Garuda Indonesia chief executive Arif Wibowo has a big job managing an airline in one of the world’s most promising aviation markets, boosted by a rising middle class, and where its over 17,000 islands make air transport a necessity.
Less than a year since taking over from Emirsyah Satar, known for his pivotal role in Garuda’s transformation over the last decade, Wibowo has come up with a strategy he calls “Sky Beyond”, aimed at bringing the airline forward over the next five years.
Part of this strategy involves dominating the domestic market, which will lay a strong foundation for its medium and long-haul expansion. All of this while ensuring costs are kept in check, and service quality remains top-notch.
In an interview with Flightglobal in Bali, the airline chief says it is necessary for the group to dominate in its own backyard, where it faces intense competition from low-cost giant Lion Air. Its low-cost arm Citilink’s rapid expansion to over 25 domestic cities, and Garuda’s presence in 60 points across the country, have helped the group lift its market share seven points to 44% in 2015.
Wibowo concedes that profitability has taken a hit as the carrier added capacity, but this has been partly offset by lower fuel prices. The group is also on a campaign to bring costs down by enhancing efficiency, and has so far realized $185 million in savings, against a $200 million full-year target. Part of this includes putting more economy and fewer business and first class seats on its aircraft, bringing down unit costs.
This year, the airline has been hit by major depreciation of the Rupiah and a slowing economy. Recent volcanic eruptions in Lombok alone have cost it $12 million in passenger cancellations, while haze from forest fires in Sumatra added another $8 million to the tab.
Going forward, Wibowo says he will be prudent in adding capacity, with a focus on deploying aircraft “on the right track and speed”. The group is now in discussions with consultants to firm up its fleet plans, and is also in talks with manufacturers to defer some incoming ATR 72-600s and Airbus A330s over the next two years.
By the end of the year, he will also need to decide whether to acquire the Airbus A350-900 or the Boeing 787-9. The airline signed letters of intent for 30 of each type at the Paris air show in June, and was later criticised by an Indonesia minister that buying 60 widebodies will bankrupt the airline.
Wibowo however says that the airline needs to “naturally replace” 22 widebodies and 71 narrowbodies over the next 10 years, even if it is looking at zero growth.
“We’re very confident on the deployment of widebodies. We have a strategy of combining the Umrah, Haj and charter services as part of a bundling strategy for the whole year, and to put around 50 widebodies on this strategy,” he says.
The airline is also targeting to add more capacity to the Middle East and to further develop its China network - two markets it believes have strong potential for growth. Next year, Garuda will also move to Jakarta's Soekarno-Hatta International airport's new Terminal 3 where it will build its main hub and have its network entirely interconnected.
Wibowo acknowledges however that its long-haul strategy is still “at an investment stage”, where although the load factor on the Jakarta-Amsterdam-London route averages at 75%, its “yields are quite low”.
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“The first three years investment stage will be quite tough, but this is a period I have to pass through.. we subsidise it with other profitable routes… but at the same time we’re also facing the depreciation of the Euro,” he explains.
Soekarno-Hatta airport has also promised that its runway upgrade will be completed within the next six months, which will allow the flag carrier to better utilise its 777-300ERs. To operate the aircraft at full capacity would put it above the airport's current pavement weight limits.
Wibowo says Garuda has also approached London Heathrow for slots, and that the plan is to launch more direct services to Europe. When it signed for the A350 and 787, the chief executive also said that the types will help the airline to fly nonstop from Jakarta and Bali to Europe, and that development of Garuda’s long-haul business will be a priority in the coming years.
Source: Cirium Dashboard
