Jakarta. In an effort to curb airfare hikes, the Indonesian government plans to implement duty exemptions and ease restrictions on specific imported goods vital to aviation, alongside tax incentives and a revised tariff structure.

Chief Investment Minister Luhut Binsar Pandjaitan attributed recent increases in airplane ticket prices to the global resurgence in flight activities, now nearing 90 percent of pre-pandemic levels, according to International Air Transport Association (IATA) data. Projections indicate global passenger numbers will reach 4.7 billion in 2024, surpassing 2019 figures by over 200 million. Indonesia's flight ticket prices rank second highest in ASEAN and among populous nations, following Brazil.

To address these challenges, the government aims to streamline flight operations and reduce costs, including a detailed evaluation of aircraft operational expenses.

"We are focused on identifying the Cost per Block Hour (CBH), the largest component of operational costs, and developing strategies to lower CBH based on aircraft type and flight services," Luhut said on his Instagram account @luhut.pandjaitan.

Additionally, policies will accelerate duty exemptions and ease restrictions on essential imported aviation goods, given that aircraft maintenance constitutes 16 percent of total costs post-fuel.

Tariff structures currently impose double Value Added Tax (VAT), mandatory insurance fees, and Passenger Service Charges (PSC) for passengers transferring or changing flights based on route sectors. Luhut emphasized the need to adjust tariff calculations based on airlines' hourly operational costs to alleviate the burden on consumers.

Furthermore, the role of cargo revenue in airline profitability will be reassessed to potentially influence upper limit tariff rates.

"The government will also explore Value Added Tax (VAT) incentives for select priority destinations. Oversight will be led by the National Air Transportation Ticket Price Supervision Committee, conducting monthly reviews of flight ticket pricing," Luhut affirmed.

In March, Tourism and Creative Economy Minister Sandiaga Salahuddin Uno stressed Indonesia's need to acquire up to 350 additional aircraft to stabilize ticket prices. As of December 2022, Indonesia boasted over 500 aircraft, with Lion Air leading at 112 and Garuda Indonesia at 87, below the 2018 pre-pandemic fleet of over 700 aircraft.

IATA reported a full recovery in airline industry passenger traffic by February 2024, surpassing 2019 levels by 5.7 percent, with anticipated 2024 net profits reaching $30.5 billion, reflecting a 3.1 percent net profit margin improvement from 2023's estimated $27.4 billion (3 percent net profit margin).

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