Garuda profit may drop by 80% this year: CEO

Rendi A. Witular, The Jakarta Post, Jakarta

Profits for Garuda Indonesia, the country's national airline, may plunge by 80 percent this year due to a sharp downturn in business amid various uncertainties plaguing the industry, a senior official said.

Garuda president Indra Setiawan told The Jakarta Post recently that the company would only book a net profit of around Rp 100 billion (US$11.7 million) at the end of this year, down from Rp 503 billion last year.

"Garuda's profits will be significantly lower than last year. The drop was triggered by the Severe Acute Respiratory Syndrome (SARS) epidemic, the invasion of Iraq by the United States and the terrorist attacks at home," said Indra.

He explained that those factors had dealt a triple blow to the nation's flag carrier, causing a significant drop in passenger numbers and a sharp rise in operational costs.

He estimated that by the end of this year the company would only reap revenue from operations of around Rp 8 trillion, down from Rp 9.9 trillion a year earlier.

Garuda had earlier reduced its profit target this year to between Rp 150 billion and Rp 170 billion, from an initial projection of around Rp 520 billion.

However, Indra hinted out that the company was unlikely to even meet the revised target.

With the decline in profits, Garuda will have difficulties in paying its debts, as by the end of this year the company still owes $60 million in short-term debts.

Indra declined to comment on the debt repayment plan.

Garuda has taken various cost-cutting measures, including the closure of unprofitable overseas routes to survive turbulence in the business.

For example, earlier this year Garuda had cut its flight frequency to the Middle East from eight times a week to two or three times a week because there was a sharp decrease in the number of passengers bound for the region due to the recent Iraq war.

The company also reduced its flights to Japan and Australia, and has shut down several routes to China, and those to Singapore from Medan.

However, analysts said that the contingency measures taken were not enough to boost profits. They estimated that by the end of this year, operating costs were projected to remain high, draining more than 90 percent of the company's total operations revenue.

Indra said that for next year Garuda had targeted its net profit to reach between Rp 300 billion and Rp 400 billion, with revenue from operations expected to reach around Rp 11 trillion.

He explained that the target set had included risks from the upcoming general election, in which many foreign and local tourists were expected to limit their traveling in the country due to fears of political unrest.