New captain for Garuda

New captain for Garuda

State Minister for State Enterprises Laksamana Sukardi set a
good example of good governance by deciding not to appoint his
elder brother as new president of PT Garuda Indonesia, even
though Samudra Sukardi was the most qualified candidate for the
position, as judged by his technical competence, his managerial
record and the full support he received from the state company's
employees.

Laksamana selected Indra Setiawan instead, another Garuda
senior executive. Though Setiawan was not a member of Garuda's
management like the other four contenders, and was not widely
tipped among the favorites during the race, he was considered the
best alternative, due to his "independent" status of not being
affiliated with any political party.

It was surely a great sacrifice on the part of Laksamana, and
understandably a painful thought process for him, to decide to
stop the advancement of his brother's 27-year career at the
national flag carrier. It seemed a strange twist of fate for
Samudra that he was to be the first public official to find that
close connections, and in this case family ties, to those in
power can turn out to be a liability instead of an asset for
career advancement.

This country is still in the early stages of developing a
system based on high ethical and moral standards, and has yet to
instill a high sense of probity in government and society, which
has for more than three decades been "polluted" by widespread
corruption, collusion and nepotism, which were the notorious
hallmarks of Soeharto's authoritarian government.

However impeccable the integrity of the two Sukardis, however
small the risk of their professional judgment and conduct being
compromised by their family ties, public opinion at the moment
cannot yet accept such an obvious potential conflict of interest.
The problem is that Laksamana is directly in charge of
supervising state companies. Samudra's position might not have
been not so awkward had Laksamana held another portfolio in the
Cabinet.

But Setiawan, a 25-year career executive of Garuda, is not a
second-rate choice either. It is also greatly helpful that
Setiawan is taking over when Garuda is already in a much better
condition than in 1998, when the company was already technically
bankrupt, with negative capital of almost $235 million, $1.8
billion in foreign and domestic debts, low working morale due to
steady losses from 1993 to 1998 and rampant corruption, collusion
and nepotism.

His predecessor, Abdulgani, who took over the airline's
management cockpit in November, 1998, had succeeded in stopping
the company bleeding, restoring it to profitability in 1999,
rescheduling and restructuring its debts, improving employee
working morale and, most importantly, developing good governance
practices.

However, Setiawan's tasks are not less challenging in view of
the increasingly tougher competition both within the domestic and
international market and the declining number of air travelers.
The domestic market has shrunken to about eight million air
passengers now from as large as 14 million before the 1997
economic crisis, while the number of scheduled airlines has
increased to ten, with six more gearing up to take off this year.

Setiawan's top priority should be to fine tune the right
business strategy already laid down under Abdulgani's leadership
by investing more resources to improve passenger comfort and
convenience and to strengthen the system of good corporate
governance.

Abdulgani's strategy of focusing on improving safety and
reliability to international standards, expediting the check-in
process, and applying information technology to enable 24-hour
communications links with customers, has succeeded in regaining
passenger confidence and loyalty. Garuda has even gained
international awards for its outstanding punctuality and safety
records over the last two years.

The new president should capitalize on these impressive
achievements to further increase efficiency and load factor
because an airline is a technology-intensive industry, where the
fixed costs -- plane, fuel and support facilities -- are destined
to remain relatively high.

Load factor is crucial because the airline's main product --
passenger seats -- is simply a commodity, and a perishable one at
that. When a plane takes off with empty seats, the commodity is
spoiled in that the company can either earn money from it (the
seat) or get nothing at all. That is because the high fixed costs
make the marginal cost of adding passengers on a partially-filled
flight almost negligible.

In a market where the products -- passenger seats -- are
similar and the technology (planes) are mostly a choice between
Boeing and Airbus, the only clear competitive advantage comes in
price, route networks and the product's value-added features such
as ground and in-flight services and modern communications
networks to generate convenience and comfort for passengers.