Saturday, March 31, 2012

Indonesia: Soaring fuel costs hurting local carriers

Increasing global oil prices have forced domestic carriers to adopt efficiency programs as the rise has significantly inflated operating costs, an airline executive says.

Pujobroto, the vice president for communications for national flag carrier Garuda Indonesia, said that the airline has felt the impact of the aviation turbine fuel (avtur) price hike for the past several months.

With the price increase, the airline’s fuel spending accounted for 35 to 40 percent of its budget, up from 20 to 25 percent, when crude oil prices were below US$100 per barrel, Pujobroto told The Jakarta Post in Jakarta on Friday.

Crude oil prices have continued to increase since they reached about $100 per barrel early this year.

Brent crude oil rose to $122.39 per barrel in London on Friday

Pujobroto declined to confirm that the airline had increased its domestic fares to cope with the surge in the operating costs.

However, he acknowledged that the airline’s fares for certain routes had almost reached the top level of the government’s fare ceiling.

For international routes, Pujobroto said that Garuda had imposed a surcharge to help the airline cope with the increase in fuel prices, adding that the surcharge was regularly adjusted in line with fluctuating
fuel prices.

Pujobroto said that he did not know the amount of the imposed surcharge, adding that generally the airline imposed a fuel surcharge of $20 per passenger for the first flight hour, and a lower rate in subsequent hours, depending on the destination and the duration of the flights.

“We also have reduced the number of our promotional fare tickets due to the rising oil prices,”  Pujobroto said.

In addition, he said, to reduce the airline’s fuel purchases and to generate more revenues, the company had purchased several auxiliary power units (AUP) last year.

Instead of using fuel, an aircraft equipped with an AUP could use it to heat itself before take off, he said.

Contacted separately, Indonesia AirAsia (IAA) spokeswoman Audrey Progastama said the airline had also felt the pinch of rising oil prices.

However, in contrast to Garuda Indonesia, IAA had chosen an alternative to reducing the number of promotional fare tickets offered, Audrey said.

“We are optimizing the sales of our ancillary services such as baggage fees, onboard meals, merchandise, and duty-free gifts,” she told the Post.

For low-cost carriers, ancillary service are an important component of generating revenue.

However, both airlines said that they had not seen reduced demand from their customers so far.

They were optimistic that demand would remain strong this year due to the nation’s healthy economy. 


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