ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintTitle ChevronIcon Twitter
Companies

Garuda Indonesia on offensive again after CEO change

Flag carrier reinstates direct London route and takes control of Sriwijaya

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

JAKARTA -- Nearly three months after taking over as the chief executive of Garuda Indonesia, Ashkara Danadiputra is putting the country's flagship carrier on a solid footing again.

He announced a relaunch of the direct flight between Jakarta and London only a month and a half after the airline cancelled the route, with the aim of attracting the increasing number of British tourists to the archipelago nation. Using the London route, the company plans to generate enough yield to boost its international flights business.

The London route was found to be unprofitable and was axed under the previous CEO Pahala Mansury. Danadiputra's decision to revive the route -- as well as Garuda's subsidiary taking operational control of domestic rival Sriwijaya Group -- marks a clear reversal of his predecessor's strategy, putting Indonesia's flagship carrier once again on an expansion drive. 

The London-Jakarta route will operate from Dec. 13, and fly three times a week. It will use the same Boeing 777-300 ER aircraft, but whereas the previous flights offered first-class seats, the revived flights will only have economy and business class seats. 

The reopening is "a positive step for Garuda Indonesia in its efforts to improve airline performance ... [when] the number of British tourist arrivals to Indonesia has increased significantly," Danadiputra said in a statement. Danadiputra took over the CEO role from Mansury in September, when the latter was sacked by the board after his cost-cutting measures drew strong resistance from the labor union.

"Garuda needs to find a way to expand its international business, as this is much more lucrative than the domestic market," said Michel Brekelmans, managing director at consulting company SCP/Asia. "Garuda needs to target routes with high volume of point-to-point travel between Jakarta and the overseas destination, ideally with limited existing carriers serving the market, to ensure high load factors. London fits the bill in that respect."

Askara Danadiputra (Photo by Bobby Nugroho)

Indonesia's flagship carrier further said that the route could also serve passengers wishing to fly between Australia and Europe. "The potential market size puts Britain as the top destination of the European region for tourists from Australia," it said. "This is certainly a potential market for Garuda Indonesia, considering that Garuda Indonesia currently connects Jakarta to three major Australian destinations such as Melbourne, Sydney and Perth."

After a nearly 90% fall in net profits in 2016, Garuda posted a net loss of $216.5 million for 2017, which prompted Mansury to reverse his predecessor's expansion drive and cut unprofitable routes, both domestic and international. Jakarta-London was one of them. According to CAPA Centre for Aviation, the route was "too small and too price sensitive to sustain a nonstop service, particularly given the intense one-stop competition," adding, "Garuda has not been generating nearly a high enough yield to even approach break-even." The route was cancelled in late October after Mansury left.

Since taking over, Danadiputra, who once served as Garuda's director of finance and risk management when the airline was expanding its routes, is seemingly taking the company back to those days. Garuda, through its low-cost carrier subsidiary Citilink Indonesia, assuming management of Sriwijaya Group is another indication of the flagship airline's renewed appetite for expansion.

Citilink will take over operations at Sriwijaya Air and Nam Air, both airlines under the Sriwijaya Group, giving Garuda 46% share of the Indonesian domestic market, based on 2017 numbers. Lion Group, which last month suffered a crash on a Lion Air flight that killed all 189 people on board, held majority share of the market at 51%.

The financial market warmed to Garuda's de-facto takeover of Sriwijaya Group, with shares in Garuda surging 19% a day after the announcement. Considerably lower oil prices are a boon to Garuda as well, but analysts remain unconvinced by the resumption of the unprofitable London route.

"Nothing has changed in terms of the market and the challenges," said an aviation analyst who asked not to be named. "The prospect for profitability remains poor." The analyst added that while it may be plausible that the Sriwijaya deal could mean Garuda will be able to make more money domestically and cross-subsidize long haul routes, "this is hardly a sustainable long-term strategy."

Although Garuda's financial standing has improved markedly over the course of this year, it is still in the red, making a net loss of $114 million in the nine months ended September. Sriwijaya Group, which is not listed, is also reportedly loss-making.

"There is no guarantee they will make a profit [from the London route]. They need to fill the flight 70 to 80% all the time to turn a profit," said Brekelmans of SCP/Asia. "Having excellent customer services is a must. But they also need to make sure they have the sales and distribution capability to attract passengers. ... It's clear Garuda has to expand its international footprint for its long - term survival."

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more