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High airfares holding back Indonesia's tourism recovery: Tourism minister

Jakarta Post - August 4, 2023

Deni Ghifari, Jakarta – The government has pointed to high airfares as one reason for the sluggish recovery of the tourist industry from the pandemic-induced downturn.

The argument is that would-be passengers may think twice about boarding aircraft because tickets remain relatively expensive more than half a year after the Supreme Court upheld an antitrust ruling against seven domestic carriers.

Tourism and Creative Economy Minister Sandiaga Uno said the legal process had to be followed and respected, noting that high airfares were one of the problems hindering the tourism recovery, especially in the domestic context.

"We must avoid cartel practices or collusion. We must support the KPPU in [preventing such practices]. There must never be unhealthy practices in setting airfares," Sandiaga said at his ministry's weekly press briefing on Monday, referring to the Business Competition Supervisory Commission (KPPU).

"We want flights to be affordable and competitive," he added.

A legal fight of several years between the KPPU and airlines ended last December when the Supreme Court decided in favor of the antitrust agency, but experts say the ruling has had little-to-no impact.

The case was built on suspicion of ticket price fixing in 2019 involving Garuda Indonesia, Citilink, Sriwijaya Air, NAM Air, Batik Air, Lion Air and Wings Air.

The antitrust body suspected foul play when prices soared during peak seasons, long weekends and religious holidays that year. It conducted an investigation and in June 2020 declared the airlines guilty of violating Law No. 5/1999 on fair competition.

It also mandated the carriers to submit written reports to the KPPU before making any decisions affecting business competition and ticket pricing for the following two years.

The accused appealed, and the Central Jakarta District Court revoked the KPPU ruling in September 2020. The agency then brought the matter to the Supreme Court, which reinstated the KPPU ruling in December 2022.

The Supreme Court cited several reasons for its decision, including the oligopolistic nature of the commercial aviation market, and found that the price swell had been brought about by agreement rather than by the airlines' independent responses to operating costs.

The court arrived at that conclusion after finding that airfares from the accused airlines had remained high even when fuel prices dropped and peak seasons ended while ticket prices from other airlines had gone down.

Garuda Indonesia, Lion Air and Batik Air were not available for immediate comment.

The Transportation Ministry's Air Transportation Directorate General urged airlines to comply with prevailing regulations is setting airfares.

"[Our directorate] has also held coordination meetings with the seven airlines to follow up on the KPPU's decision, and all of them respect the KPPU's decision and will abide by it," Air Transportation Director General Maria Kristi Endah Murni told The Jakarta Post on Wednesday.

Indonesian National Air Carriers Association (INACA) chairman Denon Prawiraatmadja told the Post on Monday that, "when the KPPU conducts a review, we recommend our members to be cooperative".

Eight months after the Supreme Court ruling, aviation expert Gerry Soejatman said it would "have little to no impact" on the domestic airline industry, given that government-set price floors and ceilings already limited the space for setting airfares.

Moreover, he told the Post that, albeit right, the decision was largely irrelevant in today's market, in which airlines were still trying to get back to pre-pandemic capacity and finances by catching the windfall of "unprecedented demand".

Another aviation expert, Alvin Lie, said the 2019 price soar had been caused by the government-imposed price range, given that ticket prices would always fall within that "corridor".

"As long as prices do not violate the price floor and ceiling, where do you see illegal practices and indications for a cartel? The ticket price corridor is regulated by the government," said Alvin, as cited by Kompas daily on Wednesday.

Source: https://asianews.network/high-airfares-holding-back-indonesias-tourism-recovery-tourism-minister