Indonesia raised the price floor on over 1,000 domestic routes on 29 March, and signalled that it will review the floor regularly to ensure the country’s airlines remain viable.
The adjustment has increased the minimum fare that permitted from 30% of the maximum set by the transport ministry for each of the routes to 35%.
It is the first change to the price floor mechanism since 2016, but the latest ministerial orders stipulate that fares will be reviewed every quarter.
They may also be instigated when “there is a significant event that affects the [viability] of a carrier.” Those include a 10% increase in fuel prices, other cost components, or fluctuations in the value of the Indonesian rupiah.
The orders also reaffirm the ability of full service carriers Batik Airand Garuda Indonesia to charge the maximum fares on their routes. Hybrid carriers Nam Air and Sriwijaya Air can price their tickets up to 90% of the limit, while low-cost carriers Citilink, Indonesia AirAsia, and Lion Air can only charge up to 85%.
“The transport ministry is very concerned with what the consumers need [when it comes to] using the air transport mode. But in this case, the government also needs to ensure the viability of an airline,” says the secretary of the directorate general of civil aviation, Nur Isnin Istiartono.
Transport minister Budi Karya Sumadi flagged in June 2018 that the ministry had received requests from Indonesian carriers seeking adjustments to allow them to deal with higher fuel prices.