Garuda striving to fly high again amid massive losses, problems
Garuda striving to fly high again amid massive losses, problems
The government reorganized last month the management of state-
owned national flag carrier Garuda Indonesia, having last year
recorded massive losses mostly due to inefficiency and poor
planning. The Jakarta Post's Rendi A. Witular talked with
Garuda's new chief executive officer Emirsyah Satar about the new
management's strategy to bring Garuda back into the black. Here
is an excerpt from the interview:
Question: How do you rate Garuda's condition as you take charge
of its direction?
Answer: The business condition of Garuda is fairly critical. Last
year, we recorded an operational loss of almost Rp 600 billion
(US$63.8 million), or an average of Rp 1.7 billion in losses per
day. Our on-time performance is also very poor, below the average
of the airline industry of 85 percent. I benchmark the industry
based on the standard set out by the AAPA (Association of Asia
Pacific Airlines. However, for the last couple of weeks, our
performance has climbed to 87 percent. Aside from that, the
productivity of Garuda employees is also below par, only 80
percent of the AAPA's standard.
The conditions are also exacerbated by the rising cost of
fuel, and problems with route management. More than 50 percent of
our routes -- domestic and international -- are not feasible and
have recorded losses. The poor route management has also
contributed to the low utility of our aircraft.
So, how do you fix these problems?
Our first move is to prevent activities that have caused
operational losses. We will reorganize our route structure by
increasing the frequency of flying in routes that have the
potential and reducing the frequency of unprofitable ones. We
will also consider shutting down certain routes that are not
profitable, but before we do that, we will slowly reduce the
route frequency in order to avoid the immediate termination of
communication with cities served by the routes.
In the meantime, we will probably close routes bound for
Europe. We have a code-sharing cooperation with Malaysian
Airlines for lifting Garuda passengers to Europe. The European
and American markets will be for our future expansion, but not in
the immediate future. In the foreseeable future, we will focus
more on serving routes within Asia, regional routes -- including
Australia -- and domestic ones.
Aside from that, we will also improve the performance of our
low-cost carrier Citilink by spinning-off the airline from Garuda
so that it stands alone as a company.
For years, the airline has been unable to function properly as
a low-cost carrier because it is part of a division of Garuda,
with the same paradigm as a full-service airline. Citilink is
expected to play a dominant role in the domestic market, since
the growth in this market is mostly on middle to lower-end
passengers.
Overall, we have estimated that our load factor will reach 74
percent this year from last year's average of below 70 percent.
We have also estimated that our passenger growth will increase by
between 10 percent and 15 percent from nine million passengers
last year. As for profitability, we have projected that we can
avoid losses.
What about problems in fuel costs?
Fuel costs also contributed to our losses last year. About 27
percent of our operational costs are from fuel. If global fuel
prices increase by 20 percent, our operational costs will rise by
6 percent. To compensate for the rising fuel costs, we will
increase the fuel surcharge for domestic and international
destinations soon. Other airlines have increased their surcharge
to almost US$65, while Garuda is still lower than that.
Fuel cost is an expenditure that we have to manage wisely. We
have assumed an oil price of $30 per barrel in our expenditure
plan for this year. But in the current condition, it is
impossible that oil prices can return to that level. The only way
for us to address the problem is to manage the cost. We will try
to be more efficient.
Are there any plans to purchase new aircraft?
Based on our current condition, Garuda will only lease
aircraft in the future. That doesn't mean we will have low-
quality aircraft. We will lease new aircraft with the latest
technology. The advantage of leasing is that we will have the
flexibility of having the latest aircraft on the market without
being stuck with them should there be new and more modern ones.
In order to improve efficiency in the utility and maintenance
of our fleet, we are planning to operate one type of aircraft
only for domestic, regional and international routes,
respectively. For example, for domestic routes we are likely to
use only the Boeing 737 type, since we already have some 48
aircraft of that type. For regional use, we are likely to use the
Airbus, as for the international routes, we are still undecided.
Aside from the economic factor, Garuda's creditors have still
not allowed it to purchase any aircraft, as stipulated in the
restructuring agreement.
How will you manage Garuda's massive debts?
At present, Garuda's debts stand at $826 million, with the
largest portion coming from the European Export Credit Agency,
while the remainder is in the form of promissory notes and bank
loans.
The debt is fairly burdensome amid a sharp decline in our
working capital due to the operational losses. Two years ago,
Garuda had capital of Rp 3.2 trillion, but now it has declined to
Rp 1.6 trillion. This problem is part of an agenda to be
discussed with the government as our shareholder in the next
couple of weeks. We are still undecided as to whether to
restructure the debts, issue bonds or seek bank loans to address
the shortage in our capital.
What about plans to go public?
Going public is part of our agenda. When? It is still
undecided -- maybe in four or five years time, after we manage to
improve the performance of the company. This year will be a
consolidating period for the airline, next year will be the
rehabilitation period, the third year will be for the improvement
of services and quality, and the fourth year, for expanding our
businesses and competitiveness.