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Air Fare Turbulence: Ready to Take Off?

The average price of jet fuel rose by 0.2% to US$126.5/barrel on Saturday (04/16), and it is expected to rise further. As a result, airfares skyrocketed. Regardless of the fact that the price has begun to stabilize since the Russia-Ukraine conflict, the market remains volatile. The Minister of Transportation Indonesia had granted permits for a fuel surcharge on domestic flights, referring to the Decree of the Minister of Transportation Number 68 of 2022 concerning Additional Charges (Fuel Surcharge) for Economy Class Service Passengers for Domestic Scheduled Commercial Air Transport, which comes into force as of Monday (04/18) as a response to the high world crude oil prices. These extra charges only apply to airlines that are impacted by a minimum of 10% of their operating expenses. The amount of the surcharge is distinguished between jet and propeller-type aircraft. For jet-type aircraft, each air transport business entity may charge no more than 10% of the maximum limit rate. On the other hand, a maximum limit of 20% is allowed to be applied by propeller-type aircraft. However, although the prices of flight tickets have been elevated due to the additional fuel costs, passengers still persevere to travel after being prohibited for approximately two years due to the COVID-19 pandemic and social distancing policy. Furthermore, this rise is also a consequence of the high demand for air travel constrained by the spike in omicron cases of COVID-19 at the beginning of 2022.

The COVID-19 pandemic brought detrimental effects on the global aviation sector. In 2020, the enactment of lockdowns and travel restrictions harshly dropped the price level of jet fuel considerably lower than gasoline. Moreover, many commercial airlines around the world declared bankruptcy because of the outbreak, such as Flybe (UK), Compass Airlines (US), and Avianca (Colombia). However, after two-year turbulence in the industry, governments worldwide have eased several travel restrictions - allowing the aviation sector to acclimate and find a breakthrough. For instance, the world is welcoming fresh competitors in the market, such as Akasa Air (India), Flyarna (Armenia), and Bonza (Australia), which will be launched later in the year 2022. In addition to the ever-growing expansion, PT Pelita Air Service, one of the subsidiaries of Pertamina that formerly only offered charter flight services, had recently announced that they are testing the commercial regular flight waters. Their bold move is a result of the issue that could lead Pelita Air to the opportunity of replacing Garuda Indonesia as Indonesia's national airline, with the threat of bankruptcy and in the process of postponing debt payment obligations that will end on May 20, 2022. As a starting move, Pelita Air has launched two Airbus A320 aircraft that will begin service to Makassar and Bali on April 28, 2022. It is believed that Pelita Air will enliven the arena with regular scheduled flights in the 2022 Eid-al Fitr homecoming season. With all of these new and rising airline competitors arriving this year, it is apparent that the aviation industries are beginning to recover and climb from their post-pandemic low point.

Indonesia’s government has been starting to loosen the travel regulations and allowing people to return to their hometowns for the Eid-al Fitr holiday under strict health protocols. The homecoming season is predicted to peak on April 25 and lasts until May 10, 2022, and a large number of travelers will be most likely to choose air travel. All passengers who choose to travel by airplane are required certain prerequisites, such as having had the third dose vaccine or showing non-reactive results from their PCR test. Garuda Indonesia (GIAA) and its subsidiary, Citilink, expect an increase in total passengers by 35% during this holiday season. The Ministry of Transportation estimated that up to nine million passengers would travel by air, which is significantly higher compared to the data for air travelers at the beginning of the COVID-19 pandemic, which was only in the range of seven million passengers. According to the management records of GIAA, during this year’s Eid-al Fitr, there are four main destinations chosen by most travelers consisting of Denpasar, Surabaya, Yogyakarta, and Medan. The shortage of aircraft and aircrew is claimed to be insufficient to accommodate all passengers during this short period. The ministry has prepared 327 aircraft units, 123 cities, 378 routes, 11 commercial airlines, and three cargo airlines in anticipation of this surge. Summing up, the worldwide aviation sector is taking the momentum generated by this holiday of Eid-al Fitr, especially in Indonesia, to slowly and steadily survive and recover from the pandemic hardships they experienced amid the volatile market.

Sources :

CNBC Indonesia


The New York Times

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