Tasked with running an airline in one of the world's most promising aviation markets, with a rising middle class and a sprawling geography which render air transport indispensable, Arif Wibowo knows he has a big job to do.
The pressure was so intense that, in December 2014, within a week of being appointed Garuda Indonesia's chief executive, he lost five kilogrammes.
Adding to the pressure was the fact that he had big shoes to fill. Wibowo's predecessor, Emirsyah Satar, is revered for his role in Garuda's transformation during his two terms as chief executive. The trained accountant rebuilt Garuda's poor safety reputation, cut loss-making routes, revamped its fleet, and listed the airline on the Indonesian Stock Exchange.
Wibowo's job got no easier last year, but at least he has become accustomed to the demands of being the chief executive of a major flag carrier.
"Now it's time for us to create another 10 years of the Garuda story, to bring Garuda beyond its current level," Wibowo tells Airline Business in an interview at his city office in Jakarta. "Now is the era where we have to be on par with other global players… to monetise our brand and to be strong not just domestically, but also regionally and internationally."
Wibowo's first year was rife with challenges. It brought the slowing of the commodity-dependent Indonesian economy and the depreciation of the rupiah. It also brought flight cancellations caused by haze from forest fires and volcanic ash: a baptism by fire in more than just figurative terms.
"In 2015 it seemed as if I was the pilot taking off, cruising and landing. But I met with three challenges: strong headwinds, tailwinds and turbulence," says Wibowo, who likes to talk details.
Cancellations from the haze and volcanic ash alone cost the airline $20 million, and he had to move quickly to deploy excess capacity onto high-density domestic routes. Wibowo decided on a "quick wins" strategy – aimed at optimising fleet and crew, driving sales, and restructuring debt – to bring the airline quickly back into profit. He says costs are never far from his mind.
MARCHING ORDERS
Concerned with weak sales in a tough market, he gave his general managers "a wake-up call" to refocus on boosting sales and maintaining the airline's market share. To help stay on top of things, he implemented a dashboard where the operational performance of Garuda and competitors are updated in real time. The system can be found both on his workstation and mobile devices. It lets the detail-oriented chief executive keep his finger on the airline's pulse while on the road and outside office hours.
His assertive approach brought Garuda back to an operating profit of $169 million in 2015, a significant turnaround from the $395 million operating loss a year ago. Attributable net profit came in at $77.9 million, a reversal from the $369 million net loss a year earlier.
The group also achieved its target of $200 million in cost savings, excluding fuel. This was done by optimising efficiencies through better crew rotation and tightening inventory management on food and beverage spend. Wibowo also moved to restructure debt – cutting short-term loans from 60% to 30% – and started employing cross-currency swaps.
Last year, Garuda and low-cost subsidiary Citilink carried 37 million passengers. This year, the target is 40 million. The chief executive says the group was scheduled to add 23 aircraft in 2016 but has since cancelled an order for seven Airbus A330-300s and deferred five incoming ATR 72s.
Flightglobal's Fleets Analyzer database shows that the Indonesian flag carrier has 72 aircraft on order: 19 ATR 72s, three A330s and 50 Boeing 737 Max 8s. Citilink meanwhile has 44 A320s in its orderbook.
GARUDA'S FUTURE FLEET
Wibowo, however, implies that the carrier's fleet plans are fluid. For one, it has to choose between the Boeing 787-9 and A350-900, and the A330neo could also feature.
More than two years after taking its first ATR, Wibowo says the carrier's usage of the type is still being tweaked. While the turboprop is necessary because most of Indonesia's airports cannot handle narrowbodies, in practice ATR operations are limited because they serve aerodromes lacking instrument landing systems, precluding their use at night or during bad weather. Garuda is thus "redesigning" the ATR 72 network to provide a "concise feed" to domestic trunk routes.
Wibowo is also unsatisfied with the performance of the airline's 18 Bombardier CRJ1000s, citing their inability to compete, in terms of seats, with narrowbodies, and the fact that they lose out to turboprops in runway agility. Asked if there are plans to remove the type, Wibowo would only say it was part of his plan to "overcome obstacles on the CRJs".
The chief executive caused a stir at the Paris air show in June 2015 when he signed letters of intent for 30 A350s and 30 787s. He has since confirmed, however, that only one LOI will become a firm order. This came after an Indonesian minister opposed the deal on the grounds ordering 60 widebodies would bankrupt the airline. That opinion was no small issue given the government owns 70% of the carrier.
The selection of either the 787 or A350 is being partly held up by negotiations related to the A330s on order. Wibowo has cancelled seven on-order A330s and says it will now sign for at least seven A330neos.
What is certain is that fleet growth will come. He forecasts Garuda and Citilink will have a combined fleet of 230 aircraft by 2025, a 25.7% increase from 183 today. Of the 144 Garuda and 39 Citilink aircraft in service, he calculates a need to "naturally replace" 22 widebodies and 78 narrowbodies.
"With the compounded annual growth of 5%, we will add around eight to 10 aircraft every year."
PRUDENCE OVER PRIDE
Asked if the plan is too conservative, considering its keenest competitor Lion Group has 504 aircraft on firm order, Wibowo says he would rather play it safe in the current economic climate, especially since there is no shortage of aircraft.
"The economic growth for the next 10 years is still unpredictable, with everything now falling under expectations. China was in double-digit growth but has slid to single-digit and Indonesia is also under expectation. We can decide once we see the economic conditions improve. We can easily look for planes. It's a buyer's market."
A Garuda man all his working life, Wibowo has also kept to tradition with snappy strategy names, moving from Satar's "quantum leap" to "quick wins" and now "sky beyond", targeted at making the group "bigger and stronger" over five years.
The core pillars of this strategy are a high level of service, cost efficiency, and driving synergies among members of the Garuda group.
Last year, the airline entered the big league when it received SkyTrax's 5-Star Airline award for the first time. Wibowo says Garuda will continue to attract customers by introducing new jets with the latest technology, including onboard wi-fi on all aircraft. The differentiator, however, will be to give passengers a taste of Indonesian hospitality with its "sincere service".
Wibowo adds: "I also want to make sure that our cost is very competitive. The mindset of the staff is very important. Once we put in the right mindset, every action everyone takes, they will consider the cost."
Garuda's cost per available seat-kilometre, including fuel, now stands at 5.9 cents while Citilink's is 4.5 cents.The group has lowered costs by optimising the deployment of aircraft, as well as putting in more economy and fewer business and first-class seats, to reduce per-seat costs.
To create greater synergy among business units, the group plans to set up a holding company. The core revenue drivers of its business are Garuda; Citilink; maintenance, repair and overhaul arm GMF AeroAsia; and Garuda Cargo. It also has stakes in ground handling firm Gapura Angkasa and tourism and catering provider Aero Wisata.
"These units have to create value and a positive bottom line to the holding," says Wibowo, who spent two years heading Citilink before taking the top job at Garuda. He has also given Citilink and GMF the most aggressive growth targets, citing their strong potential.
Part of the group's five-year plan is to dominate in its backyard. It has gained ground in recent years, increasing its domestic market share – in terms of available seat-kilometres – from 37% to 44%. This has been boosted by the rapid expansion of Citilink, and Wibowo has an eye on pushing the group's share of the domestic pie to 50% within two years.
INTERNATIONAL AMBITIONS
Being dominant at home will set the stage for Garuda's international expansion over the next three years. The airline has set its sights on adding more capacity to the Middle East and further developing its China network – two markets it believes have strong growth potential.
It already flies to the main cities of Guangzhou, Shanghai and Beijing from Jakarta, and wants to do the same from Bali, on top of launching new services to secondary Chinese cities. There are also big plans to set up a strategic business unit to manage Hajj and Umrah flights, dedicating 15 widebodies to the operation. Indonesia is the world's largest Muslim country, and demand for Hajj flights is high.
For long-haul, the spotlight continues to shine on its London and Amsterdam services. Garuda has been flying from Jakarta to Amsterdam and London Gatwick from late 2014, using 777-300ERs. In a recent win, it secured slots at London Heathrow and will start five-times-weekly Jakarta-Singapore-London and six-times-weekly Jakarta-Singapore-Amsterdam services from this month.
Wibowo concedes that the airline's long-haul European strategy is still "at an investment stage". Load factors average 78%, but "yields are quite low". Plans to possibly add Paris and Frankfurt have also been put on hold following terrorist attacks in Paris in November 2015.
The airline is, however, keeping a keen watch on the US market, and is geared to enter via Japan, Hong Kong or Taiwan, once the US Federal Aviation Administration upgrades Indonesia to Category 1 status.
Also high up on the airline chief's to-do list is exploiting Garuda's SkyTeam membership to bolster its international growth. Despite having full membership status since March 2014, the airline is "still not satisfied" with the synergies achieved, pointing out that more feed from members is needed for its services to Europe and in Asia.
"It [the partnership] is still under my expectations… Among the 20 SkyTeam airlines, I think we've only utilised about 20% of partnerships." Garuda had initially expected a 10-15% jump in traffic from SkyTeam feeders, and Wibowo says he has been in frank discussions with the alliance to help new members like itself speed up feed gains.
NEW TERMINAL
This year, the airline is scheduled to move into the new Terminal 3 at Jakarta's Soekarno-Hatta International airport. The terminal, which will be used by Garuda to build its hub and interconnect its network, will also house its SkyTeam peers.
While the slowing economy may bring some dark clouds, Wibowo is upbeat about opportunities from ASEAN open skies. Indonesia is opening five gateways – in Jakarta, Bali, Surabaya, Makassar and Medan – for liberalisation. Garuda's strategy for maximum gain is to ensure these gateways are well connected to the group's domestic network.
"Around 50% of the ASEAN [Association of Southeast Asian Nations] population is from Indonesia. Who will be the winner [from the open skies]? We have to win because we have feeds for the domestic market." He also aims to upgrade the Jakarta-Singapore service, such that 60% of flights are operated with widebodies.
The current slowdown aside, he expects the Indonesian government's focus on building infrastructure to pay off for the economy: "That's why Garuda will put in double-digits capacity growth… I'm not just visualising revenue, but also profit growth."
Amid discussion of shiny new jets and the region's enviable growth potential, it is hard to imagine how, 12 years ago, Garuda was deep in debt and on the verge of bankruptcy. It also had a poor image, especially after a 2007 accident where a 737-400 crash-landed at Yogyakarta airport, killing 21. That same year, the European Union imposed a blanket ban on all Indonesian airlines after a series of fatal accidents.
Garuda has since come a long way, but a shadow is still cast by Indonesia's dismal safety reputation. In late 2014, an Indonesia AirAsia A320 crash which killed 155 passengers and crew made headlines around the world. In 2013, a Lion Air 737 crashed into the sea, short on its final approach into Bali Denpasar. Miraculously, nobody died, but imagery of a brand-new 737 broken in two in the ocean did little for Indonesia's reputation.
SAFETY FIRST
Maintaining a strong safety culture, where employees are pushed to log risk reports, has long been a Garuda priority. With its gears on expansion, however, Wibowo says attention must now be turned to ensuring safe operations, even at the country's smallest and most under-equipped airports. Top-notch staff management is also crucial, to ensure there are sufficient instructors for pilot training, as well as skilled engineers and mechanics to keep aircraft maintenance tip-top.
"Now, we're competing with other global giants and we have to make sure we're on track for safe growth, in terms of top-line revenue and profitability. Garuda is just beginning to become a global brand."
Having been chief for 15 months now, the 49-year-old has grown into the role and found his own footing and pace. Breaking into a grin, he says he has also regained the five kilogrammes he lost that long-ago first week. After all, he has spent 26 years in the Garuda group and knows what the airline must do to dominate one of the world's most promising aviation markets.
Source: Airline Business
