Jakarta. Indonesia has introduced a 13% domestic airfare cap in response to the Iran war turbulence, effective immediately.

The month-long conflict — sparked by the US-Israeli airstrikes on Tehran — has sent global fuel prices flying. The global crude benchmark Brent has even reached $108 per barrel. Indonesia finally caved in to airfare hikes, thereby allowing carriers to make adjustments to their ticket prices. 

“The government will bear the 11% value-added tax for economy class domestic flights,” senior minister Airlangga Hartarto told reporters in Jakarta on Monday.

Indonesia will allocate Rp 1.3 trillion ($76.4 million) in monthly subsidies for the exemptions. The government-borne value-added tax will apply for two months, depending on the conflict, thus bringing the earmarked subsidy costs to Rp 2.6 trillion (roughly $152.7 million). 

“This way, we can keep the maximum airfare hike to fall between the range of 9% and 13%.”

The government remains upbeat that the increases will have little impact on domestic tourism.

Airlangga cited that the second quarter had always attracted fewer crowds as the kids are in school.

“The high season travel falls in the third quarter. That’s when the students are on school break,” the minister said.

Indonesia — home to the tourist haven Bali — also revised its so-called fuel surcharge. This is the additional charge to help airlines pay for the rising fuel costs.

The 2023 regulation — which had been in force before the latest announcement — set the limit for the surcharge at 25% of the airfare ceiling for propellers, and 10% for jets. Indonesia has raised the surcharge to 38% for both types of aircraft.

“These adjustments are based on our discussions with airlines. They actually requested a [fuel surcharge] increase to 50%. However, once we took a look at their costs, we concluded that the 38% cap was ideal,” Transportation Minister Dudy Purwagandhi told the same conference.

“This way, we will reduce the impact of being too devastating on our airline industry. People should still be able to afford the tickets.”