Indonesia Claims Airline Price Collusion Among Garuda Indonesia, Lion Air, And More

Advertisement:

**Update: 06/29/20 @ (08:20) UTC – Garuda Indonesia’s President Director has responded to the price collusion incident; details below**

Seven Indonesian airlines were found guilty of price collusion in 2019, according to conclusive findings by Indonesia’s antitrust regulator. The Komisi Pengawas Persaingan Usaha (KPPU) revealed in a statement on Tuesday that it has decided not to impose a fine for the airlines due to the current COVID-19 situation.

Garuda 777
Garuda Indonesia and six other airlines violated anti-monopoly laws last year. Photo: Getty Images

According to an official document sent to Simple Flying, Garuda Indonesia, Sriwijaya Air, Citilink, Lion Air, Batik Air, Wings Air (Indonesia), and NAM Air orchestrated price collusion last year. These airlines took part in anti-competitive practices, implementing falsely inflated airfares.

Although seven airlines are implicated, they belong to a collective of three holdings – Garuda Indonesia Group, Lion Air Group and Sriwijaya Air Group.

Stay informed: Sign up for our daily aviation news digest.

Price collusion affected domestic tourism

In the official statement by KPPU, “concerted action or parallelism” occurred, which led to a simultaneous hike on all airfares. These actions go against anti-monopoly laws.

Advertisement:
NAM AIR BOEING 737
The seven airlines cumulatively control 95% of Indonesia’s domestic market. Photo: Denis Fedorko via Wikimedia

The violation by these airlines reveals that this was not an independent action but rather a “meeting of minds” agreement. Thus, these airlines had a mutual understanding to eradicate discounts or consistency of discounts. Instead, the carriers “limited supply and maintained high prices on scheduled commercial air transportation services” for travelers in Indonesia.

CH-Aviation reports that these three groups have power over 95% of the domestic market. As such, the price-fixing undeniably resulted in a negative impact on the local travel industry.

No fines for the seven airlines

As the virus outbreak has dramatically affected the market environment for aviation, KPPU will not be fining the airlines for the malpractice. Garuda Indonesia, for instance, has been struggling amid the crisis – finding ways to restructure bonds amounting to $500m. Currently, Garuda has secured a payment extension for the bonds, Jakarta Globe reports.

Advertisement:

Although guilty of price collusion, KPPU states that there is no evidence of any cartel-like actions that took place. According to the authority,

“The Reported Parties have absolutely no ability to determine their production and marketing because all matters relating to opening, closing or reducing the route, slot, or frequency licenses are determined by Government.”

 

citilink
KPPU calls for all seven airlines to submit a report before any price adjustments are implemented. Photo: Getty Images

In place of financial penalties, KPPU has come up with an alternative course of action. Moving forward, all seven airlines must disclose in writing any increase in airfares before putting it into effect. The authority also calls for the government to make way for new airlines into the mix, enabling competition.

Garuda Indonesia has responded to the incident. In a statement sent to Simple Flying, President Director Irfan Setiaputra explains that the carrier “understands that a healthy business environment is an important foundation for the airline industry ecosystem to continue to be competitive.”

“Garuda Indonesia Group will also focus on achieving optimal business performance in line with the efforts to implement the principles and provisions of fair business competition,” Setiaputra adds.

Garuda will thus abide by regulatory policies going forward.

Simple Flying has reached out to the other two holdings for comment but did not hear back before publication. We will update the article once a response is received.

How are these airlines linked?

As aforementioned, the airlines involved control 95% of Indonesia’s domestic aviation market.

Garuda Indonesia is the state’s flag carrier, with budget Citilink as one of its subsidiaries. Garuda is no stranger to dubious situations after its former CEO was found guilty of bribery and money laundering, sentenced to eight years in jail last month.

Lion Air Group is Garuda’s rival, helming low-cost airline Lion Air. Batik Air and Wings Air are subsidiaries under the airline.

Lion Air Boeing 737-MAX
Lion Air is Indonesia’s largest carrier, which came into fruition 20 years ago. Photo: PK-REN via Wikimedia

The last holding concerned is Sriwijaya Air Group, headquartered in Jakarta. The group operates Sriwijaya Air and NAM Air. Privately-owned Sriwijaya Air is Indonesia’s third-largest carrier, flying to mostly domestic destinations and limited international services. Citilink previously took over the reins of the airline from November 2018 to December 2019.

What do you think of the price collusion incident? Should KPPU have imposed a fine on the airlines? Let us know in the comments.

Advertisement: