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Business deals

Garuda lifts market share by taking controls at smaller airline

Indonesian carrier's Sriwijaya deal marks first big move under new CEO

Garuda planes sit at Jakarta's Soekarno-Hatta airport. The Indonesian flag carrier's domestic market share will rise to nearly half when the carrier takes over management of rival Sriwijaya Group.   © Reuters

JAKARTA -- Airline Garuda Indonesia will assume management of compatriot Sriwijaya Group, a move that gives Indonesia's flag carrier nearly a majority of the domestic aviation market and narrows the lead of embattled rival Lion group.

Garuda's low-cost carrier Citilink Indonesia will take over operations at Sriwijaya Air and Nam Air, both airlines under the Sriwijaya Group. Garuda group personnel will replace senior management at Sriwijaya and Nam, a spokesperson from the flag carrier said.

The agreement for joint operation of Citilink, Sriwijaya and Nam was announced Wednesday after being signed last week. The management change takes place after internal processes at each company are completed. Garuda said the partnership could eventually extend to buying a stake in Sriwijaya Group.

The tie-up "is intended to help Sriwijaya Air group improve operational performance and financial performance including helping Sriwijaya Air to fulfill their commitments or obligations to third parties, including those within the Garuda Indonesia Group," Garuda CEO Askhara Danadiputra said in a statement.

A Garuda spokesperson declined to comment on whether this deal involves any financial injection into Sriwijaya.

Garuda is battling for market dominance in the country's fast-growing aviation industry with Lion group, which last month suffered a crash on a Lion Air flight that killed all 189 people on board. As of 2017, Lion group had a 51% share of Indonesia's domestic air travel market, while Garuda held 33%, according to CAPA Centre for Aviation. Garuda's share rises to 46% after the company takes control of Sriwijaya.

The deal with Sriwijaya represents Danadiputra's first major move since he became CEO in September after the state-owned airline sacked Pahala Mansury, whose cost-cutting measures drew strong resistance from the labor union. Under Mansury, Garuda formed a code-share agreement with Sriwijaya Air in May, its first such arrangement with a local carrier.

Sriwijaya considered an initial public offering last year, but shelved its plans after suffering a loss for 2017, according to reports.

The collapse of President Suharto's New Order regime in 1998 ended the state's monopoly over Indonesia's aviation industry, giving birth to privately owned carriers like Adam Air, Batavia Air, Lion Air, Mandala Air and Sriwijaya Air.

But intense competition in the crowded industry, coupled with management troubles, led some airlines to terminate operations including Batavia, Mandala and state-owned Merpati Nusantara Airlines. Merpati said this week that it intends to resume operations next year.

Survivors like Garuda, Lion and Sriwijaya have struggled to produce profits, especially as oil prices surged over the past few years.

Nikkei staff writer Erwida Maulia contributed to this story.

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