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Asia300

Cost cuts shrink Indonesian airline Garuda's losses

Flag carrier yet to reach lasting agreement with pilot union

Garuda reinstated its Jakarta-London direct route after cancelling it only a month and a half ago. (Photo by Akira Kodaka)

JAKARTA -- Garuda Indonesia, the country's embattled flagship airline, is showing signs of life after it considerably narrowed its net loss for the first half of 2018.

The majority state-owned company on Monday posted an operating profit of $1.9 billion in the six months ended in June 2018, up 5.9% from the same period last year, aided by more public holidays during the period than in previous years, and in particular the Islamic holiday of Idul Fitri.

The falling Indonesian rupiah and a jump in global oil prices translated into a 12% increase in fuel costs, but Garuda was able to contain the rise in overall costs at 0.3%. This meant it ended the first half of this year with a net loss of $114 million, an improvement from the $283.8 million net loss in the same period last year.

Under CEO Pahala Mansury, who joined the management team last year after serving as finance director at state lender Bank Mandiri, the troubled company had worked hard at cutting costs amid an increasingly challenging business environment.

Garuda said it was able to halve the number of loss-making routes to 11 as of June 2018 from a year ago, and lowered its cost per available seat kilometer, a commonly used measure of costs in the industry, by 0.5% to 5.86 cents.

"The growth [in operating income] is supported by the increasing number of passengers, the increase of cargo transportation, the increase of aircraft utilization as well as the effectiveness of the efficiency program, and also the improvement of subsidiaries' performance and other revenue outside the flight service," Mansury said at a news conference on Monday. 

Garuda initially hoped to return to profit this year, but Mansury said that in light of the weakening rupiah, the board will hold a review in the coming months to determine if that target was still attainable.

The CEO revealed that the flagship carrier was likely to open new international routes because of the need to secure more U.S. dollar income. The new routes are believed to be focused in Asia, such as China, from which there is a growing number of tourists. Garuda has already opened routes that connect the Chinese cities of Xi'an and Zhengzhou with Denpasar in Bali, early this year.

The latest financial results are a step in the right direction for Garuda, which had been marred by problems over the last year, notably a dispute with the pilots' union.

The union had threated in May to strike if the government did not meet its demands for management changes, saying that some cost-cutting measures brought on by the board -- such as the cancellation of rides that took pilots to airports before their flights -- wrongly targeted pilots. The planned strike was ultimately called off after crunch talks involving the Ministry of State-Owned Enterprise in early July, just before the peak pilgrimage season to Saudi Arabia.

Mansury admitted that the dispute was not over and that the company planned on further negotiations with the union in the coming weeks.

"We will negotiate in the next one to two weeks by reviewing both contractual and compensation negotiations," Mansury said.

Shares in Garuda have fallen 22% since the end of last year, ending Monday down 0.85% at 234 rupiah each.

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