Indonesian Budget Carriers Paring Flights as Rising Expenses Crimp Profitability
Turbulence ahead as depreciating rupiah plays havoc on low-cost carriers
Jakarta. After Merpati Nusantara Airlines shut its operations earlier this week, Indonesia's other budget carriers, including Tigerair Mandala and Indonesia AirAsia, plan to follow suit by halting some domestic flights. Airline operators place part of the blame for the string of temporary suspensions on the depreciating rupiah.
Tigerair Mandala, partly controlled by Singapore's Tigerair, will suspend 11 of its domestic and international routes due to ballooning operational costs. The carrier's route from Surabaya to Hong Kong will be the first, scheduled to close on Monday.
"These suspensions are temporary. We plan to open these routes again in April or during peak season," Lucas Suryanata, Tigerair's public relations manager, told Jakarta Globe on Thursday.
The cut will affect routes linking Jakarta to Pekanbaru and Jakarta to Singapore.
Tigerair currently operates flights from Jakarta to Pekanbaru twice daily, but come Feb. 18, those numbers will dwindle to one flight a day. The airline's route from Jakarta to Singapore will also be slashed to four flights daily, or 28 weekly, starting on March 3. The airline currently offers up to nine flights a day from Jakarta to Singapore.
Tigerair Mandala, formerly known as Mandala, offers low-cost flights to several destinations around Asia. The company was acquired by Singapore-based Tigerair group last year, which resulted in its rebranding.
Indonesia AirAsia (IAA) — the subsidiary of Asia's largest budget carrier, AirAsia Group — began closing its Jakarta to Makassar route on Feb. 1, partly due to rising costs as the rupiah weakened, IAA's chief operat ing officer Ridzki Kramadibrata said.
Fuel accounts for up to 50 percent of AirAsia's operational costs.
The depreciating rupiah, rising jet fuel prices and the current low season are the main factors behind the route closures, according to Tigerair's Lucas.
Many airline operators are struggling with the weakening currency because while their revenues are in rupiah, most of their expenses are in dollars.
The rupiah fell by 26 percent in 2013 and has only strengthened 0.2 percent so far this year, according to Bank Indonesia.
Jet fuel also accounts for approximately half of Tigerair Mandala's operational budget, Lucas said.
Despite rising costs, Tigerair chose to maintain its budget prices at the cost of fewer routes.
"Some companies reduce quality or increase fares, but we can't do that," Lucas added.
The Indonesia National Air Carrier Association (Inaca) has urged the Transportation Ministry to promptly increase the surcharge of airline tickets to cope with rising costs.
"We suggested to adjust the tariff's upper cap to 20 percent, as jet fuel prices and other dollar-denominated components, such as insurance, leasing, spare parts are also increasing," Inaca's chief Arif Wibowo explained to Investor Daily on Wednesday.
Transportation Ministry regulations issued in 2010 state that surcharges will be adjusted once a year, or upon a significant price increase in three consecutive months.
Herry Bakti Gumay, director general of air transportation at the Transportation Ministry, said his office would approve the new surcharge at the end of the month.
"The government gave its commitment that it would approve the new airline surcharge. But we are also waiting for [Transportation] Ministry regulations that will adjust the base tariff," Herry told the Globe in a phone interview.
Inaca's Arif — who is also president director of Citilink, one of the country's budget carriers — insists airline tariffs must be dynamic to follow the tourism industry's low- and peak seasons.
Debt-saddled Merpati Nusantara suspended all flights this week as falling revenue continued to push the struggling state-owned airline closer to bankruptcy. News of the suspension left many travelers stranded at remote airports across Indonesia.
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