TEMPO.CO, Jakarta - The Indonesian Consumer Protection Agency's (YLKI) chairman Tulus Abadi said the plans to impose an upper price cap for airfares will have an impact on consumer preferences. "Short-to-medium distance travelers will move to rail travel instead," said Tulus on Wednesday, September 24, 2014.
According to Tulus, a significant price increase in airfares will push travelers to seek out cheaper travel options, such as train journeys—reversing the previous trend that emerged when low-cost carriers (LCCs) began offering competitive fares that caused travelers to move to air travel in droves.
However, Tulus predicts that only around 20 percent of air passengers will move to rail. "We need to take into account the profile of those who choose to travel by air—they are generally limited by time constraints, and only air travel can provide a solution to that," he said.
Previously, the Indonesian Association of National Air Carriers (INACA) called for a 25 percent fare hike from the current level to protect airlines from crippling under rising jet fuel prices. INACA first proposed the idea in 2013, yet the government decided to settle on a 10 percent surcharge instead.
The head for Air Transportation at the Transport Ministry, Djoko Murjatmodjo, said the new price caps will come into effect in the very near future. According to Djoko, the new regulation will raise the price cap by 10 percent from its current level.
The decision to raise the price cap is based on the calculations by the Transport Ministry, which allows for the depreciation of the rupiah against the United States (US) dollar.
"In January 2014, we based our surcharges on the assumption that a litre of jet fuel costs Rp12,000, and that US1 buys Rp12,000," said Djoko.
According to Djoko, current surcharges should be enough to assist airlines to cover their operational expenses, but airlines have continued to lobby the ministry to raise the surcharges amidst a decline in their profit margins.
As such, the new price caps will be based on the assumption that US$1 buys Rp13,000, while the assumption for jet fuel price remains unaltered. "Ultimately, the changed assumption equates to an increase of 10 percent in surcharges," said Djoko.