Two airlines in Indonesia…and arguably the Indonesian government as well…have teamed up to squeeze AirAsia out of Indonesia. It’s a fascinating story of deception and duplicity.
Imagine a circular rope. In the center is AirAsia Indonesia. Around it are three actors: the Indonesian government, Garuda Indonesia, and Lion Air. The Indonesian government is tired of losing money subsidizing Garuda Indonesia, a carrier that has reported steep losses over the last two years. State-run Garuda Indonesia and Lion Air, Indonesia’s largest private operator, are tired of the downward pressure AirAsia has put on ticket pricing, particularly on domestic routes.
So the two have responded by colluding with major online travel agencies in Indonesia to get AirAsia flights removed from search results. By threatening that both Garuda Indonesia and Lion Air will pull space absent cooperation, major sites like Traveloka.com, Tiket.com, and Booking.com no longer show AirAsia flights when searching for domestic and regional international space.
Domestic ticket prices have risen 40-120% since last autumn on Garuda and Lion Air. This has led to protest from consumers…and not at the best time either. Indonesia’s next General Election will be held on April 17, 2019. A key campaign issue has been the rising cost of airfare. Wanting to maintain power, the incumbent Indonesian Democratic Party of Struggle, led by President Joko Widodo, forced Garuda to lower domestic prices by 20% last month. The opposition party often points to Garuda Indonesia as a prime example of why a leadership change is needed in Indonesia.
The Noose Tightens
All of these moves have served to tighten the noose around AirAsia, which Garuda and Lion Air blame for the lack of a stable and profitable airline market in Indonesia.
On the one hand, you can appreciate the difficult position that Garuda is in. Pressure from the government to be profitable and keep prices low is the textbook definition of wanting to have your cake and eat it too. But on the other hand, this move to stifle AirAsia has come at great cost to Indonesian citizens.
Throughout these theatrics, AirAsia has not raised prices like Lion Air and Garuda gladly have. You can still book cheap fares directly on the AirAsia website or via international online travel agencies. But many Indonesians simply don’t know what they are missing out on or are forced to visit brick and mortar travel agencies if they wish to purchase tickets on AirAsia. Now even these traditional travel agencies are being pressured to stop selling AirAisa tickets.
I give great credit to Raini Hamdi of Skift for her reporting on this matter. It is a fascinating story that is continuing to unfold. I will be watching the upcoming elections in Indonesia closely.
While Lion Air and Garuda Indonesia may ordinarily make strange bedfellows, it certainly makes sense with government pressure to cut subsidies while simultaneously keeping airfare reasonable. But this sort of deliberate market distortion is unlikely to work on a long-term basis. Indonesians are waking up to the duplicity and responding by rewarding AirAsia with more business.
image: Kentaro Iemoto / Wikimedia Commons