Government demanded to eliminate monopoly
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Bisnis Indonesia - Bisnis penerbangan: Pemerintah diminta hapus monopoli
19 July 2024
By Lorenzo A. Mahardhika
Bisnis, Jakarta – The Indonesia National Air Carriers Association (INACA) is urging the government to eliminate monopolies in the air transportation sector, which they claim lead to an unhealthy aviation industry.
INACA Chairperson Denon Prawiraatmadja said that monopolies in the aviation business extended to areas such as jet fuel provision, airport management, and flight slot organisation.
According to him, this situation allows prices to be set by a single entity, resulting in a lack of healthy business competition.
“To create a healthy business climate and business competition, monopolies must be minimised or eliminated,” he explained in an official statement on Wednesday (16/7).
Denon explained that monopolies existed in the provision of jet fuel at airports. Additionally, monopolistic practices are also prevalent in airport management, which is controlled by the government through state-owned enterprises (SOEs), public service agencies (BLUs), and airport management units (UPBUs) under the Transportation Ministry.
He also mentioned that monopolies also existed in flight operation, controlled by certain airlines or groups.
An example of monopoly in flight operation is the organisation of flight slots. According to him, slot allocation must be fair to both airlines and the market.
To ensure fair competition, it is essential to monitor the time differences between slots allocated to different airlines. Additionally, strict enforcement of slot organisation is necessary to ensure all airlines comply with relevant regulations.
According to him, any unused flight slots within a certain time period should be revoked and reassigned to another airline. However, Denon also urged the government to focus on airlines that operate new and unestablished routes.
He stated that the government should protect the first airline operating a new route for a certain period. This can be achieved by continuously evaluating the aviation market in the region.
Airlines can increase their flights only if the market is strong and the first airline to operate the new route has benefited.
“On the other hand, it is healthier and passengers will receive better services,” Denon stated.
Therefore, he welcomes the establishment of the National Airfare Supervision Task Force as revealed by Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan.
He said that the committee could operate effectively if the government focuses on their members, authority, and work programmes to implement the initiative.
“The issues affecting national aviation are complex and involve various ministries and agencies. Therefore, the committee must be robust both legally and operationally, involving a wide range of stakeholders,” Denon stated.
Meanwhile, Adita Irawati, the Transportation Ministry Spokesperson and Special Staff for Human Resources and Public Relations, added that the Transportation Ministry was currently focused on following up on the ministerial-level coordination meeting regarding airfare.
Therefore, she affirmed that input from associations would always be focused on by her agency, including monopolies.
“We are currently focused on implementing the outcomes of the coordination meeting with the Coordinating Ministry for Maritime Affairs and Investment. This meeting provided the best solution for all parties involved, including the airlines,” Adita said.
He added that one of the results of the meeting is the establishment of the National Airfare Supervision Committee. However, Adita is reluctant about disclosing the involvement of the Transportation Ministry in the committee, including its members.
“The committee was discussed as part of the coordination meeting's outcomes. However, no further meetings have been scheduled on the matter yet,” Adita said.
On the other hand, PT Angkasa Pura Indonesia or InJourney Airports as an airport operator SOE has seriously responded to INACA’s statement on the monopolies in the national aviation business.
PT Angkasa Pura Indonesia Corporate Secretary Group Head Rahadian D. Yogisworo explained that airport management in Indonesia was outlined in Law No. 1/2009 on Aviation.
Article 233 of the regulation states that airport business entities can provide services to manage commercial airports.
He stated that airport business entities could manage commercial airports after obtaining a permit from the Transportation Minister. In contrast, airport operator units will manage airports that have not yet been commercialised.
“A permit from the Transportation Minister to manage commercial airports will be granted to airport business entities that meet the necessary administrative, financial, and management criteria,” Rahadian said.
He also said that PT Angkasa Pura (AP) I and AP II currently managed commercial airports in Indonesia. He confirms that both companies have completed the necessary permit processes, meeting all the conditions set by the regulator.
On a separate occasion, aviation observer Gerry Soejatman noted that monopolies in the aviation industry often arise naturally. This is because ensuring security and safety necessitates a single, accountable management system to oversee these critical aspects at airports.
For instance, a form of monopoly in the airport management sector can be observed at airports still managed by the Transportation Ministry.
“Airports that are not yet profitable are still operated by public service agencies and airport operator units within the Transportation Ministry. This constitutes a reasonable form of monopoly,” Gerry said.
Monopoly in airport development is also safeguarded by government regulations. He explained that these regulations prohibit the establishment of competing airports within the same service area to protect the developer's investment.
Gerry also said that the monopoly of jet fuel providers was the matter of the fuel industry itself. According to him, the aviation sector can only live with the impact of the practice.
The monopolies in Indonesia's aviation business stem from the price wars among airlines that took place from the early 2000s to 2015. This situation also the result from airlines' inability to adapt to changing market conditions.
Besides that, the capital requirement to establish an airline from 2015 to 2019 was an entry barrier that made it impossible for new airlines to be established.
However, Gerry believes that the aviation sector is not characterised by a monopoly, but rather an oligopoly that effectively functions as a de facto duopoly. “The government realises this. So, the regulation on the capital requirement to establish an airline has been revised. However, the pandemic occurred,” Gerry stated.
One reason for the de facto duopoly that emerged after 2019 and the pandemic is that the upper airfare limit has not been adjusted to reflect changes in jet fuel costs and the US dollar exchange rate.
This causes investors who are interested in entering the airline sector in Indonesia to be reluctant after understanding the impact of the unrevised upper airfare limit.
To recover and improve competition in Indonesia’s aviation industry, he said that the government needed to review the upper airfare limit.
According to him, the government has two options regarding the upper airfare limit, which are to revise or remove it. If it is removed, domestic airfares will depend on the market mechanism.
“Revising or eliminating the upper airfare limit aims to make the aviation industry more attractive to investors. This could encourage investment in small airlines with growth potential or lead to the establishment of new airlines, thereby increasing competition,” Gerry stated.
