Garuda losing Rp 3 billion per day
Garuda losing Rp 3 billion per day
JAKARTA (JP): Garuda Indonesia is suffering an operating loss
of at least Rp 3 billion (US$240,000) per day as a result of
artificially low fares and sluggish domestic sales, the company's
president said here yesterday.
Robby Djohan said that to offset the huge deficit the national
flag carrier would need to increase domestic flight fares by
between 35 percent and 40 percent.
He explained that without such an increase the deficit would
continue to widen because more than 80 percent of the airline's
expenditure is quoted in U.S. dollars.
Given the sharp depreciation in the value of the rupiah
against the U.S. dollar over the last few months, a 35 percent to
40 percent increase in domestic fares would be quite reasonable,
he said.
"Domestic fares are too low. We must increase them again,"
Robby, who became president of the ailing airline in June, told
reporters on the sidelines of a seminar on the tourist industry.
The former banker said Garuda's international routes had been
subsidizing domestic routes, but added this situation could not
be sustained.
He said that because the state budget could no longer cover
the airline's operating loss, the company would have to resort to
pricing policy to ensure that it broke even and therefore had no
choice but to raise domestic fares.
A review team made up of officials from Garuda, the Indonesian
National Airlines Association (INACA), the Ministry of
Communications and the House of Representatives are currently
discussing further airfare increases, Robby said.
The country's airlines are currently facing severe
difficulties because ticket revenues quoted in rupiah have fallen
short of offsetting operating expenses, which are mostly quoted
in U.S. dollars.
The year-long economic crisis has had a severe impact on
passenger numbers, while the sharp plunge in the rupiah against
the dollar has caused operating costs to soar in local currency
terms.
Robby said that a fare increase would enable the airline to
weather the crisis because it has the lowest operating costs in
the world. He pointed out that labor costs were only 13 percent
of the company's total costs compared to 30 percent for other
overseas airlines.
He also said that he hoped ongoing negotiations with foreign
creditors to restructure the $200 million of Garuda's overseas
debt which is due to be repaid this year would eventually be
brought to a successful conclusion.
"We are only going to pay back interest," he added, declining
to give further details.
He said he expected Airbus would agree to further lower the
monthly charge for leasing its airplanes to $550,000 per aircraft
from $750,000 which the foreign company proposed in the first
round of negotiations last month. Monthly lease payments were
previously $1.05 million per aircraft.
Garuda has already agreed with foreign lessors to return 11
aircraft under cost cutting measures.
"But all this restructuring will be meaningless if we can't
generate more revenue," Robby said, emphasizing the urgent need
to raise domestic fares.
Garuda raised fares by an average of 35 percent in January to
offset depreciation in the value of the rupiah, then introduced a
further increase of 37 percent in May in response to a 42 percent
increase in the price of jet fuel.
The last round of price increases were based on an assumed
exchange rate of Rp 5,500 against the U.S. dollar, while
yesterday the currency was hovering at more then Rp 12,000
against the dollar. (rei)