Garuda's bold move
The government's decision to head the new management and supervisory boards of Garuda Indonesia with experienced financial managers is the right business strategy. Good management is especially needed in the airline, in view of the increasingly fierce competition in the industry and the heavy burden Garuda has of servicing its US$838 million debts.
At a time when air travelers are being offered more choice at better prices and a slew of low-cost carriers are attacking network carriers in domestic and regional markets, Garuda needs to restructure its costs and improve its overall operating efficiency to remain competitive.
In this context, the appointment of Emirsyah Satar, currently deputy president of Bank Danamon, as the new chief executive officer, and Abdulgani as Garuda president commissioner are smart moves.
Both Satar and Abdulgani are not new to Garuda. They were, in fact, the core members of the management team that saved the airline from technical bankruptcy in 1999. Abdulgani, an experienced banker who sat on the financial flight deck until May, 2002, was assisted by Satar as the financial director.
At that time, they were praised for moving quickly to reschedule and restructure Garuda's mountain of foreign debts. They also improved employee morale and focused on the basics: On- time performance, efficiency and the bottom line.
Although Garuda's financial problems are no longer as severe as they were at the height of the economic crisis, its challenges are greater, as an increasing number of domestic and regional budget carriers have been eroding its market share.
Developed on a business model that capitalizes on a single- standard fleet of planes, fast turn-arounds, and most importantly a no-frills service with enticingly low fares, these budget airlines have increasingly gained passenger confidence and loyalty at the expense of Garuda, which now has to derive most of its income from its domestic services.
Operating a no-frills airline is certainly in a different ball park from Garuda's position as a national flag carrier, but gaining a cost advantage is now key for all players in the industry, who essentially depend on the same technology -- aircraft.
Garuda, therefore, must improve its numerous operations such as selling seats over the internet, making aircraft fly more hours each day and further improving passenger convenience by increasing safety and on-time performance, expediting ticket- buying and check-in processes and modernizing information technology to enable 24-hour communication links with customers.
In an industry that is technology and capital intensive and where the fixed costs -- jets, fuel and ground support facilities -- are high, in a market where the products -- passenger seats -- are similar, and the technology is generally a choice between Boeing and Airbus, competitive power is derived from a business cost structure.
It is precisely in this area that the new chief executive- financial director and the new chief supervisor, have high technical competence and long experience.
Efficient cost structures create a competitive advantage in pricing, route networks and add value in the form of ground and in-flight services to generate total convenience and comfort for passengers.
Passenger comfort at a good price leads to increased patronage and this is key to a airplane's load factor, which is in turn is vital to the solvency of all airline companies.
Passenger seats -- their main product -- in a sense are a highly perishable commodity. When a plane takes off with empty seats, the product is in effect spoiled. It is all or nothing for airlines who either make money off seats or get nothing -- the the high fixed costs make the marginal cost of adding passengers on a partially filled flight almost negligible.
But the new management would be well advised to realize that unlike other domestic airlines, which can zero in on the bottom line, Garuda, as a national flag carrier that operates international routes, also serves as an introduction to Indonesia and plays a vital role in promoting the country's tourism.
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