Price floor for air tickets on domestic flights in Indonesia is to be increased from 30% to 35% in the coming weeks according to a government announcement. It theoretically means that ticket prices will increase for consumers…
Indonesia introduced back to 2016 a price floor which requests airlines to charge a compulsory percentage of the total price of the full fare ticket. The cap in theory should prohibit airlines to charge less than a defined percentage point of the ceiling price. Currently, the price floor is fixed at 30% of the total price. However, in practice Indonesia routinely provided exemptions for low cost airlines to offer fares well below this floor, although it recently tightened the rules.
Indonesia classifies airlines in three categories, setting de facto price caps according to the category they belong to. Airlines classified as full-service can charge up to 100% of the ceiling price while airlines characterised as medium service can charge up to 90% and no frills airlines up to 85%.
The Indonesian Transport Ministry just announced on Tuesday to eventually raise the floor from 30% to 35% of the ceiling. If enforced this will mean that low cost carriers will have a much smaller range of fares and for example being forced to charge at least US$35 for one way flight if the ticket price is fixed at US$100 for a specific route.
Transportation Minister Budi Karya Sumadi said in Jakarta that the decision for the increase was done in response to requests from a number of airlines. The Minister indicated that the government would announce the start of the new airplane ticket price scheme in the near future, after consultation with the Office of the Coordinating Maritime Affairs Minister as well as with all the airlines flying domestic routes in Indonesia.
Indonesia national carrier Garuda Indonesia CEO Pahala N. Mansury greeted the government’s decision to increase the airplane ticket price floor, although he previously demanded it be increased to 40 percent.
“The [operational] costs have increased significantly. But, at least [with the increase], there will be improvement [in our revenue],” M. Mansury indicated to reporters of the Indonesian online news publication kompas.com.