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Garuda Indonesia | Mr M. Arif Wibowo
Mr M. Arif Wibowo

We viewed 2015 in particular to be a year of consolidation following on from the achievement of successfully establishing ourselves amongst the world’s best five-star airlines.

Mr M. Arif Wibowo, President Director

Garuda Indonesia is well-known on the international stage as the leading state-owned national carrier in Indonesia. Having become a publicly listed company in 2011, what more can you tell us about the company and its main strategies going forward?

The strategy which we carried out in the first half of 2015 was focused on improving upon our growth and profit in order to strengthen the company’s sustainability for the future. We viewed 2015 in particular to be a year of consolidation following on from the achievement of successfully establishing ourselves amongst the world’s best five-star airlines. That said, getting a position amongst the best ten with regards to the airline as a whole, the cabin crew, as well as for Garuda’s economy class is only the beginning because we have to further our efforts to maintain that quality as well as our growth. In this regard, the first task we carried out was to maximise all of our revenue generators; the second was to restructure all of our cost drivers; and the third pertained to our finances which included the re-profiling of our debts. As a result of these measures, Garuda registered a net profit of $51.4 million USD by the end of the third quarter of 2015 after having suffered sizeable losses in 2014.

In maximising our revenue generators, we started by restructuring our network and the deployment of our airplanes so that our capacity is more efficiently used. This plan of action involved revising our flights to Japan, adding more flights to China and the Middle East, as well as concentrating our destinations in Australia to just Sydney, Melbourne and Perth. We also implemented changes to our domestic routes; including by reinforcing our “trunk” routes with Jakarta, Surabaya, Bali, Medan and Makassar as our hubs, and strengthening our feeder routes which are now also supported by ATR propeller planes. In 2015, we also conducted fuel hedging, cross-currency swaps with a total value of 2 billion IDR, in addition to a number of other actions; of course with a high level of caution given the price volatility of jet fuel. Overall, we recorded gains that contributed to the effort in securing our business.

In addition to prioritising greater efficiency in determining the deployment of your airplanes, how else has Garuda Indonesia sought to improve upon its financial performance?

Our company was able to cut down on our operational costs without compromising service quality. For example, the aforementioned flight rearrangements also led to the efficient use of ground services as well as the cockpit and cabin crew. At present, our plans have gone beyond simply becoming a five-star carrier in that we are currently striving to establish a reputation as the most caring airline. In building the Garuda brand within that aim, we must earn recognition from global corporations. It is worth noting that Garuda has achieved initial success by having companies such as Standard Chartered designate us as the official carrier for their employees.

Conclusively, Garuda seeks to stand out for our care towards our customers, emerge as a full-service carrier possessing cost leadership, as well as build an excellent group synergy with Garuda as the holding company, Citilink as a subsidiary serving the low-cost carrier market, as well as with GMF AeroAsia, SBU Cargo, Aerowisata and other Garuda subsidiaries. The group’s revenue itself will be spearheaded by Garuda, Citilink, GMF AeroAsia and SBU Cargo. In the background, we have operations such as Aerofood ACS as an in-flight service provider and Gapura Angkasa as a ground handling company.

Within the last two years, Citilink in particular has been a very effective tool in dominating the domestic market, helping to boost our overall market share to 44% in 2015 compared to approximately 30% in the previous year.

What is your outlook in the short and medium-term for Indonesia’s aviation industry?

Indonesia’s air transport industry typically experiences an annual growth rate of 1.5-2 times that of the GDP. This positive result, however, did not hold true for 2014; industry growth was only at 5% or on par with the overall economy. In 2015, the number may be even lower because the first half of the year already recorded minus growth. The reason for this outcome is that there was a strong headwind in the form of a significant depreciation of the Indonesian currency. That said, a tailwind was nonetheless offered by the drop in jet fuel prices.

Foreign investors have been highly interested in the Indonesian market in recent years. How is Garuda Indonesia positioned towards cross-border engagements?

We are certainly open to this type of opportunity and, in fact, implemented our recent plans within the context of international cooperation. When we conducted a re-profiling of our debts in the first half of 2015, one of the objectives was to provide investors with an indicator of Garuda’s good financial state. We succeeded in reducing our short-term liabilities from 60% to 30%, thus improving the structure. Previously, we also launched Islamic bonds which went oversubscribed after we carried out a roadshow in six countries in Asia, the Middle East and Europe.

With regards to specific international routes and flights, Garuda especially prioritises middle range markets such as destinations that can be reached via seven-hour flights. As for long range routes, we will be very selective because of the high risk involved. At present, the most probable middle range countries for expansion include Japan, South Korea, China and Australia. For flights to China in particular, we are looking into adding cities other than Jakarta for the departure point. Moreover, we see the need to strengthen our services in China beyond only three cities; Beijing, Shanghai and Guangzhou. As such, we have identified ten further prospective cities. The Middle East also has significant potential, and we are thus considering adding more transit points such as the city of Balikpapan in East Kalimantan and even Solo in Central Java. With regards to longer routes, we seek to strengthen our flights to London and Amsterdam with Germany and France also being considered depending on Europe’s economic situation. For destinations in the US, Garuda will have to wait for IASA’s Category 2 rating to be upgraded.

As a final message, what would you like Global Business Guide’s readers to remember about Indonesia?

Going forward, the Indonesian market will certainly grow. Its sizeable population should deter any doubts about the prospects of investing in Indonesia. Indonesia as a major country in Asia is also connected to China and India while also having a strong link with Japan. As an archipelago, air travel is poised to be the main mode of transportation. With regards to Indonesia’s aviation industry, there has been a consolidation which I predict will result in the market being concentrated to 4-5 main players.

Global Business Guide Indonesia - 2016

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