Indonesian Government Mulls Out Allowing Foreign Airlines on Domestic Routes

Indonesia, air transport, airlines

As passengers traffic on air routes are down due to sharp rising prices following the reduction in the number of airlines in the country, the government of newly reelected President Jokowi mulls out the idea to allow foreign carriers to operate a limited of domestic routes to boost competition…

Earlier this month, Indonesia President Joko Widodo declared to be favourable  to allow foreign airlines to operate Indonesian domestic routes with the aim of bringing down ticket prices as he felt upset with rising air fares and a lack of competition. Higher prices of up to 35% since the start of the year has been fought by the current administration which enforced an adjustment of both price ceiling and price floors for air ticket. However, this policy does not seem to have produced the expected effect.

Why not then to allow foreign carriers to take passengers on a domestic route in continuation of an international service. It would not only bring a welcome competition but also helps to look at new routes. Such as for example Bangkok-Yogyakarta-Surabaya, two cities not served out of the Thai capital but which -together combined- could become profitable. The new additional airline could then fly passengers between Surabaya and Yogyakarta. Air routes such as Penang-Bandung-Denpasar or Kota Kinabalu-Balikpapan-Jakarta would probably make also sense as they would attract both tourists and domestic passengers.

This would help to boost tourism which is rather stagnating since the beginning 2o19. In March, international arrivals diminished by 1.8% and in April, they only grew by a meager 0.1%. However, international air arrivals plunged by 9% in both March and April…

However the current law does not provide a legal frame for such flights and no foreign airline does offer domestic flights. The only way for a foreign carrier to operate within Indonesia is to set up a domestic business entity, with the majority shareholder – holding a minimum of 51 per cent shares – being Indonesian and it must have at least 10 aircraft in its fleet- five being owned by the airline. So far, the only example of a foreign joint-venture operating domestic flights is Indonesia AirAsia.

But the government is now studying ways to change the law with he Transportation Ministry is studying a proposal made by President “Jokowi”.

“We will not easily accept all foreign airlines. Our aviation industry must still have high [standards]. Therefore, we are studying the proposal and we will report [the results of a study] to the President before making a decision,” Transportation Minister Budi Karya Sumadi said in Jakarta on Monday as quoted by the Jakarta Post. It is sure that local airlines will fight any future change…