Ada Table<\/p>\n
Opportunity still flying high for domestic airlines<\/p>\n
Jemsly Hutabarat
\nContributor
\nJakarta<\/p>\n
It is simply beyond our imagination that today, five years
\nafter the country's economic crisis, we can fly to almost
\nanywhere in Indonesia at rates similar to those applied during
\nthe pre-crisis period, although the rupiah has devalued nearly
\nfive times. The ticket for the Jakarta-Medan route, for example,
\ncosts about Rp 400,000 (around US$ 47), just like in those good
\nold days.<\/p>\n
What is exactly happening in the commercial airline industry?<\/p>\n
With most of its costs based on the dollar, this sophisticated
\nmeans of transportation that carries millions of people around
\nthe world is experiencing a dramatic period; likewise, the
\nIndonesian airline industry. The disturbing question on
\neveryone's mind is whether this business can still
\noffer even the smallest opportunity.<\/p>\n
Airlines around the world, including in Indonesia, have been
\ngreatly affected by various events, especially the Sept.11
\nterrorist attacks in the U.S., last year's Bali bombing and the
\nrecent outbreak of SARS (Severe Acute Respiratory Syndrome). To
\nsome extent, the Iraq war waged by the U.S. and its allies has
\nalso affected this business.<\/p>\n
Operational costs have skyrocketed and margins have dwindled
\nto alarmingly fractional amounts. The reduced frequency of air
\ntravel, down by between 20 and 50 percent, have worsened the
\neconomic outlook of airline businesses. Naturally, price wars, in
\nthe form of discounts and all sorts of reductions, is the final
\nresort of these desperate enterprises.<\/p>\n
Prior to the Sept. 11 attacks, some analysts optimistically
\npredicted that in less than 20 years the growth of passengers
\nwould be threefold. Ensuing events, however, shattered their
\nforecast and the dreams of airline owners as well.<\/p>\n
One positive outcome, though, is that airline companies were
\nforced to revamp their operations and entire management systems
\nto improve their revenues by cutting unnecessary costs, while
\nproviding the best services to retain passengers.<\/p>\n
Strictly adhering to what is known in management jargon as
\n\"yield management\", efficiency and cost reduction was the order
\nof the day. Every sector is scrutinized down to the minutest
\ndetails: fuel consumption, salaries of staff and crew,
\nmaintenance costs, routine overhead and so forth.<\/p>\n
\"Everybody can fly the skies now, but rates have fallen back
\nto the ground,\" so goes the local joke on the cheap airline
\ntickets. The \"rate of yield\", as reflected by ticket prices, has
\nindeed fallen over the years. The chart below clearly illustrates
\nhow the cost per passenger per kilometer has been crumbling for
\nthe past 18 years, since 1985.<\/p>\n
In spite of everything, most airline companies are surviving
\nand some new ones have even come into the picture. One of the
\nbasic survival formulas seems to be the classic one of cost
\nefficiency.<\/p>\n
To attract passengers, Garuda Indonesia, for example, is
\nimplementing the \"flexible rate\" policy for all classes, in which
\nticket prices are adjusted for various zones and times of the
\nday. Special reductions are also given for early bookings. In
\ntotal, for every route 11 \"types of prices\" are available for
\ncertain routes and during low season.<\/p>\n
Using second-hand aircraft is another way of reducing costs.
\nExtra low rates for a package called Aircraft, Crew, Maintenance
\nand Insurance (ACMI) are also available in the market for the
\nrental of older aircraft in good condition. Further, some major
\nairlines are even employing pilots and crew from developing
\ncountries with lower salaries.<\/p>\n
While people in Europe are turning to trains, here in
\nIndonesia, the reverse is the trend as the negligible difference
\nbetween sea travel fares, land transportation rates and domestic
\nflight rates has prompted passengers to prefer the faster means
\nof transportation: airplanes.<\/p>\n
In view of the unhealthy competition, especially in regards
\nthe price war, the Indonesian National Air Carriers Association
\n(INACA) has attempted, with a certain degree of success, to
\nregulate the seemingly uncontrollable fluctuation of airline
\nticket prices. INACA is also taking into account that other
\nfactors also influence even the slightest difference in rates,
\nlike travel agents, for instance.<\/p>\n
Aircraft maintenance is, in fact, another core business that a
\nmajor airline like Garuda Indonesia can offer. As in any other
\ntransportation business, but more so in the case of airlines,
\nmaintenance is foremost in providing a safe, reliable and
\ncomfortable means of transportation.<\/p>\n
The types of maintenance provided by Maintenance, Repair and
\nOverhaul (MRO) companies include line, base, component and engine
\nmaintenance. Currently, the annual revenue of MRO businesses
\nworldwide is almost US$40 billion. In Indonesia, which has the
\nworld's fifth largest population, the figure is around $550
\nmillion per year.<\/p>\n
Aware of the opportunities in this kind of business, a number
\nof major airlines have formed separate MRO entities to serve not
\nonly their own fleet, but also to reap huge profits by providing
\ntheir reputable maintenance services to other airlines. Lufthansa
\nand Swiss Air are two international examples, while domestically,
\nGaruda Indonesia has followed their lead by establishing a
\nseparate company, PT GMF Aero Asia. Although its current market
\nshare in the world -- revenue-wise that is -- is only one
\npercent, PT GMF Aero Asia has successfully doubled its income in
\na year.<\/p>\n
PT GMF Aero Asia offers world-class services at low rates made
\npossible by efficient management plus the low local wages, which
\nhave given the company a competitive edge.<\/p>\n
To lower maintenance costs, the \"Go East\" trend is definitely
\na huge relief for Asian MRO businesses. However, in the case of
\nPT GMF Aero Asia, it has to be on the lookout for fierce
\ncompetition from other major contenders in the region, especially
\nfrom countries like Singapore, Malaysia, Thailand and China.<\/p>\n
Though a major airline domestically, Garuda Indonesia should
\nnot be satisfied with the recent achievements of PT GMF Aero
\nAsia.<\/p>\n
More breakthroughs related to excellent service should be made
\nto ensure further success, and in view of the company's current
\ncommitments to overall improvements, this seems highly
\nlikely.--The writer is a lecturer at the School of Economics, the
\nUniversity of Indonesia.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bada-tableb-1447899208",
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