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Jakarta Post

Will Garuda Indonesia fly higher? Ask the crew

Garuda Indonesia has faced financial difficulties in the past several years.

Alban Sciascia (The Jakarta Post)
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Jakarta
Thu, December 7, 2017

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Will Garuda Indonesia fly higher? Ask the crew Garuda Indonesia has faced financial difficulties in the past several years. (Shutterstock/Nieuwland Photography)

T

he first Boeing B-737Max of Garuda Indonesia was recently seen rolling out from a Boeing factory. At first sight, it seems that the airline, which has been acclaimed in terms of service, continuously receiving awards for its cabin crew, is on the right path. However, it is widely known that Garuda Indonesia has faced financial difficulties in the past several years.

Its losses reached US$284 million in the first quarter of 2017, far exceeding the forecast of $80 million, according to internal sources and Indonesian aviation experts. Although the situation seems to have improved, the strategy of Garuda Indonesia management should raise some questions.

The airline renamed its tagline from “Efficiency” — initiated by its previous CEO, Muhammad Arif Wibowo — to “Sincerity,” which stands for synergy, integrity, customer focus, agility and safety. The move does not seem to have led to deep changes. The main aim is to cut costs in several areas while focusing on service onboard and outsourcing.

Cutting costs by no longer serving butter on trays on regional flights, or by offering only low-grade vodka and non-French red wines to Business class customers, might lead to some savings, but focusing mainly on these aspects will not help the airline to overcome this situation. When other legacy airlines like Air France-KLM faced similar difficulties, they invested and reinforced their hard and soft products and shut down some international routes (like Air France Paris-Singapore-Jakarta route or Paris-Kuala Lumpur). They also strengthened their alliance strategy and rationalized administrative costs, focusing on the legacy market.

Nowadays, Garuda seems to be doing the exact opposite. As a member of the Sky Team alliance, Garuda Indonesia is not using alliance facilities like common check-in and handling in airports like Amsterdam Schiphol. Instead, it contracts external suppliers. It is also surprising that the airline continues to operate several routes where occupancy is considered low. Indeed, instead of reinforcing some high demand routes like Jakarta-Amsterdam — and using the Skyteam hub for connecting flights — Garuda Indonesia continues to operate routes with low occupancy of around 60 percent, like the Jakarta–London route (previously via Singapore), which is full in Business class but nearly empty in Economy class. The airline has also expressed its willingness to open a route from Denpasar to Moscow, which might not be commercially relevant at present.

Instead of focusing on the competition with legacy carriers, Garuda is instead trying to compete with low-cost airlines. Some internal sources have affirmed that, during the presentation of its strategy to employees, Garuda Indonesia’s management considered low-cost airlines such as Air Asia, Lion Air and Viet Air Jet as their competitors, arguing that Garuda should get the same results with similar costs. This perception is entirely faulty, as the Indonesian national carrier already owns a low-cost subsidiary to do the job. Moreover, the perception of the airline might suffer from such a strategy.

There are also problems in Garuda’s human resources. In June 2017, Agus, a public policy observer, said that with nine members on its executive board, Garuda was totally inefficient. According to article 121.59 of the Civil Aviation Safety Regulation (CASR) and the regulatory reference from the Transportation Ministry, management personnel is limited to four director positions (CEO, directors of safety, operations maintenance) and three chief positions (pilot chiefs, inspector and flight attendant). From April to May 2017, Garuda Indonesia was unable to fill the indispensable positions of directors of operations and maintenance, leading to complaints from cockpit crews. This pattern has been reproduced by Garuda on all layers of management, as it has multiplied positions of vice-president (41) and deputy chief (several layers within each division).

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