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Garuda Indonesia to cut more routes after $213m loss last year

Airline abandons aggressive expansion plan, opts for caution

A facility of GMF AeroAsia, the maintenance subsidiary of flag carrier Garuda Indonesia. (Photo by Erwida Maulia)

JAKARTA -- Garuda Indonesia, the flag carrier of the Southeast Asian country, is cutting unprofitable routes and renegotiating contracts as part of cost-cutting measures after posting a $213.4 million net loss last year, airline executives said on Monday.

Garuda already cut 17 routes over 2017 and is planning to cut 10 more this year. Chief Executive Pahala Mansury declined to name the affected routes, saying only that one running between Denpasar in Bali and Chengdu in China -- which only launched in May last year -- was among those under review for possible termination over the next few months.

"We are restructuring the routes, including by reviewing low-performing routes," Mansury told reporters.

However, he said that despite terminating some routes, Garuda would still explore potential new ones. To minimize the possibility of making further losses, however, the airline would prioritize adding routes to destinations that had already proven to be profitable. These include Bali, the resort island popular with local and foreign tourists. Aside from its Bali-Chengdu link, Garuda only last month launched routes connecting Denpasar with the Chinese cities of Xi'an and Zhengzhou to cater to Chinese tourists' growing interest in Bali.

"We will build more connections to Bali, one of our main hubs," Mansury said.

He added that flight cancelations due to the eruptions of Mount Agung in Bali since late November had resulted in losses to Garuda of between $1 million and $1.5 million per day. But Mansury said that situation had now improved after the Chinese authorities in late January lifted a travel advisory against visiting Bali.

Mansury added that Garuda was considering adding new international routes serving Hanoi in Vietnam and Manila in the Philippines, but stopped short of saying whether the airline would proceed with previous plans to fly to the United States and Russia.

Garuda's operating revenues rose 8% last year to $4.2 billion. But a 25% rise in fuel costs, among other expenses, eroded profits amid tightening competition in the regional airline industry. The problem was aggravated by a "misunderstanding" with the Indonesian tax office, which resulted in Garuda having to pay a $138.3 million penalty related to the government's tax amnesty in the first half of last year. The $70.4 million in net profit it generated in the second half could not offset the $283.8 million loss it booked in the first half.

Garuda posted $9.4 million in net income in 2016. This year it is targeting profit of $8.7 million with Mansury's tough efficiency measures, which have stirred internal controversy at the company. Garuda is also pledging to keep expanding its non-core businesses, especially the cargo and aircraft maintenance divisions.

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