Indonesia AirAsia about New Airfare Ceiling & Passenger Service Charge
Low cost carrier Indonesia AirAsia, the Indonesian unit of Malaysia's AirAsia, carried 4.08 million air passengers in the first half of 2014, a growth of 12 percent from the same period last year (3.64 million passengers). However, this growth figure failed to achieve the company’s initial target as it had to reduce flights and routes in an effort to cut back on expenses amid high operational costs. Although the firm managed to pass on part of expensive fuel costs to passengers (fuel surcharge), operational costs for specific routes are high.
As about 70 percent of airlines’ operational costs are US dollar-denominated, the recent rupiah depreciation seriously burdens the financial performance of airlines.
Indonesia AirAsia is optimistic that that the performance in the third quarter will improve. Currently, AirAsia only operates flights to four Indonesian islands (Sumatra, Java, Bali and Kalimantan). In November 2014 it will add one route to the fifth island: Lombok. Toward the future it plans to open more routes (especially to the eastern part of Indonesia) as the company sees great potential in Indonesia because the country consists of thousands of islands while land and sea transportation is not optimal (partly due to weak infrastructure). However, such plans will require careful study first.
Approximately 70 percent of Indonesia AirAsia’s passengers are ‘international passengers’ (flying on international routes; Australia, Malaysia, Singapore and Thailand), the remainder ‘domestic passengers’.
General Director of Indonesia AirAsia, Sunu Widyatmoko, said that Indonesia’s high passenger service charge is a problem for airlines. In combination with high airport tax it reduces demand for airplane tickets.
State-owned airport operators are preparing a mechanism to impose these charges on airlines instead of passengers following the issuance of a ministerial decree (Transportation Ministry) last week. The new decree stipulates that service charges should be included in ticket prices and airport operators are to collect the charges from airlines. This new policy aims to make the process more efficient. Currently, passengers need to wait in line to pay service charges after checking in for their flights (the only exception being Garuda Indonesia and subsidiary Citilink Indonesia as both companies have already included these charges in the ticket price).
CEO of AirAsia, Tony Fernandes, advised that the Indonesian government and airport operators should review policies on passenger service charges as these high charges hurt the domestic aviation industry. “In Indonesia’s aviation industry, everyone is making money except the airlines,” Fernandes said. He further added that the government should scrap the airfare ceiling.
This month, the Indonesian government is expected to introduce a new airfare ceiling decree for the economy-class. The ceiling price may be raised by 10 percent due to the negative impact of rupiah depreciation and higher price of aviation turbine fuel on airlines’ financial balance sheets. In Indonesia, the Transportation Ministry sets a price limit on domestic routes.
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