Garuda Expansion a Warning for Rivals
BY :HARRY SUHARTONO
MARCH 05, 2015
Jakarta’s Soekarno-Hatta airport, among the world’s 10 busiest by passenger traffic, handles twice the volume it was designed for; Arif Wibowo plans to push that limit further.
The new chief executive of Garuda Indonesia wants to take over the airport’s third terminal next year after a revamp and reserve it for the state carrier’s expansion. Garuda plans to acquire 250 aircraft over 10 years and increase the fleet of its low-cost carrier unit Citilink Indonesia four-fold to 120 planes by 2022, Arif said in an interview on March 3.
“By next year, we will make terminal three a dedicated terminal for Garuda Indonesia, and Garuda will make it the base for SkyTeam in the southern hemisphere of the Asia Pacific region,” Arif, 49, said in an interview at his Jakarta headquarters, referring to the alliance of 20 airlines including Air France-KLM and China Southern Airlines, Asia’s biggest carrier by passengers.
A Jakarta hub for SkyTeam would help its members tap the Australian market and put it into competition with Singapore’s Changi Airport and a larger Star Alliance carrier network that includes Singapore Airlines.
Singapore is not standing still, with plans to almost double the capacity of its airport over the next decade, as economic growth in the Asia-Pacific region makes it more affordable for people to travel by air.
Garuda’s competitors aren’t idling either. Lion Group, Indonesia’s biggest carrier, plans to have a fleet of 1,000 planes, its founder Rusdi Kirana said last year, after he agreed to buy 230 Boeing 737 planes in 2012 and another 234 Airbus jets in 2013.
Garuda’s shares rose as much as 1 percent on Thursday to Rp 530.
The shares have risen 9.5 percent in the past year, trailing the 17 percent gain in the benchmark Jakarta Composite Index and the 36 percent advance in the Asia Pacific Airlines Index.
Soekarno-Hatta handled 60 million passengers in 2013, the 10th-most in the world and ahead of Singapore and Hong Kong, according to data from the International Air Transport Association.
State airport operator Angkasa Pura II plans to sell as much as Rp 6 trillion ($460 million) of bonds this year and next to fund renovations to the Jakarta airport, president director Budi Karya Sumadi said in February.
Jakarta airport’s terminal one, dating from 1985, handles domestic routes. About 1.6 million Indonesians flew from Soekarno-Hatta across the world’s largest archipelago in January, according to government data. Apart from revamping the terminal buildings, the government is building a rail line to improve transport to Jakarta’s center.
The second terminal, used by Garuda and most international carriers, presents visitors with a warren of hallways to navigate immigration, before a gauntlet of baggage handlers and taxi touts.
The third terminal, the most modern, is currently reserved for low cost carriers and used by AirAsia.
Arif, who spends his free time racking up road miles on his bicycle, said Citilink would serve its first international routes in 2016, to compete with AirAsia and Tiger Airways.
President Joko Widodo’s government tapped Arif, formerly the chief of Citilink, to run Garuda in December.
The president has called for reviews of the country’s aviation industry after AirAsia’s Flight 8501 from Surabaya to Singapore plunged into the Java Sea on Dec. 28, killing all 162 on board.
So far the government has suspended the license of AirAsia for that route, found other airlines in breach of permits and removed state officials involved.
Garuda plans to increase its fleet size by an average of 6 percent to 7 percent a year over the next decade and most of the plane orders will be for single-aisle jets to expand domestic and regional destinations as feeders for its long-haul aircraft to Europe, Middle East and North Asia, Arif said.
It currently flies to London, Amsterdam and Tokyo, after a European Union ban was ended in 2009.
In October, the airline placed a $4.9 billion order from Boeing for 50 single-aisle Boeing 737 series planes.
“We just entered the global arena, but right now our size is not enough,” Arif said.
“We need to capitalize on what we have and become a global player. That is our task going forward.”
Garuda expects to carry a total of 36 million passengers this year, an increase from almost 30 million in 2014.
Garuda is expected to report a $184 million loss for 2014, according to the median estimate of analysts in a survey.
That would be its first annual loss since listing in 2011.
The drop in oil prices should help Garuda’s financial performance in 2015, with 80 percent of its fuel use unhedged, said Alan Richardson, whose Samsung Asean Equity Fund outperformed 96 percent of peers tracked by during the past five years.
“I hold the stock for oil price,” he said by e-mail. “Profits will benefit greatly,” he said.
The company, which uses the national symbol of a mythical eagle as its insignia, plans to sell the country’s first corporate global sukuk next month to cut its funding costs.
Arif said the company is using an exchange rate assumption of 13,000 rupiah per dollar for its 2015 planning, and is already working on several scenarios should the currency weaken to 14,000 per dollar, without giving details.
“Looking at our operating performance for the first two months, we are performing better than last year,” Arif said.