Indonesia’s domestic airfares soar – KPPU may investigate claims of price setting

Domestic travelers are feeling the pinch in Indonesia, the world’s fifth-largest domestic aviation market. Over the last year, despite government intervention to cap prices, the cost of airfares has virtually doubled on many domestic routes. The situation has been exacerbated by the fact that the country’s two principal airlines, Lion Air and Garuda, hold a 47% and 48% share of the Indonesian market, respectively, operating a virtual duopoly, with Air Indonesia only holding a 2.4% share of the market. Garuda also took over operational control of Sriwijaya Air last November.

According to Reuters news agency, since the cap on pricing, Garuda has changed its operating policy by slashing domestic seat capacity 15% and no longer offering heavily discounted fares. Ordinarily carriers will load prices for peak traveling times, and heavily discount them for quieter periods. This is no longer the case, with prices virtually uniform for all flights and set at near maximum-allowable rates across the board. According to Garuda data, passenger yields, which measure what each flier pays per kilometer, a proxy for average fares, rose 43% in the five months ended May 31 in Garuda’s domestic operation and were up 94% at Sriwijaya Air for the same period.

The increase in fare prices has had a far-reaching effect with the country’s largest airport, Jakarta Soekarno-Hatta International, seeing domestic traffic fall 22% in the first four months of the year to the lowest level since 2011. Hariyadi Sukamdani, chairman of Indonesia’s Hotel and Restaurants Association, said hotel occupancy rates were down 10% to 30% – depending on the region – for the first six months of 2019. The KPPU, Indonesia’s anti-monopoly agency is now investigating whether or not the two major carriers are operating a cartel, while also looking into Garuda’s business practices since it took over Sriwijaya Air. “We believe there is price setting,” KPPU Commissioner Guntur Saragih said, adding that the agency plans to say next week whether it will take the airlines to court.