Australia's Tigerair abruptly quits Bali flights after Indonesia ruling

By Jamie Freed

SYDNEY (Reuters) - Tigerair Australia said it would quit flying to Bali permanently after being told by Indonesian authorities to switch to a new operating model - likely resulting in a loss of tourism dollars for the Southeast Asian nation and new opportunities for airline rivals.

The budget unit of Virgin Australia Holdings (VAH.AX) had its permission to fly revoked last month, accused of breaking charter flight rules. Virgin Australia had previously operated the flights but shifted them to Tigerair, aiming to restore its international division to profitability.

The surprise developments - Tigerair had been expected to resume flights to Bali on Friday - have underscored uncertainty about Indonesia's flight approval process and raised the question of whether others, particularly Indonesian airlines, will step into the fill the gap.

"What surprises me the most is the confusing and short notice decisions of the Indonesian authorities," said Rico Merkert, a professor of transport at the University of Sydney Business School.

"Tigerair can deploy the aircraft on another route, but Indonesia is losing vital tourism revenues," he said.

Bali is an Indonesian holiday island known for its beaches and rice paddies, and Australians tourists are its biggest market. Tigerair usually carries hundreds of passengers to Bali each day from Melbourne, Adelaide and Perth.

How much tourism revenue Indonesia may lose is unclear, however, as other airlines may take advantage of Tigerair's misfortune.

The decision by Indonesia's regulators comes just weeks after Batik Air, part of Indonesia's Lion Air Group, received a licence to fly to Australia from Australian regulators.

Batik Air named Perth as its first destination said it had ambitions to fly to Sydney and Melbourne at a later date. A Lion Air spokesman said Batik was aiming to start flights to Perth as early as next month.

Garuda Indonesia (GIAA.JK) is looking at whether to increase its flights, company spokesman Benny Butarbutar said. Qantas Airways (QAN.AX) budget offshoot Jetstar, the biggest carrier between Australia and Bali, said it would keep a close eye on demand for the routes Tigerair had exited and look at its options.

Tigerair said switching to a new operating model would be take about six months to put in place and would be prohibitively expensive.

"Providing a reliable, low-cost service is critical for Tigerair Australia and our customers, and therefore our only option is to withdraw from flying to Bali altogether," Tigerair Chief Executive Rob Sharp said in a statement.

Tigerair offered nearly 180,000 one-way seats a year between Australia and Bali, although not all were filled. Bali saw 1.1 million Australian arrivals in 2016.

Virgin Australia said it has no plans to operate the Bali routes from which Tigerair had withdrawn. It declined to comment on the financial impact of pulling out.

Both Merkert and Peter Harbison, executive chairman for the CAPA Centre for Aviation estimated the financial impact on Virgin Australia at several million dollars.

(Reporting by Jamie Freed in Sydney; Additional reporting by Fransiska Nangoy in Jakarta; Editing by Edwina Gibbs)