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The Point of Diminishing Returns

Surcharges on Indonesian Domestic Flights Causing Drop in Passenger Numbers

(3/21/2014) Sales outlets for domestic low-cost carriers are reporting a 20% drop in sales following the implementation of a government authorized surcharge on February 26, 2014, intended to offset currency exchange losses suffered by Indonesian airlines due to the weak Rupiah.

The airlines successfully lobbied the government to allow the surcharge to compensate for losses incurred due to the cost of fuel and foreign crew, both of which are denominated in U.S. dollars.

The surcharge charged on domestic routes is Rp. 60,000 (US$5.20) on flight flown by jets and Rp. 50,000 (US$4.30) on flights serve by turbo-props.

As reported by Bisnis.com, the chairman of the Association of Indonesian Tour and Travel Agents (ASITA), Asnawi Bahar is blaming the ticket surcharge on the decline in domestic ticket sales experienced by his members. ‘Ticket sales for low-cost carriers declined 10-20% at the introduction of the surcharge,” said Asnawi.

Asnawi said the surcharge created a psychological resistance to purchasing the low-cost carrier tickets that following the application of the additional charge were nearly the same price as tickets offered by full-service airlines.

The ASITA chairman predicts that demand for the low-cost carrier tickets would eventually return to normal within two month of the surcharge’s implementation.

ASITA is asking the government and the airlines to remove the surcharge as soon as possible. “If the Rupiah improves and the price of aviation fuel remains unchanged, the surcharge must be removed in order to bolster demand for airline tickets,” Asnawi explained.

In response, the chairman of the Indonesian National Air Carriers Association (INACA), Arif Wibowo, said that any contraction in tickets sales caused by the surcharge would be short-lived.

Arif said ticket sales would return to normal in May and that demand for tickets remains strong. “There is no reason for tickets agents to worry,” he said.