Indonesia orders airlines to lower fares after domestic travel hit

Agents will need to meet the minimum sales requirement of 50 million rupiah to receive their three per cent incentive

With rising airfares in Indonesia impacting the local travel and tourism industry, the Indonesian government is strongly urging Indonesian air carriers, especially the state-owned Garuda Indonesia, to drop their airfares immediately.

Luhut Pandjaitan, the coordinating minister for maritime affairs, has given Indonesian airlines an ultimatum to lower their ticket prices on all routes from April 2019.

Indonesian government has ordered domestic airlines to reduce its airfares

The decision was made during a meeting between the Coordinating Ministry for Maritime Affairs, Ministry of Transportation, airlines and tourism stakeholders earlier this week.

“Garuda Indonesia as the national flag carrier must drop its airfares soon, and that is an order,” said Luhut in official meeting notes circulated among industry members.

Budi Karya Sumadi, transportation minister said the government has stepped in to reduce fuel prices for airlines, which had earlier factored high fuel costs into their fare hikes.

“Some airlines have received a special payment scheme to purchase oil. All (Indonesian) regions have requested for airfare cuts.”

He urged Garuda, in particular, to take the lead in bringing down airfares as a state-owned company.

He also ordered the national carrier to provide subclasses on all flight routes. Garuda has closed the economy subclasses on many routes in recent months and published Y class fares, according to some Indonesian ticketing agents.

Responding to the government’s decision, Budijanto Ardiansyah, vice president of Association of the Indonesian Tours and Travel Agencies (ASITA), said the recent airfare hike caught customers off guard.

“Instead of asking airlines to reduce airfares, it is better to urge them to return to selling ticket subclasses, so customers have a choice of prices, from the most expensive to affordable within the (range) set by the government,” he said.

Budijanto opined that price increases were common in business, but the airfare hike in Indonesia was too drastic and ultimately took a toll on the travel industry, with domestic ticket sales down almost 30 per cent in the last couple of months.

Pauline Suharno, secretary general of The Indonesian Travel Agents Association (ASTINDO), added: “(On the one hand), we are fortunate that (the national and presidential) election is coming up. The election campaign to the regions made ticket sales normal. On the other hand, there is a decrease in corporate incentive travel demand. Also, travellers who usually take weekend getaways or short family trips during weekend are declining.”

Pauline is concerned that if high fares and lack of subclass choices persist, sales will be affected in the holiday season. Moreover, with competing destinations carrying out promotions and giving incentive for air tickets, Indonesia’s tourism will suffer greatly as more will opt to travel overseas.

“It’s not only the local travel agents who cry (foul). Other suppliers, such as hotels, amusement parks, museums will bite their fingers. Most sadly, the money that should be spent domestically is lost as Indonesians choose to travel abroad.”

Indonesia Hotel & Restaurant Association (IHRA) reports that hotel occupancy has suffered as a result of pricey air tickets.

Haryadi Sukamdani, chairman of IHRA, said: “Even though it is a low season, compared to last year, hotel occupancy has decreased by between 20 and 40 per cent. Hotels in the regions have gone quiet as demand shift from domestic to international travel.”

IHRA estimates that star-rated hotel occupancy across the country will stay around 55 per cent in 2019, similar to last year’s level. The stagnating figure, according to Hariyadi’s speech at IHRA National Meeting last month, is partly a result of the increase in room supply.

“But if the ticket problem continues, (hotel occupancy) will drop to less than 55 per cent,” he said.

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