Garuda Indonesia cuts back again as expansion plan fizzles
Airline's hallmark luxury service may be too pricey to sustain
JUN SUZUKI, Nikkei staff writer
JAKARTA -- Garuda Indonesia has embarked on yet another round of restructuring that could do away with its famously luxurious first-class offerings and reverse recent service expansions as rival airlines crowd the Southeast Asian travel market.
The Indonesian airline's cabin and service features were on full display at the latest Garuda Indonesia Travel Fair, which opened Sept. 22. Garuda President Pahala Nugraha Mansury guided Rini Soemarno, Indonesia's minister of state-owned enterprises, through a show floor thronging with visitors. When the pair reached an interactive mock-up of Garuda's first-class seats, Pahala delivered the news in a whisper: Garuda is cutting back first-class service.
Since the Indonesian government put Pahala, a former executive at Bank Mandiri, in the pilot's seat in April, streamlining has been the name of the game at Garuda. The new president quickly made clear that efforts under his predecessor to expand the airline's route network were due for a change, and kicked off a spate of service revisions.
Such a pivot, from expansion and a focus on luxury offerings to cutbacks, has become all too familiar at the flag carrier. Garuda has flipped between these strategies numerous times in the past decade alone. When the airline made its debut on the Indonesia Stock Exchange in 2011, then-President Emirsyah Satar brought restructuring to an end and began expanding the Garuda network. Then the surging price of crude oil sent the carrier deep into the red in 2014, and routes were cut back again. But its expansion resumed two years later under then-President Arif Wibowo, when Garuda introduced direct service from London and announced it would restore routes to North America.
First-class service, a product of Garuda's quest for a more upscale, global image, debuted in 2013 and quickly became the carrier's hallmark. Each flight has eight private suites featuring a seat that can be converted into a full-flat bed, and premium services including meals prepared fresh by chefs onboard. Skytrax of the U.K., which ranks and reviews airlines, gave Garuda's first-class service a five-star rating, its top grade, in 2014.
The premium seats are no longer on offer for flights between Jakarta and Tokyo's Haneda Airport. Maintaining first class involves high costs, and few customers are willing to shell out for such an expense, said Nina Sulistyowati, the airline's director of marketing and information technology. While Garuda plans to keep first class on other routes, such as those between Indonesia and Europe, for the time being, the company is also considering a plan to eliminate the top-end seats entirely and use the space they occupy for more profitable business-class seats instead.
Garuda will also take a knife to in-flight meals. While visitors to the travel fair were greeted with the full spread of offerings, travelers on certain routes could get fewer items in their meals, or smaller portions. Business-class passengers on some international routes have had their beverage options cut. On domestic routes, meals will feature different ingredients, and travelers will have fewer newspapers and magazines to choose from. Garuda will also review its suppliers, and has closed some reservation offices in shopping malls and elsewhere to further reduce costs.
Can't keep up
The cost cuts indicate that the financial headwinds Garuda faces have grown too strong to ignore. While falling oil prices kept the carrier in the black for 2016, it suffered a $214.51 million operating loss in the first half of 2017, as well as losses for the first two quarters individually. Competition from AirAsia and other budget carriers is eating into the flag carrier's sales, and costs remain as high as ever.
Pahala and other Garuda executives have apparently looked for ways to trim labor costs, including cutting pay and benefits for pilots and crew, as the sense of crisis has grown more pronounced, according to a source close to the matter. But those workers of the state-owned carrier pushed back hard during negotiations in September, coming within an inch of a strike before management backed down. No such cuts have yet been made.
Many of the carrier's Southeast Asian peers, such as Malaysia Airlines and Thai Airways International, are also making sweeping changes, including labor-cost cuts, to stay aloft as competition for international business travelers intensifies. Nor can these companies, Garuda included, necessarily rely on their large domestic markets as more low-cost carriers take flight. The path forward for Indonesia's flag carrier is far from clear.