All-You-Can-Fly Promo May Spark Heated Competition Among Airlines

There were 22.2 million air travelers in Indonesia in the first quarter of 2018, representing a 9.89 percent increase from the same period last year, while in 2016, the quarterly growth stood at 20 percent. (Reuters Photo/Tyrone Siu)

By : JG | on 11:11 PM May 11, 2018
Category : Business, Corporate News, Featured

Jakarta. When Rizal Juan saw an advertisement for a full year of unlimited domestic flights at a fixed once-off price, he was immediately hooked.

For the 31-year-old account executive at a Jakarta advertising agency, flying has been part of his routine, necessitated by his job and his peculiar domestic arrangement.

"I usually fly at least four times a month to meet my clients and to visit my wife in Surabaya," Rizal said.

So when Sriwijaya Air, Indonesia's third-largest airline, introduced its SJ Travel Pass, which allows passengers unlimited flights to destinations across Indonesia for 12 months at only Rp 12 million ($871), it was much to the delight of frequent flyers such as Rizal.

"I immediately took up the promo through the website once I heard of it," he said.

Rizal said he has since managed to cut his monthly flight bill by 60 percent. But better still, he used the money he has saved to sign his wife up for the same program and together they can now travel to various parts of the country.

"We will definitely fly more often with this pass to visit more places in Indonesia," Rizal said.

For the airline, this was exactly the response it had in mind.

Toto Nursatyo, commercial director at Sriwijaya Air, told the Jakarta Globe that the travel pass forms part of the airline's strategy to fill empty seats on its flights, which are currently at 85 percent capacity, on average.

The airline took its cue from the likes of Azul Brazilian Airlines, which offers a 10-day unlimited flight package to destinations in Brazil, or California-based commuter airline Surf Air, which has a similar arrangement on routes between the United States and Europe.

Air Asia, Southeast Asia's largest budget airline, has Asean Pass, which allows travelers to fly to 20 cities within the Association of Southeast Asian Nations in 60 days for $290.

Financial Pressures

Some observers believe Sriwijaya Air went to the extreme with its all-you-can-fly program and that it will likely spark heated competition among local airlines.

Growth in passenger numbers has slowed considerably in Indonesia. According to the Central Statistics Agency (BPS), there were 22.2 million air travelers in the first quarter of 2018, representing a 9.89 percent increase from the same period last year, while in 2016, the quarterly growth stood at 20 percent.

Increasing aviation fuel costs add further financial pressure on airlines. According to the International Air Transport Association (IATA), the price of jet fuel rose 6 percent over the past month and it now costs 46 percent more than a year ago.

"Indonesian airlines are most likely facing financial difficulties, caused by various factors. One is operating costs that are now increasing because of a stronger dollar against the rupiah. Note that around 80 percent [of airlines' costs] are paid in dollars," said Arista Atmadjati, director of Arista Indonesia Aviation Center.

"This quick money is usually used to finance short-term expenses, such as aircraft rental fees. If they are late with the payments, the lessors can take the aircraft back," added Arista, who is a lecturer at Gajah Mada University in Yogyakarta.

However, Sriwijaya Air claims otherwise, insisting that its finances are healthy.

"There are no financial problems. We just want to fill our empty seats," Toto said.

Still, the same cannot be said for national flag carrier Garuda Indonesia and Indonesia AirAsia, which have both been suffering financial losses since 2017.

Garuda Indonesia last year posted an annual loss of $213.4 million and another net loss of $64.3 million in the first quarter of 2018. However, this was nonetheless 36.5 percent less than in the same period last year.

Indonesia AirAsia also posted a net loss of Rp 513 billion last year and another Rp 218 billion loss in the first quarter of this year.

"All airlines suffer heavy losses; all airlines around the globe do," Lion Air president director Edward Sirait said.

Aviation expert Alvin Lie said the continuous annual losses are the result of heated competition between airlines in Indonesia.

"Many customers are price sensitive. Not all of them, but many. So airlines will offer promotions to attract passengers and minimize losses," he said.

Alvin said he expects Sriwijaya Air's rivals to also start offering more attractive offers.

This competition, for now, only means better deals for customers.

"While of course I want the most comfortable airplane, cheaper tickets are still the most attractive on domestic flights," said Anita Puspitasari, a bank employee in Yogyakarta, who also bought an SJ Travel Pass.

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