Airfare in Indonesia has become a hot topic of discussion, with domestic flight tickets often priced higher than international journeys. This discrepancy has not only frustrated travelers but also caught the attention of the Business Competition Supervisory Commission (KPPU). The commission has now identified several reasons why the cost of flying domestically remains out of reach for many Indonesians.
Budi Joyo Santoso, a member of KPPU, pointed out that one of the major contributors to the high airfare in Indonesia is the steep cost of jet fuel, or avtur. He noted that avtur prices are inflated due to monopolized distribution, as well as several taxation factors and business practices.
“There have been efforts made by KPPU to address the high ticket prices, but a combination of factors keeps them elevated,” Budi explained in a press release on Sunday (September 22, 2024).
In terms of avtur pricing, Budi said that KPPU has already proposed a review of existing regulations to the Coordinating Minister for Maritime Affairs and Investment. Specifically, the commission is advocating for a reevaluation of the constant set by Ministerial Decree No. 17 K/10/MEM/2019, which determines the formula for calculating avtur prices.
KPPU’s findings show that the constant, currently at Rp3,581 per liter, includes outdated costs such as the highest transportation and storage fees, which no longer reflect actual market conditions. According to Budi, this outdated model is one of the reasons domestic flight costs remain so high.
Budi also mentioned that current regulations have effectively led to a monopoly by Pertamina, Indonesia’s state oil and gas company, when it comes to avtur distribution at airports. He pointed to Regulation No. 13/P/BPH Migas/IV/2008, which governs the distribution of avtur, and highlighted how this law restricts competition. Under this rule, other fuel providers can only enter the market if they partner with Pertamina.
“With avtur contributing up to 40% of ticket prices, opening the market to other suppliers could help lower prices for both airlines and consumers,” he added.
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Aside from fuel, aircraft maintenance is another significant cost driver. Budi revealed that maintenance, which accounts for around 15% of ticket prices, remains costly because many spare parts are imported and subjected to hefty customs duties. Lowering these fees, he argued, would provide immediate relief.
“Addressing these additional costs could lead to a more sustainable reduction in ticket prices. KPPU will work closely with other government agencies to reassess policies and identify opportunities for improvement,” Budi said.
Business practices, especially within the airline industry, also play a role. KPPU has been tackling anti-competitive behavior, such as ticket cartels, to ensure fair pricing. In a ruling that was later upheld by the Supreme Court, KPPU mandated that airlines must notify the commission of any policy changes that could affect market competition.
“This requirement is intended to prevent anti-competitive practices and ensure that the market operates fairly,” Budi emphasized.
On a related front, Transportation Minister Budi Karya Sumadi has introduced a comprehensive four-step plan aimed at making domestic flights more affordable for the public.
“I’ve said before that we have a four-phase plan to lower ticket prices. It should already be in motion,” the minister commented during a briefing at the Parliament Complex on Friday (September 20, 2024).
The first part of the plan involves reducing taxes on aircraft spare parts, which have a significant impact on the cost of flying. According to the minister, these parts are currently taxed at a high rate, driving up the overall price of maintenance and, consequently, ticket prices.
“By lowering taxes on spare parts, not only will we reduce ticket prices, but we will also encourage the development of local jobs,” he explained.
If the taxes on spare parts remain high, many airlines will continue to send their aircraft overseas for maintenance, leading to capital outflows. Discussions on this issue are ongoing between various ministries, with the Ministry of Finance reportedly in favor of the proposal.
“The Finance Ministry is on board, and we’re ironing out the details,” Minister Budi added.
Another key element of the plan involves diversifying avtur providers. Minister Budi noted that Indonesia’s avtur market should have multiple suppliers instead of relying on a single source. This has already been communicated to the Coordinating Minister for Maritime Affairs and Investment, Luhut Binsar Pandjaitan.
By opening up the market to more competition, authorities hope to ease the financial burden on airlines and, in turn, offer more affordable airfare options in Indonesia to travelers.
