Indonesia evaluates airline ticket pricing formula amid rising costs
Well-wishers look on as a Garuda Indonesia Boeing 777-300ER in retro livery, transporting Indonesian Muslim pilgrims for the annual hajj pilgrimage in Mecca, takes off from the Sultan Iskandar Muda International Airport in Blang Bintang, Aceh province on May 18, 2025. - AFP
JAKARTA: The Transportation Ministry is evaluating airline ticket prices amid mounting cost pressures, which could lead to increased airfares paid by passengers, despite the government's longstanding efforts to keep prices affordable.
Lukman F. Laisa, the ministry's civil aviation director general, told lawmakers on House of Representatives Commission V, which oversees infrastructure and transportation, on Thursday (May 22) that the evaluation was being conducted in light of several key considerations. He first pointed out rising airline maintenance costs, leading to higher operational expenses to reactivate aircraft, previously grounded amid the decline in travel demand during the Covid-19 pandemic.
'There are disruptions in the global spare parts ecosystem, such as engine-related difficulties, rising contract costs and a weakening rupiah exchange rate against the United States dollar,' Lukman added, as quoted from Kumparan.
Moreover, new accounting standards are expected to reduce aircraft leasing costs, as they are subject to depreciation. Airlines have also restructured their leasing debts after Covid 19. Given these considerations, the ministry has proposed several changes in the airline ticket pricing regulations.
'There have been changes in fare structure with a new calculation formula that takes travel time into account, as well as revised upper and lower fare limits,' Lukman explained.
The regulations subject to revision are Transportation Ministerial Regulation No. 20/2019 on airfares for domestic commercial airlines and the Ministerial Decree No. 106/2019 on the implementation of the new airfare ceiling prices.
Lukman also recommended adjusting the pricing of domestic airline tickets in economy class, particularly for short distance routes. He also suggested that the fare differentiations in the service categories of full service, medium and low-cost carrier (LCC) should apply only on jet-powered aircraft. Currently, they also apply to propeller-driven aircraft, which are typically used to service regional air travel, particularly to remote and underserved destinations.
'Lastly, adjusting upper and lower fare caps to avoid predatory pricing and to improve business competitiveness,' he said, adding that it would also protect the public from the effects of having too wide a gap between low-season and high-season flight tickets.
At the same meeting, flag carrier Garuda Indonesia also complained about the increasing operational costs seen in the past few years, while the upper price limit had not been adjusted since 2019. Garuda Indonesia president director Wamildan Tsani Panjaitan said airlines faced climbing prices of aviation turbine fuel and maintenance, coupled with the rupiah exchange rate that has also depreciated significantly against the US dollar over the past years.
'This is certainly weighing on airlines because a decrease in load factor or passenger occupancy by three to five percentage points affects airlines' margins and profitability greatly,' he explained, as quoted from CNBC Indonesia, adding that airlines had been operating with tight margins for years.
In 2019, it cost Rp 194 million (US$11,876) per flight, but this has now risen by 38 per cent to Rp 269 million per flight due to increases in the cost of maintenance repair overhaul (MRO) and aviation turbine fuel prices, among other factors. While leasing expenses could be reduced through the restructuring process, Wamildan noted that the minimum wage for workers in the airline industry had increased by 35 per cent since 2019, adding pressures to already high operational costs. - The Jakarta Post/ANN
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