Rupiah Depreciation Hits Aviation Industry Amid Plane Ticket Discount Talks

JAKARTA, KOMPAS – The depreciation of the rupiah against the US dollar is considered burdensome for the aviation industry. This is because many components of the aviation industry still need to be imported, resulting in transactions being predominantly conducted in US dollars. The government's plan to reduce airline ticket prices must be carefully and wisely considered.

The exchange rate of the rupiah against the US dollar has tended to weaken since the beginning of January 2025. The Jakarta Interbank Spot Dollar Rate (Jisdor) of Bank Indonesia showed that the rupiah exchange rate closed at IDR 16,575 per US dollar on Friday (28/2/2025). Its position was weaker compared to the previous day, which stood at IDR 16,431 per US dollar.

This trend is putting additional pressure on industries that rely on the US dollar, including the aviation industry. Nearly all aviation components must be imported from other countries. At the same time, the upper fare limit (TBA) and lower fare limit (TBB) have remained unchanged since 2019, even though the prices of other components dependent on the US dollar continue to fluctuate.

"For business operators who heavily rely on imports, it will certainly become an additional burden, particularly with operational costs and imported raw materials," stated the Secretary General of the Indonesian National Air Carriers Association (INACA), Bayu Sutanto, in a written statement when contacted in Jakarta, Friday (28/2/2025).

He stated that the exchange rate of the rupiah against foreign currencies is caused by a variety of complex factors. This includes the impact of both global and national economies. It usually fluctuates at the end of each quarter.

Responding to this phenomenon, the Chairman of the Indonesian Aviation Service Users Association (Apjapi), Alvin Lie, stated that airline operational costs will become increasingly burdensome. Not only that, the costs of aircraft leasing, components and spare parts, as well as insurance, have also risen. The interest on foreign loans, along with the leasing of reservation systems and the management of aircraft and crew movements, has likewise increased.

Business actors or airlines need to strategize in order to survive amidst the current economic conditions. Instead of increasing domestic routes, expanding to other countries could be the solution.

"Shift the focus to international routes that are not regulated by TBA. Ticket prices can be (sold) in US dollars," said Alvin.

In such a situation, the government is once again planning to offer discounts on airline ticket prices, similar to the Christmas and New Year holidays of 2024/2025. However, this policy is instead considered to further burden airlines.

"It's very difficult. Instead of lowering the price, the existing price alone is not necessarily enough to cover the cost," said Alvin, who is also an aviation expert.

According to Alvin, the government's move to announce a price reduction for tickets too far from the homecoming period is considered unwise. This is because many people have already bought homecoming tickets, regardless of the mode of transportation.

The homecoming trip had been planned well in advance, including the budget. Tickets were purchased early due to concerns about running out of tickets.

"(People) who already have tickets for other modes, it is impossible to release their tickets to switch to air transportation. In the end, users of air transportation services, yes, are only those who have planned to fly long ago, not because the ticket price has dropped," said Alvin.

Previously, Alvin also encouraged the government to take part, such as reducing, or even eliminating Value Added Tax (VAT). The elimination of VAT can reduce ticket prices by at least 12 percent. The role of business entities, including state-owned airlines, is also still required to deposit dividends. There are at least three airlines under the auspices of the government, namely PT Garuda Indonesia (Persero) Tbk, PT Citilink Indonesia, and PT Pelita Air Service.

Previously, INACA General Chair Denon Prawiraatmadja stated that his party hopes that airline ticket discounts will not be implemented during Eid 2025. This is because the price of aviation fuel continues to fluctuate every two weeks, as well as the increasing operational costs of airlines (Kompas.id, 1/22/2025).

The depreciation of the rupiah exchange rate is predicted to continue next week. This phenomenon follows the negative market response to layoffs in the manufacturing sector. Many factories closed their operations, either bankrupt or foreign investors left Indonesia.

Commodity and currency observer Ibrahim Assuaibi said the current situation will result in a decline in the middle class. In fact, this group is the main driver of economic growth.

"The number of the middle class will continue to shrink if there is no action to strengthen the industrial sector," said Ibrahim.

He predicted that on Monday's trading (3/3/2025), the rupiah currency will still fluctuate. However, the rupiah against the US dollar will still close weaker in the range of Rp16,580 to Rp16,670.

Separately, senior economist at Paramadina University, Wijayanto Samirin, argued that lowering airline ticket prices without improving the ecosystem of the air transportation industry would have a negative impact on industry players. Various costs, including aviation fuel, airport service costs (ground handling), aircraft rental, insurance, and employee salaries are some of the costs that airlines must bear.

"The already very thin margin could turn negative if the government forces a reduction in ticket prices, especially as the rupiah depreciates against the US dollar. The impact is that US dollar-based spending will skyrocket," said Wijayanto.

In this case, Garuda Indonesia will be the airline that faces the most difficulties. In addition to the issue of rupiah depreciation, the cutting of official travel expenses is a major blow to the airline. This is because state civil servants are one of the main contributors to Garuda Indonesia's income.

"We don't need to be surprised if Garuda enters the "ICU" again in the near future," said Wijayanto.

The government can reduce taxes included in the price components of airline tickets and cut import duties on aircraft spare parts. From the various options available, the optimal point needs to be found.