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Airline Price Turbulence Ahead

Indonesia Prepares to Apply Surcharge on Domestic Carriers to Stem Growing Losses from Declining Rupiah

(1/3/2014) Bisnis.com is reporting that Indonesian airlines will soon be able to impose a cost recovery surcharge to recoup losses they are suffering due to the weakening exchange value of the Indonesian Rupiah against the U.S. dollar.

Djoko Murjatmodjo of director of civil aviation at the Indonesian Ministry of Transportation said a regulation empowering the airlines to levy a cost recovery surcharge has been prepared and is only awaiting the Minister’s signature.

“Hopefully the regulation will soon be approved because we have evaluated the matter for the past month,” said Djoko on Thursday, January 2, 2014.

The imposition of the surcharge will not be permanent, and only remain in effect for approximately three months. According to Djoko, if the strength of the Rupiah improves and the cost of fuel decreases, the new regulation can be withdrawn.

On the other hand, he points out, if the cost of fuel does not decrease, his office is prepared to consider parameters for new fare levels.

Considerations on acceptable fare levels for domestic flights can also be tied to the official rate of exchange adopted in the State Budget (APBN).

The suggestion to allow airlines to introduce a cost recovery surcharge was first put forth by the Indonesia National Air Carrier Association (INACA) in an effort to stave off mounting losses being incurred by domestic carriers due to the falling value of the rupiah.

The actual amount of any surcharge to be imposed by Indonesian airlines remains unclear and unannounced.