Domestic airfares soar in Indonesia despite government price cap

SINGAPORE/JAKARTA (Reuters) - When Resti Novita Sari booked to fly from Jakarta to her hometown of Padang to visit family for the Eid holiday, airfares were 40% to 60% higher than she had paid in previous years.

“It made me think twice about buying airplane tickets,” she said, adding that she eventually paid 1.7 million rupiah ($120.48) each way for the short flight from the island of Java to Sumatra.

Soaring domestic ticket prices in the world’s fifth-biggest domestic aviation market, now a duopoly, led the government in May to order Garuda Indonesia (GIAA.JK) and Lion Air to lower fares.

But caps and floors on airfares in the vast archipelago nation have not stopped a surge in average ticket prices.

Carriers have slashed domestic seat capacity by 15% from March to October, according to data from the air travel intelligence company OAG, putting the country on track for the first annual decline in passenger traffic since 2014 - and pushing up fares.

That has stifled the domestic hospitality industry, data shows, with hotel occupancy rates down as much as 30% in the country’s east.

Now Indonesia’s anti-monopoly agency, KPPU, is investigating whether Garuda and Lion are behaving like a cartel, as well as looking into Garuda’s operational control of Sriwijaya Air, the country’s third-largest airline group, commissioner Guntur Saragih said on Monday.

“We believe there is price setting,” he said, adding that the agency plans to say next week whether it will take the airlines to court.

The maximum fine for price setting is 25 billion rupiah per party per case. Garuda and Lion did not respond to requests to comment on the allegations.

Airlines have stopped selling deeply discounted fares on many domestic routes and are instead selling most tickets at or near the maximum limit, according to industry sources and airline information.