THE END OF THE CASE OF SCHEDULED COMMERCIAL AIR TRANSPORTATION SERVICES FOR DOMESTIC ECONOMY CLASS PASSENGERS.
The Indonesian Competition Commission (ICC) has today read out Decision for Case Number 15/KPPU-I/2019 regarding Alleged Violations of Articles 5 and 11 of Law Number 5 Year 1999 relating to the Scheduled Commercial Air Transportation Services for Domestic Economy Class Passengers involving 7 (seven) national airlines. In a hearing that was declared open to the public and was conducted in accordance with the national health protocol, ICC has decided that all the Reported Parties have legally and convincingly violated Article 5 in such air transportation services. For that purpose, ICC has imposed sanctions in the form of orders to the Reported Parties to notify ICC in writing of any of their policies that will affect the map of business competition, ticket prices to be paid by consumers and the public prior to the putting into effect of the policies.
The commencement of this case derived from an initiative research conducted by ICC on the scheduled commercial air transportation services for domestic economy class passengers in the territory of Indonesia. The research was then continued with pre-investigation of 7 (seven) Reported Parties, namely PT Garuda Indonesia (Reported Party I); PT Citilink Indonesia (Reported Party II); PT Sriwijaya Air (Reported Party III); PT NAM Air (Reported Party IV); PT Batik Air (Reported Party V); PT Lion Mentari (Reported Party VI); and PT Wings Abadi (Reported Party VII).
In the law enforcement proceedings conducted, ICC values that the market structure in the scheduled commercial air transport industry is a tight oligopoly. This is by considering that business activities of the scheduled commercial air transportation in Indonesia are divided into 3 (three) groups, namely the Garuda group (Reported Party I and Reported Party II), the Sriwijaya group (Reported Party III and Reported Party IV), and the Lion group (Reported Party V, Reported Party VI, and Reported Party VII). Consequently, all the Reported Parties in this case control more than 95% (ninety-five percent) of the market share. In addition to the above, there are also tight entry barriers in terms of capital and regulations which have resulted in merely a few business actors in the aviation industry. Price competition in the industry has been provided for through government regulations through the highest and lowest limits of the setting of fares or passenger prices for scheduled commercial air transport services domestically, thus, there is still a room for price competition within such range of limits.
Based on the trials, the Commission Panel judges that there has been a concerted action or parallelism among the Reported Parties, so that there has been a meeting of minds among the business actors in the form of a consensus to eliminate discounts or make uniform discounts and a meeting of minds to eliminate the products offered at low prices in the market. This has resulted in a limited supply of and high prices of scheduled commercial air transportation services for domestic economy class passengers in the territory of Indonesia. Such concerted action or parallelism is conducted by way of reducing the subclasses at low prices by Reported Parties through unwritten meetings of minds among the business actors and this has resulted in a price increase and costly ticket prices paid by consumers.
However, the Commission Panel judges that the concerted action as a form of meeting of minds among the Reported Parties does not fulfill the element of agreement in Article 11. This is by considering that, by virtue of Regulation of the Commission Number 04 Year 2010, the element of agreement in the article requires various things such as the existence of conspiracy among several business actors; the involvement of senior executives of the companies who attended meetings and made decisions; the use of associations to cover up activities; price fixing or pricing by way of allocation of consumers or division of regions or allocation of production; the existence of threats or sanctions for members in violation of the agreement; the existence of distribution of information to all business actors involved; or the existence of a compensation mechanism from business actors whose production is larger or exceeds the quota for those whose production is small or those who are asked to stop their business activities. This has resulted in the non-fulfillment of the element of Article 11.
In handing down the Decision, the Commission Panel has co-considered the collaborative stances of the Reported Parties in the trial proceedings and the existence of the implications of the 2019 Corona Virus Disease pandemic (Covid-19) that has massively affected national economy and the recovery efforts thereof, including the aviation industry business actors who have undergone a lot of difficulties even prior to the occurrence of the Pandemic.
With due observance of the various facts in the hearings, then the Commission Panel has decided that the Reported Parties are proven legally and convincingly to have violated Article 5, but not proven to have violated Article 11 as provided for by Law Number 5 Year 1999. For that purpose, the Commission Panel in the a quo case has handed down a sanction in the form of an order to the Reported Parties to notify ICC in writing of any policy that will affect the map of business competition, ticket prices paid by consumers and the public, prior to the taking of the policy.
Furthermore, the Commission Panel also puts forward recommendations to ICC to give suggestions and considerations to the Ministry of Transportation to conduct an evaluation with regard to the policy on ceiling price and floor price, so that the formula used can protect consumers and business actors in the industry, as well as national efficiency; where the lower limit is a little above the marginal cost of business actors and the upper limit is a reasonable profit limit and within the affordability limits of the consumers’ ability to pay. The Commission Panel has also put forward suggestions and considerations to the Government to immediately formulate policies and measures in helping airlines cope with the impacts of the Covid-19 pandemic in the form of regulations and economic packages that ease the entry of new business actors in the aviation industry.