Indonesia's decision to raise domestic airfares in a bid to improve safety records is senseless and endangers the country's aviation market, experts told CNBC.
The country's transportation ministry recently announced a 10 percentage point increase in the minimum ticket price that budget airlines can charge to 40 percent of the ministry's ceiling price.
Indonesian airline companies are divided into three categories, no-frill, medium, or full service, each of which faces different ceiling prices for domestic flights. Transport minister Ignasius Jonan said the decision aims to free up funds for carriers to spend on safety measures following the crash of an Indonesia AirAsia flight last month.
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"It sounds logical at an elementary level, but it is a dangerous strategy that dilutes the ability of airlines to meet market needs," said Peter Harbison, executive chairman at the CAPA-Centre for Aviation, adding that there's a severe disconnect between improving airlines' the financial situations and raising the price floor.
Indonesia's highly price-sensitive low-cost carrier (LCC) market is among the fastest growing in the world. Increased government interference in ticket pricing will inevitably lower consumer demand for flights and even hit the tourism market, Harbison said.
"Officials seem like they want to be helping but the decision risks substantial disruption to the entire aviation sector," he said.
Safety concerns are warranted given Indonesia's weak track record.The European Union only allows five out of Indonesia's 67 airlines to fly in its airspace, excluding the country's largest private carrier Lion Air.