Garuda's new captains bold move

Garuda's new captains 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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