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Jakarta Post

Domestic market to be driver of recovery, Garuda chief says

  • Mardika Parama

    The Jakarta Post

Jakarta   /   Mon, September 14, 2020   /   10:45 am
Domestic market to be driver of recovery, Garuda chief says A Garuda Indonesia airplane. (Shutterstock.com/e X p o s e)

National flag carrier Garuda Indonesia expects the domestic market to drive its business this year, which is showing signs of recovery despite the heavy blow to the aviation sector by COVID-19, the company’s top executive has said.

Garuda president director Irfan Setiaputra told The Jakarta Post in an exclusive interview on Thursday that the company was currently exploring new opportunities in the domestic market, as it provides better opportunities than the international market during the ongoing health crisis.

“During the recovery process, we agreed that the domestic market will be the driver. The reasoning behind the decision is that we have more control in the market in regard to the [industry] authorities,” he said, referring to the firm’s relationship with aviation stakeholders such as state-owned airport operator PT Angkasa Pura (AP) II.

“The only way to accelerate recovery is by boosting [the number] of passengers.”

The airline enjoyed an increase of 58.1 percent month-on-month (mom) in the number of domestic passengers to over 110,400 passengers in July, which the airline attributed to the relaxation of the large-scale social restrictions (PSBB) by the government.

However, the airline saw an overall 61 percent drop year-on-year (yoy) in total numbers of passengers as of July this year, down to 3.6 million passengers, as the pandemic stymied the airline’s operations and hit its financial performance, with social restrictions and border closures deterring people from flying.

The airline posted a US$712.73 million loss in the first half of this year after booking net profits of $24.11 million in the same period last year.

Furthermore, Irfan said the company had recently found new opportunities in the domestic market, which had previously been overlooked by management, such as freight exports.

“There are huge opportunities to work together with small businesses, fishermen and other industries to provide them with logistics services for exports. We hadn’t thought about that in recent years,” he said.

However, while the freight business provides an additional source of income, Irfan said it was unlikely that the contribution would significantly improve its profitability as its main revenue is still dominated by the passenger business.

AP II previously projected a full recovery of Indonesia’s aviation industry to occur by mid-2023, with domestic flights projected to be the backbone of the industry’s recovery process.

The forecast is slightly more optimistic than that by the International Air Transport Association (IATA), which expects the full recovery of global air passenger traffic by 2024, a year later than its initial estimate, given slow virus containment in developing economies, corporate travel cuts and weak consumer confidence during the global health crisis.

However, regarding the international flights market, Garuda will maintain its current routes and only expand its routes once the pandemic ends, Irfan said.

“We will try to maintain our existing routes as best as we can, and ensure our international routes can reach breakeven point during normal times. We are also working together with all stakeholders to establish new routes, which will bring in high-spending tourists to Indonesia,” he said.

Garuda currently has 22 international routes to 10 countries including China, Japan, Australia, Netherlands and Singapore, according to the company’s website.

The total number of international passengers carried by the airline plunged by 96 percent yoy to 10,581 passengers in July.

During a hearing with the House of Representatives earlier in July, Irfan said that the airline was mulling whether to establish direct flights that will connect the resort island of Bali with cities in the United States like Los Angeles and San Francisco and Indian cities like Mumbai and New Delhi, as well as with France.

However, during the interview, Irfan said the company was still “miles away” from the expansion plan as it was currently still focusing on the recovery process.

“We’ll get through this pandemic first. Once it’s all over, then we’ll talk about the [expansion] plan and how we work together with other stakeholders to boost our tourist sector,” he said.

In a research note published on Wednesday, Lee Young Jun from Mirae Asset Sekuritas expected that the airline’s monthly seat load factor (SLF) would not exceed 50 percent, while its SLF stood at 30 percent in July, according to the company’s data.

“Although the management claimed that the improvement should continue until the end of 2020, we believe that monthly SLF will not exceed 50 percent, given the fact that new COVID-19 cases are continuously hitting new records,” the research note reads.

It expects the company to book $1.63 billion in revenue by 2020 year-end, a sharp drop from $4.5 billion last year.