News

All that glistens is not gold – Garuda Indonesia in trouble?

6 Aug 2014 by Clement Huang

Indonesian national carrier Garuda Indonesia (GA) continues to bleed red ink. Results from the first-half of 2014 are out and they are disappointing, to say the least. GA made a loss of US$212 million in the first half of this year, compared with a US$11 million loss in the the same period a year-ago.

The news might come as a surprise to some, given GA’s strides toward improvement in the past few years. The carrier initiated a turnaround plan in 2009 dubbed the “Quantum Leap” that saw significant investments in fleet renewal, personnel training and service.

Garuda Indonesia’s Boeing 777-300ER

Initially, this led to impressive results; GA was taken off the list of airlines banned from flying into the European Union. It then placed significant long-haul aircraft orders and announced ambitious expansion plans, including the launch of services from Jakarta to Amsterdam, London and Rome.

However, to date none of these new European services have actually been realised with the notable exception of a daily Amsterdam service that’s been in the roster for years now, but used to be operated by an A330 via Abu Dhabi before the B777-300ERs joined GA’s fleet. The long-awaited London (Gatwick) tag-on has not yet materialised, but is now bookable from Nov1.

Initially, B777-300ER operations at Jakarta’s Soekarno-Hatta Airport (CGK) were restricted because the local runway wasn’t long enough to support a fully-loaded B777-300ERs take-off run.

Award-winning crew

GA also ordered ten B777-300ERs (five of which have been delivered so far) and decided to re-introduce first class on the model, meaning the aircraft feature a 314-seat configuration of eight first class beds, 38 executive (business) class sleepers and 268 economy seats.

Since the new European services haven’t come through yet, GA has had to deploy their B777s on regional medium- to short-haul routes – a real ‘waste’ of the aircraft that’s now beginning to show on the carrier’s balance sheet.

First class on the B777-300ER

The introduction of first class also seems to have backfired on GA, which is only natural given the carrier’s large-scale absence from long-haul premium routes. Sources close to the airline revealed that load factors in first class have been ‘disastrous’ ever since its introduction in 2013.

Domestic and regional traffic hasn’t been showing positive signs either. GA has been facing extreme competition from low-cost carriers (LCCs) on practically all its routes. And that’s no surprise; Indonesia’s home to a plethora of fledgling LCCs all waiting to gnaw at GA’s market share. Lion Air, AirAsia Indonesia and Sriwijaya Air are GA’s biggest domestic and regional competitors after Merpati and Tigerair Mandala ceased operations earlier this year.

IFE system in first class

More trouble is on the horizon for GA’s international expansion plans. AirAsia Group president and CEO Tony Fernandes is launching AirAsia X Indonesia operations later this year, aiming to connect the Indonesian archipelago with long-haul services to Europe and northern Asia. An order for 50 new A330neo placed at the Farnborough Airshow in July only served to confirm these plans.

GA is now embarking on a money-saving mission. It suspended its ambitions for flights to India and the Philippines and is now reviewing existing routes singled out for possible service reduction and/or cancellation. Further to that, GA is in negotiations with manufacturers over the deferment of new aircraft orders, whilst speeding up the retirement and disposal of older aircraft.

Happier times – joining Skyteam in March 2014

Indonesia, the region’s largest market by a wide margin, has emerged as one of the most dynamic and biggest aviation growth markets in the world. Indonesia’s domestic market grew by over 20% a year for the last three years consecutive, making it the world’s fifth largest domestic market after the US, China, Brazil and Japan.

For more information, visit garuda-indonesia.com

Dominic Sebastian Lalk

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