Following government pressure, Garuda Indonesia has slashed it fares by 20%.
The Indonesian flag carrier dropped ticket prices following a call from President Joko Widodo to cut fares to boost the tourism sector.
A spike in fares came as some airlines started charging for bag fees for the first time which has impacted domestic tourism.
This combination has hit occupancy rates at hotels across the country with hoteliers in Lombok saying occupancy has fallen about 30%.
Garuda cut prices on all domestic routes for the mainline airline as well as subsidiary Citilink Indonesia and partner Sriwijaya Air.
"This is in line with the aspirations of Indonesians, a number of national industry associations, and the president of Indonesia, who wants a reduction in flight prices to support economic growth, especially in the tourism sector," Garuda chief Ari Askhara said.
Ari said it will help boost demand but investors are not so sure, with Garuda’s share price falling 2.7%.
President Jokowi also ordered ministers to recalculate the price of aviation fuel and called on state owned supplier Pertamina to reduce prices.
Domestic air travel has tripled within the past decade and is still experiencing double digit growth.
This has been driven by relatively low fares, although analysts say moves by the government to dictate pricing policy is dangerous.
Pressure to cut prices could mean cutting corners in an industry which already has a poor safety record.
Indonesia is now the world’s 10th largest aviation market.
Indonesia AirAsia said in a statement it has no plans to follow Garuda and cut prices.
