Keeping Indonesian Skies Price Friendly

(1/27/2005)

As reported recently in the Indonesian-language Bali Post, Transportation Minister, Hatta Rajasa, is recommending that the government no longer be solely responsible for regulating flight fares. "We must have an independent regulatory body, comprised of representatives from the government, the public, and the aviation operators," he said, indicating that these three groups of stakeholders all have a right to some guarantee of fairness in setting domestic air fares.

Commenting on the ongoing role of The Trade Competition Monitoring Commission (KPPU), the Minister said that this body has the responsibility of monitoring pricing activities and taking action against unfair tariff manipulation, which can occur due to monopolies, oligopolies, or price dumping. The KPPUis concerned with tariff monitoring and is not presently charged with the responsibility of setting air tariffs.

Indonesian Tariffs Still Relatively High

The Minister said that despite heavy competition in the Indonesian domestic air ticket market, Indonesia's so-called "low cost carriers" are relatively quite expensive, averaging around 5 US cents per seat per flown kilometer, compared to about 2.5 cents netted by discount carriers in neighboring countries, like Malaysia and Singapore.

Explaining that no airline would intentionally sacrifice passenger safety, the Minister said current costs levels have no direct relation to passenger safety. Hatta emphasized that the government maintains a direct hand in civil aviation safety regulation, providing rules and guidelines for flight safety.

In matters of pricing, the government currently only sets limits on maximum, not minimum, fare prices. He stressed that the government has little desire to involve itself in determining prices, preferring to leave that to market forces.

If the Minister's recommendation for the establishment of an independent price regulatory authority for domestic airlines is accepted and if such an agency allows market forces their full reign, domestic air travelers may be able to look forward to continuing access to competitively priced tickets on Indonesian domestic air flights.