New Jet Fuel Surcharge in Indonesia Reduces Low-Cost Airline Ticket Sales
Ticket sales of domestic low-cost carriers in Indonesia have declined up to 20 percent after the Transportation Ministry implemented new (higher) surcharge fees for airline tickets on 26 February 2014. The new fuel surcharge was needed to offset the negative influence of sharp rupiah depreciation in 2013, which led to rising jet fuel prices, as well as low passenger rates amid the current low season. The Indonesia National Air Carrier Association (INACA) had previously requested for the new surcharge as Indonesia's aviation industry was in jeopardy.
Due to increasingly rising operational costs, various Indonesian low-budget carriers (including Tigerair Mandala and Indonesia AirAsia) started to halt some domestic flights in order to safeguard the companies' financial figures. As jet fuel accounts for a significant portion of airliners' operational costs (sometimes as high as 50 percent), the weak rupiah, which depreciated over 21 percent in 2013, seriously burdened profit margins. Apart from fuel, other dollar-denominated costs include insurance, leasing, and (imports of) spare parts. Besides, profit margins in Indonesia's aviation industry have already been reduced sharply in recent years amid fierce competition, particularly in the low-budget carrier segment.
The new surcharge amounts to IDR 60,000 (USD $5.2) for jets and IDR 50,000 (USD $4.4) for turbo-propeller aircrafts. This means that prices of domestic flights in Indonesia have increased approximately seven to nine percent. For Indonesian air passengers this constitutes a problem as they enjoy cheap tickets to travel from one location to another in the world's largest archipelago. In recent years, air travel in the Asia-Pacific region, especially Indonesia, has shown robust growth as the middle class segment is growing rapidly while the influx of low-budget carriers resulted in fierce competition, thus pushing ticket prices down.
Indonesia's Transportation Ministry issued a regulation in 2010 that stipulated that surcharges are adjusted once per year, or in case of a significant price increase during three consecutive months.
In February 2014, Merpati Nusantara Airlines suspended all its flights becasue the company had been on the brink of bankruptcy due to financial troubles. The company's debt is estimated at IDR 6.7 trillion (USD $587.7 million) together with an outstanding fuel fee to state-owned Pertamina of IDR 130 billion (USD $11.4 million), causing employees of Merpati not to receive any salary for three consecutive months. Indonesia's Ministry of Transportation grounded all Merpati’s flights for safety reasons last month.
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