Soaring Ticket Prices: A Consequence of Rising Operational Costs

Jakarta – Recent increases in airplane ticket prices are directly linked to the significant rise in operational expenses faced by airlines,particularly since 2019. Wamildan Tsani Panjaitan, President Director of PT Garuda Indonesia (Persero) Tbk, recently highlighted these challenges, shedding light on the factors contributing to higher fares.

Key Factors Driving Up Airline Costs

Several key factors have converged to create a perfect storm of rising costs for Garuda Indonesia adn other airlines. These include fluctuations in currency exchange rates, escalating fuel prices, and increased maintenance expenses.

Avtur Prices and Maintenance Burden

Since the last upper limit (TBA) for ticket prices was established in 2019, the cost structure for airlines has undergone a dramatic shift. A primary driver is the surge in Avtur prices, the specialized jet fuel used by aircraft. Coupled with this is the increasing burden of aircraft maintenance, repair, and overhaul (MRO), placing significant financial strain on airlines.

Rupiah Depreciation Against the US Dollar

The continuous decline of the Rupiah against the US dollar since 2019 has further exacerbated the situation. as many airline expenses, such as aircraft leases and fuel purchases, are denominated in US dollars, a weaker Rupiah translates directly into higher costs for Indonesian airlines.

Thin Profit Margins in a Competitive Global Market

Globally, the airline industry operates on notoriously thin profit margins. This leaves airlines vulnerable to even slight increases in operating costs. Garuda Indonesia is no exception, facing intense competition both domestically and internationally.

Impact on Profitability: Passenger Load and Cost Increases

Wamildan Panjaitan emphasized the detrimental effect of these cost pressures on airline profitability during a Hearing Meeting (RDP) with the House of Representatives Commission V and the Director General of Civil Aviation of the Ministry of Transportation.He stated that even a small decline in plot factor (passenger load), such as 3-5%, can substantially erode profit margins.

This certainly gives a very heavy burden on airlines, as with a decline plot factor Or the number of passengers 3-5%, this greatly affects the margin of profits from the airline.

Wamildan Tsani Panjaitan, President Director of PT Garuda Indonesia (Persero) Tbk

Case Study: Cengkareng-Denpasar Route (CGK-DPS)

To illustrate the magnitude of the cost increases, Wamildan provided a specific example: the Cengkareng-Denpasar route (CGK-DPS). in 2019, the cost per flight on this route was Rp. 194 million. However, several factors have contributed to a considerable increase since than.

• MRO (Maintenance, Repair, and Overhaul): Increased by Rp.31 million.
• Fuel Costs: Significant increase due to rising global oil prices.
• Aircraft Rental Rates: While previously negotiable due to Garuda Indonesia’s restructuring process, these rates have since increased.
• Minimum Wage growth: A 35% increase in minimum wages since 2019 has added to labour costs.
• Provider Fees: Marketing and ticketing fees have also risen.
• Interest Costs: Increased interest expenses further contribute to the overall cost burden.

Consequently of these factors, the total cost per flight on the Cengkareng-Denpasar route has risen to Rp 269 million, representing a 38% increase since 2019.

So there is Mro, fuel, aircraft and also marketing costs and service. So with an increase in foreign exchange exchange rates of 14-15% as 2019, this has put a higher margin pressure.

Wamildan Tsani Panjaitan, President Director of PT Garuda Indonesia (Persero) Tbk

Looking Ahead: Navigating the Challenges

Garuda Indonesia, like many airlines worldwide, faces a complex and challenging environment. Addressing these cost pressures will be crucial for ensuring the long-term sustainability of the airline and maintaining affordable air travel for consumers. Potential solutions may involve negotiating better fuel prices, optimizing maintenance schedules, and exploring strategies to mitigate the impact of currency fluctuations. The airline industry will need to adapt and innovate to thrive in this evolving landscape.