Aviation industry: Airlines request change in luxury goods status
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Investor Daily - Industri Penerbangan: MAskapai minta ubah status barang mewah
30 December 2024
By Artha Adventy and Hendra Wibawa
Bisnis, Jakarta – The Indonesia National Air Carriers Association (INACA) is requesting that the government exclude air transportation from the category of luxury goods, which are subject to higher taxes compared to other modes of transport.
INACA Chairperson Denon Prawiraatmadja stated that this classification impacts the taxes imposed, which will eventually be reflected in the airfares paid by passengers.
He explained that air transportation currently faces various taxes and import duties, unlike land and sea transportation, which benefit from tax and import duty relaxations.
"Air transportation is vital for Indonesia, an archipelago, as it facilitates the movement of passengers and goods across the country. This will have a multiplier effect on the national economy," he stated in his official statement on Monday (30/12).
Denon emphasised that clear policies from the Government regarding the classification of the aviation industry as luxury goods are crucial for boosting the national economy.
He noted that the national aviation industry has a significant impact on Indonesia's economy.
According to the International Air Transport Association (IATA), the national aviation industry and its related sectors, such as tourism and trade, contributed US$62.6 billion, or approximately Rp1,001.6 trillion, to Indonesia’s gross domestic product (GDP) in 2023. This accounts for 4.6% of Indonesia’s GDP. Additionally, the industry employs around 6 million people.
In addition to requesting the removal of the luxury goods status, Denon also hopes the Government will focus on resuming comprehensive discussions about the aviation industry, covering both business and operational aspects.
"Increased attention to the financial condition of airlines, especially scheduled and pioneer airlines, is essential, as they are the main players in the aviation industry and crucial for Indonesian citizens," he stated.
He stated that greater attention to pioneer flights is crucial to ensure that people in remote areas of Indonesia can continue to benefit from air transportation.
Denon revealed that throughout 2024, several factors hindered the aviation industry.
Firstly, high airfares have been a challenge, influenced by the strong exchange rate of the US dollar against the rupiah. In 2019, the average exchange rate was Rp13,901 to 1 US dollar, whereas in 2024 it has surpassed Rp16,000, marking an increase of around 16%.
Secondly, the rising US dollar exchange rate also affects the price of jet fuel, spare parts, aircraft leases, and other components. "As a result, the costs that airlines must cover have increased," he added.
Thirdly, the upper and lower limits of airfares have not been revised since 2019, even though costs have significantly increased compared to 2019.
Next, most spare parts are still classified as luxury goods, despite some being excluded. Out of 472 HS codes for spare parts, only 123 have received the 0% import duty incentive.
"There are still approximately 349 HS codes, or about 74%, covering 22,349 part numbers, that are subject to import duties ranging from 2.5% to 22.5%," Denon stated.
In addition, the global backlog of aircraft and spare parts, caused by the Covid-19 pandemic, affects the number of aircraft available and ready to fly.
Furthermore, the reduced purchasing power of the public has led to a decrease in the number of domestic passengers on scheduled airlines.
From January to September 2024, the number of domestic passengers on scheduled airlines reached 44.3 million, which is 10% lower compared to the same period in 2023, when it was 49.2 million passengers.
Following that, there has been a decline in flight safety conditions, which is presumably due to the weakening financial state of airlines.
Data from the National Transportation Safety Committee (NTSC) shows that from January to December 2023, there were nine accidents and 13 serious incidents. In 2019, there were nine accidents and 15 serious incidents.
"As the data for 2024 is not yet complete for the full year and the number of flights is lower than in 2023, the flight safety percentage has decreased compared to 2023."
However, Denon also recognises that the government's actions in 2024 have impacted the national aviation industry. For instance, Trade Minister Regulation No. 3/2024, issued in March 2024, exempts the aviation industry from the prohibition and limitation on importing spare parts.
Additionally, there is a letter from the BI Deputy Governor, number 26/1/DpG-DKSP/Srt/B, regarding the postponement of the obligation for non-scheduled commercial air transportation business entities to use the rupiah. This postponement is effective from June 2024 to June 2026.
Moreover, he mentioned that there are policies aimed at invigorating the aviation industry, such as offering discounts on airport fees and reducing fuel surcharges, as well as discounts on jet fuel prices during the 2024 Christmas and 2025 New Year period.
Discount impact
Meanwhile, Budi Rahardjo, Head of the Communication and Public Information Bureau at the Transportation Ministry, stated that the passenger flow from 18 to 25 December 2024 surpassed 1.83 million individuals, marking a 2.6% increase compared to the same period in 2023.
He confirmed that the increase in aircraft passengers aligns with the government's policy to reduce airfares by 10% during the 2024/2025 Christmas and New Year period.
"The government is reducing airfares to ease the burden on citizens. The impact is evident from the passenger movement data," he stated.
According to data from the 2024/2025 Christmas and New Year Transportation Centre Post, the number of passengers using other modes of transportation, such as land, ferries, and railways, has decreased.
He noted that the total number of railway passengers reached 2.68 million, a decrease of 0.02% compared to the same period in the previous year. "Up to Christmas, the number of passengers on each mode of transportation decreased, except for air transportation, which increased. However, these numbers are still subject to change," Budi stated.
On another occasion, Citilink, part of the Garuda Indonesia Group, prepared 210 extra flights for the 2024/2025 Christmas and New Year period.
PT Citilink Indonesia President Director Dewa Kadek Rai stated that his airline is operating 11 extra flights per day during the 2024/2025 Christmas and New Year period.
"We are preparing 210 extra flights, which means there are 11 additional flights per day," Dewa stated.
In addition to the extra flights, he also added extra seats during the 2024/2025 Christmas and New Year period.
Citilink added approximately 2,000 seats for passengers during the long holiday period.
“There are 2,000 extra seats on the extra flights, so there are around 55% more on regular days,” he stated.
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