Garuda Indonesia cuts Europe, domestic flights to stem losses after price ceiling regulation

Garuda Indonesia

Garuda Indonesia has axed a number of “unprofitable” international and domestic routes, which the airline says was due to the government’s revised regulation on ceiling fares for domestic routes.

In a parliament hearing last week, president of Garuda Ari Ashkara said the airline had stopped its Belitung-Singapore service, which began operations in October 2018, and would do the same to the Jakarta-London-Bali services after the summer peak season, which was relaunched barely six months ago.

Garuda Indonesia has scrapped several routes it has deemed unprofitable

The frequency of the Jakarta-Amsterdam service, meanwhile, will be reduced from six times to thrice weekly later this year.

For the domestic sector, frequencies to destinations like Morotai, Maumere and Bima will also be cut.

Ari said the decision was made as part of the company’s efficiency measures following the government’s decision to lower the ceiling price of economy class airfares by 12 per cent to 16 per cent as of May 15.

Ari was quoted by tirto.id as saying: “The impact of the ceiling price reduction is big. Garuda can no longer subsidise the losing routes.

“We do receive complains from Belitung (but) the loss on the route was US$1.3 million in the last six months. We can no longer subsidise it from the trunk routes like Surabaya, Denpasar and Yogyakarta.”

Earlier this month, the Indonesia Ministry of Transportation issued a new regulation requiring airlines to readjust the price of its economy class airfares on domestic routes to the new airfare ceiling.

The policy was made to meet the domestic market’s demand for affordable airfare tickets ahead of the upcoming annual mass homebound exodus around the Idul Fitri holiday period.

Indonesian travel executives, however, said that ticket prices remained high despite the regulation and several flights were cancelled due to the lack of passengers.

Jenny Margaretha, owner of Jakarta-based Vanessa Tour said that during the fasting month of Ramadan, travel agents usually enjoy a profit boost as Indonesians would usually purchase flight tickets to return to their hometowns.

However, this year her company suffered from the drastic surge in the domestic air ticket prices. “Domestic ticket sales at Vanessa Tour have dropped by 60 per cent for Ramadan this year, compared to last year’s performance,” she said.

In fact, TTG Asia’s random check on Traveloka for the Jakarta-Surabaya route, for example, found that Garuda air tickets are priced at Rp1.4 million (US$98), higher than the ceiling price of Rp1.1 million set by the government in the new regulation.

The price of Batik Air ticket for Jakarta-Bali, meanwhile, is between Rp1.5 million-1.6 million, which is also above the ceiling price of Rp1.4 million for the route.

Like Vanessa Tour, Wita Tour also recorded a drop in sales of flight tickets during Ramadan holy month this year. “It has decreased by 20 per cent compared to last year’s Ramadan,” said Rudiana, director of sales.

Reducing the airfare price ceiling is not an adequate measure, remarked Rudiana. What the government should do, he urged, was to take actions to bring back moderate, lower subclass prices of flight tickets for domestic routes.

Budijanto Ardiansjah, vice president of the Association of Indonesian Tours and Travel Agencies, expressed pessimism that airlines would follow the government’s instruction to lower price of airline tickets during the peak travel season of the Ramadan fasting month.

He said that according to a report from the members of his association, domestic ticket sales already declined by 50 per cent for routes inside Java island.

He believed that the skyrocketing air ticket prices had driven Indonesians to switch from flying, which they used to rely on around the time of Idul Fitri holiday, to other land transport modes such as bus and train.

“Many toll roads are getting better today. Cities in Java have also been connected by many trains. There are many alternative options,” he said.

Budijanto said that air ticket sales from Java to other islands in the archipelagic country dropped by 20 to 30 per cent, which was better than the performance of ticket sales within Java, because the only option to travel outside Java quickly is through flying.

  • Additional reporting by Mimi Hudoyo
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