Experts say that a recent government decision to lower the airfare ceiling on economic class seats will likely have little to no impact on tourism. (Antara Foto/ Nyoman Budihana)

Government to Lower Airfare Ceiling by 5% for Economy Class Seats


JANUARY 25, 2016

Jakarta. The Indonesian government has announced plans to lower the ceiling on airfare for economy class passengers by 5 percent amid falling global oil prices, but some experts are saying the move is unlikely to have a significant impact on the aviation or tourism industries.

According to Suprasetyo, director general for air transportation at the Transportation Ministry, the decree is currently being processed by the Ministry of Law and Human Rights

"It will likely be legalized soon and [...] be implemented in February," he said.

The decision was made in response to low jet fuel prices local air carriers have enjoyed as a result of plunging oil prices around the world  even despite the rupiah's 11 percent depreciation against a stronger US dollar over the past year.

Airfare for economy class seats varies depending on the route's service level, but according to the Transport Ministry's regulation, it ranges from Rp 400,000 to Rp 5 million ($28.84-$360.50) as of September 2014.

Calculations made for lowering the price ceiling by 5 percent does not yet include the government's recent move to scrap import fees for aircraft spare parts, which was included in its eighth economic policy package, Suprasetyo said, alluding to the possibility that the margins of air carriers may not face strain from the decrease.

Responding to the news, Bayu Sutanto, chairman of scheduled flights at Indonesia National Air Carrier Association (Inaca), said the government's plan "makes sense" considering the recent fall in jet fuel prices.

Still, the decrease will probably provide a minor boost to air traffic since it would be implemented during the low travel season.

"In other words, the equilibrium won't really change much," he added.

Tengku Burhanuddin, secretary general at Inaca, previously called the decrease "unnecessary" even against the current backdrop of cheap fuel as airlines are facing more pressure from the battered rupiah.

"The weakening of the rupiah against the US dollar is bigger than the drop in jet fuel prices," he said.

State energy giant Pertamina recently lowered the average price of jet fuel by Rp 143 per liter across Indonesia for the rest of this month, with a Rp 170 per liter drop specifically in Soekarno-Hatta International Airport, citing plunging global oil prices.