Overview

Widespread public discussion has recently arisen regarding the sharp increase in airfares. These public concerns are primarily being driven by a surge in Aviation Turbine Fuel (“Avtur”) prices, which have recently risen by more than 70%.[1] This spike in fuel prices has been linked to geopolitical tensions in West Asia, which have triggered an oil crisis and are disrupting fuel supply chains around the globe, including Indonesia’s.[2]

As a result of the above oil supply disruptions, Avtur prices within the country have increased from Rp. 13,656 to Rp. 23,551 per liter, representing a contribution of up to 40% of total airfares.[3] In this regard, the Indonesian National Air Carriers Association (INACA) is urging the government to increase the upper limit for domestic airfares and fuel surcharges, as the airline industry may ultimately have to face severe financial instability if no fare adjustments are made.[4]

The impact of rising Avtur prices is also having an effect in areas beyond the aviation sector, placing pressure on related industries, such as the tourism sector.[5] In response, the government has adjusted its airfare structures by increasing the fuel surcharge component to as much as 38%, compared to the previous caps of 10% for jet aircraft and 25% for propeller aircraft.[6] Nevertheless, the government has emphasized that overall airfare increases will be controlled within the 9% - 13% range.[7]

Moreover, the government has simultaneously decided to implement a further policy, specifically value-added tax (Pajak Pertambahan Nilai – “PPN”) that will be borne by the government (PPN yang Ditanggung Pemerintah – “PPN DTP”). More precisely, a PPN DTP of 11% will now apply to domestic, scheduled, economy-class flights. This policy, which will be applied alongside the increased fuel surcharge, will remain in effect for a period of two months and will be subject to periodic evaluations.[8]

Indonesia currently has several regulatory frameworks already in place that specifically govern airfare calculation mechanisms, including adjustments that can be implemented in response to fuel price increases. In order to reflect this ongoing global oil crisis, this edition of Indonesian Law Digest (ILD) will examine the relevant frameworks that the Indonesian Government currently has at its disposal. Our analysis breaks down as follows:

1. The Organization of the Aviation Sector

1. Air Transportation: Classifications and Types
2. Business Licensing for Scheduled Commercial Air Transportation
3. Development and Implementation of Scheduled Commercial Air Transportation

2. Passenger Airfares

1. Procedures and Formulas for Calculations of Economy-Class Passenger Airfares
2. Basic and Ceiling Tariffs
3. Fuel Price Fluctuations and Surcharges
4. Basic Tariff Formula for Retail Price Calculations for Avtur Supplied Through Aircraft Refueling Depots
5. Evaluations, Supervision and Sanctions

3. Government Strategies and Plans

1. Surcharge Reductions
2. PPN DTP

 

I.    The Organization of the Aviation Sector

 

A.   Air Transportation: Classifications and Types

Before we dive any deeper into the realm of airfare regulation, it is important to first understand the broader concept of aviation. Specifically, Regulation of the Government No. 32 of 2021 on the Organization of the Aviation Sector (“Regulation 32/2021”) is currently serving as the umbrella framework that governs Indonesia’s aviation sector and defines aviation as an integrated system that encompasses the utilization of airspace, aircraft, airports, air transportation, air navigation, safety, security and various environmental aspects, as well as supporting and public facilities.[9]

Furthermore, Regulation 32/2021 classifies air transportation activities into two categories, namely commercial air transportation and non-commercial air transportation.[10] Commercial air transportation is intended for public use and encompasses tariffs that cover both domestic and international services.[11] In contrast, non-commercial air transportation is used for internal purposes only in order to support core business activities external to the aviation sector.[12]

Regulation 32/2021 also clarifies that commercial air transportation may be operated on a scheduled and/or non-scheduled basis by national and/or foreign commercial air carriers in order to transport passengers and cargo, or cargo exclusively.[13] In practice, scheduled commercial air transportation is the primary mode of air travel that is used by the public for both domestic and international journeys.

 

B.   Business Licensing for Scheduled Commercial Air Transportation

In order to be permitted to operate scheduled domestic commercial air transportation, business entities are required to secure the appropriate operating licenses.[14] However, under certain temporary and exceptional circumstances, said entities may also operate non-scheduled commercial air transportation, at the initiative of the central government or at the request of national air carriers, subject to the issuance of approvals by the Minister of Transportation (“Minister”).[15]

Said non-scheduled operations must not disrupt any services on routes that have already been assigned to or that are being served by scheduled operators.[16] In addition to securing business licenses, scheduled commercial air carriers, including foreign airlines, must also secure route approvals from the Minister.[17] Without said approvals, operators will be prohibited from selling any flight tickets.[18]

With respect to international scheduled commercial air transportation, Regulation 32/2021 states that said services may be offered by national and/or foreign airlines based on bilateral or multilateral agreements that are drawn up between the Indonesian Government and partner countries.[19] Additionally, said operations may also be carried out under plurilateral air transportation agreements with regional organizations, although all implementation must still be based on bilateral arrangements that are drawn up with each member state.[20]

 

C.   Development and Implementation of Scheduled Commercial Air Transportation

Regulation 32/2021 also allows for cooperation to be initiated between national scheduled commercial air carriers in order to serve both domestic and international routes.[21] Similar provisions also apply to cooperation between national carriers and foreign airlines in relation to international services.[22] All such cooperation arrangements must be reported to the Minister.[23] Furthermore, when engaging in their business activities, scheduled commercial air carriers are required to determine service categories based on maximum, medium or minimum service standards.[24]

These classifications must be clearly communicated to consumers, including detailed information on the various conditions and specifications of any services that are offered.[25] In this regard, Regulation 32/2021 also requires carriers to implement service standards that are in line with consumer protection principles, which encompass standards for economy-class passengers and passengers with special needs. The service standards must be reported to the Minister and must include the following elements at the least:[26]

1. Clear information regarding the various types and specifications of any services that are being offered;
2. Transparent and accessible information on applicable tariffs;
3. Terms and conditions of carriage that are in line with consumer protection principles; and so on.

In addition, carriers are required to publish service charters and provide services in accordance with their established standards.[27] More broadly, licensed commercial air carriers are required to comply with several key obligations, which include the following:[28]

1. Must commence actual operations within 12 months of securing a business license through the operation of a minimum required number of aircraft in accordance with their business scope;
2. Must own and control a specified number of aircraft; and
3. Must comply with mandatory carriage obligations, civil aviation regulations and other applicable Laws.

 

II.  Passenger Airfares

 

A.   Procedures and Formulas for Calculations of Economy-Class Passenger Airfares

In terms of the setting of airfares, Regulation 32/2021 states that economy-class passenger tariffs for scheduled domestic commercial flights are calculated based on several components. These components encompass distance-based tariffs (i.e. average base costs plus a reasonable margin), taxes, mandatory insurance contributions and additional charges (i.e. costs that are incurred externally to calculations of distance-based tariffs).[29] It should also be noted that airlines may impose additional charges in relation to any optional supplementary services that are provided to passengers.[30]

In essence, the results of the above-outlined calculation constitute the ceiling tariff for economy-class passengers who travel on scheduled domestic commercial flights, as determined by the Minister in coordination with national aviation associations, with additional input from consumer associations.[31] Accordingly, domestic airlines are required to comply with and apply tariffs that do not exceed the stipulated ceiling.[32]

In addition to Regulation 32/2021, provisions on airfares are further featured under Regulation of the Minister of Transportation No. PM.20 of 2019 (“Regulation 20/2019”),[33] which requires airlines to determine tariffs by taking the following key components into consideration:[34]

1. Distance-based tariffs;
2. Taxes;
3. Mandatory insurance contributions; and
4. Surcharges.

Regulation 20/2019 also clarifies that taxes and mandatory insurance contributions must be determined in accordance with prevailing Laws and Regulations, while surcharges are set by the Minister based on certain specific considerations.[35] These considerations include prolonged fuel price fluctuations that exceed three months and increase operational costs by more than 10%, additional costs that apply during holiday periods and costs that arise in relation to any supplementary services that are provided to passengers.[36]

Surcharges may also be imposed by Indonesian civil aviation associations and/or airline companies, provided that all such surcharge proposals are submitted at least three months prior to their implementation and are supported by analyses that cover the relevant routes, cost calculations and projected passenger movements.[37]

Furthermore, Regulation 20/2019 authorizes the Minister to set tariffs by taking the operational capacities of airports and maximum aircraft capacities into consideration. Said determinations will be made after specific proposals are submitted by airline operators, relevant stakeholders or the Director-General of Air Transportation (“Director-General”), and must be grounded in evaluations that are conducted by the Director-General.[38]

 

B.   Basic and Ceiling Tariffs

The ceiling tariff is the maximum tariff that airlines are permitted to charge passengers based on an applicable distance-based tariff.[39] Distance-based tariffs vary depending on the type of aircraft used, specifically jet or propeller, with further sub-classifications applying to propeller aircraft based on their seating capacities (i.e. more or fewer than 30 seats).[40] A distance-based tariff is calculated by multiplying the basic tariff by the average route distance, as determined by the Director-General.[41] The basic tariff itself is derived from an aircraft’s operational costs and comprises various cost components and profit margins.[42]

Operational costs are divided into direct and indirect costs, with direct costs further classified into fixed and variable operational expenses. Regulation 20/2019 provides a more detailed breakdown of these components, which include the classification of flight crews’ and technicians’ salaries as fixed costs, and crew allowances and airport service charges as variable costs.[43]

Ceiling tariffs are ultimately determined by the Minister based on calculations of operational aircraft costs, as well as the basic tariff and/or distance-based tariff proposed by the Director-General.[44] In setting a tariff, the Minister must coordinate with the national airline association and take input from aviation consumer associations into consideration.[45] Based on this ceiling, airlines may then determine the final tariff that passengers will be charged.[46]

The Minister further regulates ceiling tariffs for domestic scheduled flights under Decree No. KM.106 of 2019 on Ceiling Tariffs for Economy Class Passengers on Scheduled Domestic Commercial Air Services (“Decree 106/2019”), which also requires broader sectoral impacts to be taken into consideration, as well as prior dissemination to be completed among stakeholders, including airlines, the public and relevant associations.[47]

It should be noted that the stipulated ceiling tariffs exclude PPN, mandatory insurance fee contributions to PT Jasa Raharja, additional charges and passenger service fees that are imposed in accordance with applicable Laws.[48] The Appendix to Decree 106/2019 details the applicable ceiling and floor tariff benchmarks for various routes and aircraft types, and these should be used as guidelines for airlines during the setting of economy-class passenger tariffs after route approvals have been secured. A few examples of these airfare limits are set out in the following table:[49]

Threshold Tariffs for Economy Class Passengers on Scheduled Domestic Commercial Air Services
Route	Upper Limit (Rp.)	Lower Limit (Rp.)
Propeller Aircraft (< 30 Seats)[50]
Jakarta - Surabaya	3,923,000	1,373,000
Denpasar - Yogyakarta	3,870,000	1,355,000
Banda Aceh - Medan	2,754,000	964,000
Balikpapan - Makassar	3,104,000	1,086,000
Propeller Aircraft (>30 Seats)[51]
Jakarta - Surabaya	1,857,000	650,000
Denpasar - Yogyakarta	1,831,000	641,000
Banda Aceh - Medan	1,364,000	477,000
Balikpapan - Makassar	1,516,000	531,000
Jet Aircraft[52]
Jakarta - Surabaya	1,167,000	408,000
Denpasar - Yogyakarta	1,152,000	403,000
Banda Aceh - Medan	874,000	306,000
Balikpapan - Makassar	1,006,000	352,000

These examples demonstrate that Decree 106/2019 also stipulates lower-limit floor tariffs for economy-class passenger services, which may be set by scheduled commercial air carriers at a minimum level of 35% of the applicable ceiling tariff, depending on the relevant designated service category.[53]

When setting passenger tariffs, scheduled commercial air transportation businesses must comply with several obligations, which include the following:[54]

1. Must publish and disseminate applicable tariffs through print and electronic media and/or display them at all airline ticket sales points;
2. Must report the setting of all airfares to the Minister via the Director-General on a quarterly basis;
3. Must take input from aviation service user associations and national aviation associations into consideration;
4. Must ensure that adequate consumer protection is in place by preventing any unfair pricing and misleading advertisements that could ultimately disadvantage passengers; and
5. Must maintain fair competition by avoiding any predatory pricing intended to eliminate rival airlines from specific flight routes.

Decree 106/2019 also requires the Director-General to evaluate the stipulated provisions by taking several factors into consideration, including the following:[55]

1. Increases or decreases in aviation fuel prices;
2. Fluctuations in the rupiah exchange rate; and
3. Considerations relating to the public interest.

 

C.   Fuel Price Fluctuations and Surcharges

In terms of the pertinent issue of rising fuel prices, as previously noted, Regulation 20/2019 allows airlines to impose surcharge components, including in circumstances where fuel price fluctuations persist for three consecutive months and result in an overall increase in operational aircraft costs amounting to over 10%.[56] These provisions are governed under Decree of the Minister No. KM 7 of 2023 on Amounts of Additional Costs (Surcharges) Caused by Fuel Fluctuations (Fuel Surcharges) for Economy-Class Passenger Fares on Scheduled Domestic Commercial Flights (“Decree 7/2023”).

In essence, Decree 7/2023 stipulates that airlines may impose surcharges on economy-class passengers who take scheduled domestic commercial flights in response to fuel price fluctuations, with rates being differentiated based on aircraft type.[57] For jet aircraft, the surcharge has been capped at a maximum of 10% of the applicable ceiling tariff based on the airline’s service category, while for propeller aircraft, surcharges may be set as high as 25% of the applicable ceiling tariff.[58]

Decree 7/2023 further clarifies that the aforementioned surcharge percentages exclude PPN and must be stated separately on air tickets as a component that is distinct from any basic tariff.[59] This Decree also states that total payable amounts may be rounded up to the nearest Rp. 1000.[60] Nevertheless, airlines remain obligated to maintain their service quality in accordance with applicable service categories whenever applying such fuel surcharges.[61]

Accordingly, the Director-General is required to evaluate the levels and implementation of any surcharges every three months or whenever significant changes are experienced in relation to operational aviation costs.[62] In essence, the surcharge mechanism serves as a regulatory tool that allows airlines to fine-tune their operations in relation to volatile fuel prices without directly altering the core tariff structure. By setting clear thresholds, caps and evaluation mechanisms, this framework should ensure that all cost increases are managed in a controlled and transparent manner while overall service quality obligations are maintained.

While surcharge policies address short-term fluctuations, it is equally important to understand the upstream pricing structure for aviation fuel itself, which ultimately forms the basis of such cost adjustments. The following section explores the regulatory framework that governs Avtur pricing formulas.

 

D.   Basic Tariff Formula for Retail Price Calculations of Avtur Supplied Through Aircraft Refueling Depots

The Minister of Energy and Mineral Resources established a regulatory framework that specifically addresses the basic tariff formula for calculations of retail sales prices for Avtur that is distributed through aircraft refueling depots through the issuance of Decree No. 17 K/10/MEM/2019 (“Decree 17/2019”). In essence, Decree 17/2019 introduced a formula that should be used in order to set the base tariff for the retail sales price of any Avtur that is supplied to Indonesian-registered airline operators through relevant delivery points. This should serve as a guide for application by business entities during the determination of retail prices.[63]

Decree 17/2019 further clarifies that the base tariff formula should be determined in response to acquisition costs, storage costs, distribution costs and margins, subject to the following upper limit:[64]

Formula for the Calculation of the Retail Sales Price of Avtur Distributed Through Aircraft Refueling Depots

Mean of Platts Singapore (“MOPS”) + Rp. 3,581/liter + Margin (10% of the base price)

In this context, MOPS is an acquisition cost component that reflects the overall price of Avtur, as sourced through domestic refinery production and/or imports and extending up to fuel terminals or depots.[65] Meanwhile, the margin refers to the profits of business entities that have secured oil-and-gas trading licenses for the distribution of Avtur through aircraft refueling depots, and is calculated using the following formula: (10/90) × (MOPS + Rp. 3,581/liter).[66]

The Avtur pricing framework set out under Decree 17/2019 provides a standardized and transparent formula for the determination of fuel prices, and incorporates acquisition, storage, distribution costs and margins. This approach should hopefully ensure consistent pricing while reflecting global market benchmarks, thereby directly influencing the operational costs of airlines and, by extension, airfares.

Given the various complexities involved in determinations of tariffs and fuel pricing, effective oversight mechanisms are essential to ensuring compliance with regulatory provisions. Accordingly, the following section discusses the evaluation, supervision and sanctions framework that is used to assess violations that occur within the aviation sector.

 

E.   Evaluations, Supervision and Sanctions

Broadly speaking, any scheduled commercial air carriers that violate any tariff-setting provisions, as summarized above, may be subject to the imposition of administrative sanctions.[67] Generally speaking, said sanctions are set out under the framework of Regulation of the Minister No. PM 27 of 2021 on Procedures for Supervision and the Imposition of Administrative Sanctions for Violations Within the Aviation Sector (“Regulation 27/2021”). Administrative sanctions are imposed based on supervisory activities, which may include audits, inspections, observations, monitoring and testing, as conducted either through routine or incidental supervisions.[68]

Under Regulation 27/2021, the various forms of administrative sanctions that may be imposed include the following:[69]

1. Warnings;
2. Suspensions;
3. License revocations; and/or
4. Administrative fines.

Furthermore, administrative sanctions may be imposed either progressively or directly by the Director-General.[70] It should also be noted that any business entities that find themselves subject to administrative sanctions may submit administrative appeals to the Director-General within 14 days from the relevant dates of receipt of their sanction decisions.[71] All such appeals must include justifications that at least address the alleged violations, as well as supporting evidence that substantiates the relevant objections.[72] The Director-General will then decide to either accept or reject an appeal within 14 days of receiving an objection.[73]

Given the structured but flexible nature of the available tariff mechanisms, the government is able to introduce responsive policy measures when faced with external shocks, such as significant fuel price increases. The following section examines various strategic interventions that are available to the government, including temporary tariff adjustments and fiscal incentives. Such measures should be aimed at maintaining tariff stability and supporting public purchasing power.

In summary, the available supervision and sanctions measures provisions play a critical role in ensuring adherence to tariff regulations and maintaining market discipline within the aviation sector. This framework aims to promote accountability, compliance and fair business practices among airline operators through structured monitoring and enforceable administrative sanctions.

Taken together, these complementary regulatory instruments represent a coordinated approach to pricing mechanisms, the regulation of fuel costs and enforcement measures, thereby forming the foundation of the government’s broader policy responses to airfare volatility and hopefully safeguarding both industry stability and consumer demand.

 

III. Government Strategies and Plans

 

A.   Surcharge Reductions

As briefly noted earlier, the government is authorized to adjust certain airfare cost components in response to specific circumstances, including holiday periods. For example, in early 2026, the Minister issued Decree No. KM 43 of 2026 on the Reduction of the Fuel Surcharge for Economy Class Passenger Tariffs for Scheduled Domestic Commercial Flights During the Eid Al-Fitr Holiday Period of 2026 AD/1447 AH (“Decree 43/2026”) in an effort to support public mobility while also taking into consideration the prevailing economic conditions and consumer purchasing power during the Eid Al-Fitr period.[74]

As its title suggests, Decree 43/2026 lists a set of applicable fuel surcharge rates for economy-class passengers travelling on scheduled domestic commercial flights. Said rates were imposed by airline operators during the 2026 Eid Al-Fitr period. This policy applied to flights that were operational from 14 - 29 March 2026, with ticket booking periods that extended from 10 February to 29 March 2026, in line with the following arrangement:[75]

Aircraft Type	Maximum Permitted Fuel Surcharge Rate (Based on the Relevant Service Category)
Jet aircraft	Could be set at 2% of the applicable ceiling tariff
Propeller aircraft	Could be set at a maximum of 20% of the applicable ceiling tariff

Following the end of this temporary reduction, the applicable fuel surcharge rates reverted to those stipulated under Decree 7/2023.[76] A similar policy was also implemented during the 2025 Christmas and 2026 New Year’s holiday period through Decree of the Minister No. KM 50 of 2025 on the Reduction of the Fuel Surcharge for Economy Class Passenger Tariffs for Scheduled Domestic Commercial Air Transportation During the 2025 Christmas and 2026 New Year’s Holidays (“Decree 50/2025”).

In essence, a temporary reduction in fuel surcharge rates reflects a targeted policy approach by the government that is aimed at stabilizing airfares during periods of peak travel. In this regard, by lowering additional charges while maintaining a structured tariff framework, the government is seeking to balance consumer affordability with the operational sustainability of airlines.

 

B.   PPN DTP

In response to rising aviation fuel prices and airfares, the Coordinating Minister for Economic Affairs has affirmed that the government is currently completing work on a new Regulation setting out various PPN DTP incentives that will apply to airline tickets. This new framework is expected to be implemented for a two-month period at least.[77] In order to support this policy, the government has allocated a tax expenditure budget ceiling of up to Rp. 2.6 trillion.[78] In addition to this PPN incentive, the government is also planning to implement a uniform increase in fuel surcharge rates of up to 38% for both propeller and jet aircraft.[79]

It should be noted that a similar policy was previously introduced under Regulation of the Minister of Finance No. 4 of 2026 on Value-Added Tax on the Provision of Scheduled, Economy-Class, Domestic Commercial Air Transportation Services During the 1447 H Eid Al-Fitr Holiday Period Borne by the Government During the 2026 Fiscal Year (“Regulation 4/2026”). Through this policy, the government pledged to fully bear the applicable PPN on scheduled domestic commercial air transportation services for economy-class passengers. The goal in this regard was to support economic activity during the 2026 Eid Al-Fitr holiday period.[80]

In this context, business entities acting as taxable entrepreneurs that provide such services are required to issue tax invoices or equivalent documents and submit periodic PPN tax returns in accordance with applicable Laws.[81] Furthermore, said entities must draw up detailed lists of PPN DTP transactions that encompass various elements, which range from taxpayer identification numbers to relevant PPN DTP amounts.[82] It is also important to note that Regulation 4/2026 sets several exceptions regarding the applicability of PPN DTP, as listed below:[83]

1. Services that are rendered outside stipulated ticketing and flight periods;
2. Services that are not provided for economy class; or
3. Failure of a taxable entrepreneur to properly submit the required transaction details.

 

Conclusion

Overall, Indonesia’s regulatory framework on airfare determination adopts a structured and multi-layered approach that integrates tariff formulation, ceiling and floor limits, surcharge mechanisms and fuel pricing controls. Taken collectively, these instruments should be able to ensure both legal certainty and flexibility, enabling the government to respond to external pressures, such as volatility in global fuel prices, while maintaining overall oversight in relation to airline pricing. At the same time, the adoption of various evaluation mechanisms and administrative sanctions should ensure that the implementation of all such policies remains accountable and in line with broader considerations regarding the public interest.

As the globe heads into an uncertain period in terms of fuel prices, it is expected that the government will continue to calibrate its policy interventions in an effort to safeguard public purchasing power, particularly during periods of economic pressure and high travel demand. Measures such as temporary fiscal incentives, controlled surcharge adjustments and targeted subsidies should be consistently implemented in line with market conditions in order to prevent consumers from having to shoulder any excessive burdens. Ultimately, a careful balance must be struck regarding the implementation of policies in order to ensure the overall sustainability of the aviation sector, thereby fostering a stable and resilient air transportation ecosystem in the long term. _(RL)

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