Friday, March 11, 2011

INDONESIA Airlines Ask for EXEMPTION to Surcharge RULES


The Indonesian Air Carrier Association has called on the government to allow domestic airlines to add fuel surcharges to airfares to reflect rising oil prices that may affect their operating costs.

Tengku Burhanuddin, secretary general of the association, also known as Inaca, said jet fuel prices have hovered between IDR 7,000 and IDR 8,000 (US$0.80 and US$0.91) per liter, but outside forces such as Middle East political crisis could send prices above the government’s price assumption.

Transport Ministry regulations allow airlines to impose surcharges if jet fuel prices exceed IDR 10,000 per liter and carriers experience a 20 percent rise in operational costs for three successive months.

Not imposing surcharges would be a burden to airlines already struggling to stay profitable, Tengku said. “If we are allowed to impose it now, it will be a lot easier to maintain our profit margin,” he said, adding that each airline has different calculations on the surcharges needed to cover operational costs.

Fuel typically makes up 30 percent to 40 percent of an airline’s operational costs.

Brent crude prices surpassed US$116 per barrel on Thursday after forces loyal to Libyan leader Muammar el-Qaddafi bombed oil industry infrastructure, inflicting damage on the country’s exporting capacity, Reuters reported.

Last year, the Business Competition Supervisory Body (KPPU) accused the country’s nine largest airlines of using fuel surcharges to boost revenue even though fuel prices had declined. It leveled IDR 80 billion in fines and IDR 504 billion in compensation to customers against the carriers.

However, the Central Jakarta District Court struck down the KPPU’s ruling last month, saying there was no evidence of price-fixing between the airlines.

Elisa Lumbantoruan, finance director of flagship carrier Garuda Indonesia, said the airline had raised its economy class fare 5 percent and increased seat allocations for business and executive class to cope with rising fuel costs.

“Because we don’t hedge our fuel supply, we have to deal with this by increasing ticket prices and adjusting seat allocations,” he said. “We haven’t made any plans to add fuel surcharges.”

In 2007, when oil prices reached US$140 per barrel, Elisa said airlines began adding IDR 150,000 in fuel surcharges to airfare for the Jakarta-Surabaya route, for example.

Edward Sirait, general director of Lion Air, said his company was also increasing the number of seats in the executive class to compensate for rising fuel prices. Dharmadi, president director of AirAsia Indonesia, has said the airline could offset rising fuel prices of up to US$130 per barrel with ancillary revenue.