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)