestic routes, and forcing local carriers to be far more efficient through greater competition.
Indonesia's domestic airline scene is now dominated by Lion Air Group and Garuda Indonesia Group, which control eight carriers amongst themselves.
"Maybe there isn't enough competition," says Widodo. "We will increase [the level of] competition, so that airlines will be more efficient."
The president adds that existing laws already permit foreign airlines to establish local units, on the condition that they own up to 49% in their Indonesian companies. To date, only AirAsia has an Indonesian unit where it acquired a 49% stake in local operator Awair in late-2004, rebranding it Indonesia AirAsia in 2005.
He admitted that recent moves by his administration to limit domestic air fare prices and lower fuel costs for airlines are not working fast enough. Airfares have remained constant since end-2018, which is one of Indonesia's peak travelling seasons.
This has resulted in declining domestic tourist numbers to places such as Bali, Lombok and Yogyakarta. In return, Widodo has instructed transport minister Budi Karya Sumadi to constantly monitor prices.
The price limit changes took place in March, which saw a 5% increase on the price floor of over 1,000 routes, followed by a 16% reduction in the price ceiling in May.
In response to local media queries, Garuda chief executive Ari Askhara declined to comment on Widodo's interview with Kumparan.
Meanwhile, Sumadi has welcomed the idea of allowing foreign carriers to set up Indonesian units while also reiterating on the need for them to comply with local laws and regulations.
"The basis of cabotage is that foreign companies need to have 51% of the airline owned by Indonesians, and comply with local laws and regulations," says Sumadi.
He also stressed that he will not make changes to existing regulations in favour of the local units of foreign carriers.
Source: Cirium Dashboard
