AirAsia Indonesia Under Pressure From Its Airspace Rivals

Low-cost airline AirAsia appears to be facing increasing pressure from its Indonesian rivals, Garuda Indonesia and Lion Air.

Reporting recently, Skift claim that Indonesia’s largest airline, Lion Air, along with Garuda Indonesia have prevented Indonesia’s largest online travel agencies from listing AirAsia’s cheap Indonesian flights. The two sites were Traveloka and Tiket.com. AirAsia responded by removing its flight listings from Traveloka’s website.

AirAsia Indonesia President Dendy Kurniawan said:

We observed through social media messages how customers who enquired about the unavailability of AirAsia flights were recommended by Traveloka to book with other airlines instead.

In response, Traveloka claims a “system maintenance” issue. They say that they are hoping to “create a discussion” to reach a solution.

Subsequently, AirAsia met with both Traveloka and Tiket.com, but didn’t return comment on the meetings. Skift says an internal source claimed that AirAsia discovered both travel agencies to be under pressure from Lion Air and Garuda to drop AirAsia’s Indonesian routes. And, that the agencies risk losing the flights from the two rivals if they don’t. A Garuda spokesperson denied the claims.

An AirAsia A320. Image Source: AirAsia Media Centre
An AirAsia A320. Photo: AirAsia Media Centre

High operating costs could be fuelling the fight

Speculation points to AirAsia’s rivals planning to increase fares to mitigate high fuel costs. With AirAsia’s lower prices on the table, this could make a fare increase a very bad move. Both Indonesian airlines rely on online travel agencies, rather than direct bookings, for the majority of their custom.

Domestic flight prices in Indonesia have risen by between 40% and 120%, according to Skift and data from the Indonesia National Air Carrier Association. Skift also says that AirAsia flights don’t seem to be appearing on other websites, including Tiket.com. AirAsia remains committed to its low-price promise and encourages customers to book directly.

Data from Wonderful Indonesia shows AirAsia carried the most passengers in Indonesia in 2017, at 3.8 million. And, AirAsia carried the most foreign tourists into Indonesia in 2017, at 2.9 million.

A political issue?

The rising cost of airfare is a campaign issue in Indonesia’s upcoming April general election. One Mile at a Time reported in February that state-owned Garuda was cutting domestic flight prices by 20%, at the request of Indonesian Democratic president Joko Widodo. Garuda Indonesia’s CEO said at the time:

This is in line with the aspirations of Indonesians, a number of national industry associations, and the (wishes of) the president of Indonesia, who wants a reduction in flight prices to support economic growth, especially in the tourism sector.

In addition, Garuda Indonesia has reported losses over recent years. Political pressure is added to state-owned Garuda to turn a profit and remain competitive.

A Garuda Indonesia Boeing 747-400 at Pichugin. Image Source: Wikimedia Commons
A Garuda Indonesia Boeing 747-400 at Pichugin. Image Source: Wikimedia Commons

AirAsia issued a statement in March reaffirming its low prices, adding that fares include 15kg free baggage and the passenger service charge for domestic Indonesian travelers. AirAsia Group’s head of communications, Audrey Progastama Petriny, said:

While our withdrawal from Traveloka has not significantly impacted our sales, it does affect the traveling public as there are now fewer options to choose from on the online travel agency.

Also, Traveloka called the withdrawal of AirAsia flights a “setback” for its value proposition to provide the widest range of offerings.

To date, the figures point to AirAsia’s low-price strategy allowing it to dominate the market in Indonesia. And so far, the pressure from its Indonesian airspace rivals doesn’t appear to be impacting sales. Savvy consumers could be increasingly booking directly. AirAsia says its website is seeing a 50-60 percent increase in traffic.

That said, just days ago Indonesia raised its price floor on over 1,000 domestic flights from 30% to 35%.  This in a direct move to protect Indonesia’s national airlines from rising fuel and operating costs.

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