Indonesia Mulls Allowing Foreign Carriers To Fly Domestically

 - June 6, 2019, 9:14 AM
Garuda Indonesia faces an investigation by Indonesian authorities for price fixing. (Photo: Airbus)

In an urgent bid to boost competitiveness and push down airfares, the Indonesian government is considering a new aviation policy that will allow foreign carriers to serve domestic routes across the sprawling archipelago. The proposal, submitted by newly re-elected President Joko Widodo, marks the latest in a string of state measures aimed at boosting competition, including changes to airfare floors and ceilings.

In late May, Indonesia’s Ministry of Transportation lowered the ceiling prices for domestic airfares by 12 to 16 percent in an effort to stimulate tourism ahead of the Muslim holiday of Idul Fitri, scheduled June 5 to 6. The Indonesian Hotels and Restaurants Association welcomed the decision, claiming high airline ticket prices caused a 30 to 40 percent drop in occupancy rates. The transport ministry now urges domestic airlines to revise their ticket pricing schemes as it examines Jokowi’s newly proposed “open skies” policy for foreign operators. Indonesian law now requires foreign carriers to set up a local joint venture (JV) company and sets an ownership cap of 49 percent.

The move furthers Jokowi’s efforts to shake up Indonesia’s domestic market, now dominated by two large airline groups: national flag carrier Garuda Indonesia and low-cost carrier Lion Air. Combined, the two operators control eight Indonesian airlines, accounting for roughly 95 percent of the domestic market. Asia’s largest budget carrier, AirAsia, remains the only foreign operator with an Indonesian unit.

In recent months, Garuda and its units have come under fire amid allegations of price fixing, prompting Indonesia’s Business Competition Supervisory Commission to launch an investigation in February into a possible air ticketing cartel. In March, local media reported that major travel agencies faced pressure from Garuda and Lion Air to stop selling AirAsia Indonesia flight tickets.

Last Thursday, Australia’s Federal Court ordered Garuda to pay $13.1 million in penalties for colluding on fees and surcharges for air freight services between 2003 and 2006. According to a statement issued by the Australian Competition and Consumer Commission (ACCC), the decision is part of a decade-long court case against a global air cargo cartel, which has so far resulted in penalties of $91.6 million against 14 airlines, including Air New Zealand, Qantas, Singapore Airlines, and Cathay Pacific. The ACCC commenced legal action against the 14 between 2008 and 2010; Both Garuda and New Zealand have repeatedly denied the accusations.

The ACCC’s court decision concerning Garuda falls on the same day it ordered Qantas-owned Jetstar to pay $1.4 million in penalties after misleading customers about their rights to refunds for delayed and canceled flights.