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Troubled Garuda enters code-share agreement with Sriwijaya Air

Loss-making carrier announces deal after cutting dozens of routes

Garuda has terminated dozens of unprofitable routes, most of them domestic, since the beginning of the year. (Photo by Ken Kobayashi)

JAKARTA -- Garuda Indonesia has entered into a code-share agreement with local airline Sriwijaya Air, as the loss-making flagship carrier struggles to return to profitability while facing the threat of a pilots' strike.

State-owned Garuda signed the code-share deal with privately owned Sriwijaya, which calls itself a "medium service" airline, on Wednesday, the first such deal with a local carrier. Garuda has code-share ageements with foreign airlines under the SkyTeam alliance.

"This partnership will strengthen networks of both airlines and also will increase our market shares -- given that many cities with potential passenger growth have not yet been reached by Garuda Indonesia flights," company President Pahala Mansury said in a statement. "We hope that the partnership with Sriwijaya Group will increase our profitabilities."

Garuda made the announcement after disclosing in April it had terminated 30 unprofitable routes, most of them domestic, in the first quarter of the year as part of measures to increase efficiency that also included renegotiations of aircraft leasing costs.

The company, which is publicly listed, posted a $216.5 million net loss last year, and a $65.3 million loss in the first three months of this year, as fuel prices have risen and competition has stiffened in the regional airline industry.

The cost-cutting measures spearheaded by Mansury, who joined the management team last year after serving as finance director at state lender Bank Mandiri, seem quite unpopular among Garuda pilots, who have protested the reduced facilities and employee benefits, among other things.

The airline's pilot association, which claims membership of approximately 90% of Garuda's 1,500 pilots, has threatened to strike unless their demands are met, including the sacking of the human resources director. The new partnership with Sriwijaya Air is seen as part of Garuda's management plans to anticipate the strike.

Vice president for investor relations, Hengki Heriandono, said in the early phase of implementation around 10-20 flights by both airlines can be operated under the code-share agreement. But talks are ongoing on the possibility of including as many as 100 Garuda flights in the partnership.

Sriwijaya Air Group, which also operates the full-service airline Nam Air, operates a total of 64 routes, mostly domestic.

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