Garuda Indonesia president director and chief executive Arif Wibowo, center. (Antara Photo/Lucky R.)

Garuda Eyes $10b Annual Turnover by 2020 With Its 'Sky Beyond' Strategy

BY :MUHAMAD AL AZHARI

DECEMBER 27, 2016

Jakarta. After guiding the national flag carrier back to profit in 2015, Garuda Indonesia president director and chief executive Arif Wibowo has even bigger ambitions as he spearheads the "Sky Beyond" strategy that puts an emphasis on return maximization, excellent Indonesian hospitality and group synergy.

When Arif was appointed to lead the state-controlled airline in December 2014, it was about to announce a $369 million loss for that year. A year later, his so-called "Quick Wins" strategy managed to swing the airline into the black, with net income of $77.7 million.

The veteran Garuda executive, who had been with the airline since 1990 when he was responsible for technical management issues, spoke to the Jakarta Globe recently, unveiling his ambition to see the airline achieve an annual turnover of $10 billion in the next five years.

That would be a major jump from around $3.8 billion currently and to achieve that, he said the airline needs to boost its domestic market share to 50 percent from 41 percent and internationally to 40 percent from 27 percent.

Arif said to support such ambitious targets, the Garuda group, including its low-cost carrier unit Citilink, needs a combined fleet of 312 aircraft, compared to the 194 it currently has.

"For that we need to strengthen our equity. In that respect, our main shareholder – the government – plays a really important role," Arif said, without elaborating what type of financial instruments the airline would employ to achieve its goal.

The government has a 60.51 percent share in Garuda Indonesia, while Trans Airways, which is affiliated to businessman Chairul Tanjung, controls 24.63 percent and the public 14.86 percent.

Arif said part of the airline's strategy would involve boosting Citilink, which he previously led. The budget airline competes fiercely with local privately owned airline group Lion Air in the Indonesian market, while Malaysia-based AirAsia also fights for a bigger share of the domestic aviation market.

"We will really strengthen [Citilink's] role as an LCC [low-cost carrier], even it ends up having a bigger fleet than Garuda in the domestic market; we will guard it so that it can grow healthy and safely to meet local demand," Arif said.

The chief executive spoke to the Jakarta Globe on Nov. 22, a day before he was scheduled to receive an award at global financial news network CNBC's 15th Asia Business Leaders Awards in recognition of his achievements. Arif is one of only two chief executives from Indonesia, out of 60 shortlisted candidates from Asia, to have received the prestigious award.

Return Maximization

Arif said the airline's return maximization strategy includes a reduction of its fleet, overhead costs, route restructuring and revenue management, while maximization of returns includes efforts to lower fleet costs, which involve renegotiating contracts with global aircraft manufacturers Airbus, Boeing and ATR.

Arif said he has been in a series tough renegotiations with some of the global aircraft manufacturers as he seeks to lower leasing and insurance costs, pre-delivery payments for planes and other allowances that may erode Garuda's margins.

"If in the past, in line with the LCC motto, 'pay less for less,' I want to change it into 'pay less for more.' I am the CEO of Garuda [a full-flight service], who used to be the CEO of an LCC. So, I am a bargain hunter. They know my style now," he laughingly told the Jakarta Globe.

Arif explained that he decided on a fleet cost reduction plan after Garuda booked a heavy net loss in the second quarter of 2016, with fleet costs having played a major role.

Garuda was in the red in the first nine months of this year due to challenging conditions in the domestic aviation industry as consumers' purchasing power waned, which saw stagnated sales and lower revenue, while a weaker rupiah caused various costs to soar.

The airline booked a $44 million loss in the January-September period, compared to a $63.2 million loss in the January-June period.

"It was improving in the third quarter, so in the fourth quarter, God willing, we can achieve a positive result," he said.

Other efforts for return maximization include route restructuring, boosting ancillary revenue, strengthening sales channels and boosting operational efficiency.

Regarding route restructuring, Arif said Garuda will focus on adding international flights to China and the Middle East. He said Chinese cities such as Guangzhou, Shanghai, Beijing and Hong Kong are key targets. Garuda currently has flights from Jakarta to the four Chinese cities, with plans to add more flights to those destinations from Denpasar, Bali.

"It [China routes] will continue be added. In January, we will add a Chengdu-Bali route and we are eying others, such as Xian and Tianjin," he said.

Chinese visitors from the last-mentioned three cities currently fly to Indonesia on chartered flights and Garuda seeks to offer scheduled commercial flights to cater to the growing number of Chinese tourists visiting Indonesia.

In the Middle East, Garuda plans to add routes to major cities, especially to cater to Umrah pilgrims. Arif said besides Jakarta, Garuda seeks to add more departure points from Indonesia to bring its services closer to consumers.

In the European market, Arif said Garuda currently operates Boeing 777-300ERs jets on routes to London and Amsterdam, which are currently still booking losses.

"For airlines, there are many variables to calculate; we do cross-subsidize such losses, but we still try to find ways for our 777-300 aircraft to make good money," he said.

Daily Performance

In terms of revenue management, Arif proudly showed the airline's high-tech system, which allows management to monitor the airline's daily operations through a mobile application called Executive Dashboard.

Arif showed how the application, which can only be accessed by Garuda's management, helps him monitor the airline's performance related to overall load factors, online performance and even ticket sales.

"If the indicator is red in a particular area, we will warn the supervisor of that area," Arif said, while demonstrating the app.

He said apart from the way digitalization has changed life for Garuda's management, customers are also expected to feel the benefit, especially as the airline offers various e-booking platforms.

"We regularly track our sales from our e-commerce platforms," Arif said. He added that the management app also shows the performance of e-commerce platforms, including the airline's official website, smartphone application and cooperation with online ticket booking partners, which contribute about 24 percent of total ticket sales.

Travel agencies are still the biggest contributors, accounting for about 51 percent of total ticket sales, while the airline's ticketing offices contribute 23 percent.

Excellent Indonesian Hospitality

Garuda, which is already a world-class airline, has secured dozens of awards and certifications, such as "Most Admired Company" and "Top 5 Most Powerful Brand in Asia" for its business performance, "World's Best Cabin Crew," "Most Loved Airline" and "Five-Star Airline" for service, "Indonesia Human Capital Award" for human capital, "Zero Accident Award" for safety and more.

Arif said Garuda's achievements are partly due to the airline having made a strong push to differentiate its products to compete, which is not easily imitated by competitors.

Group Synergy

With regards to group synergy, Arif said the airline seeks to regroup its business, streamline technical aspects of its operations, including information and technology aspects, and to consolidate with other state-owned enterprises to make more profit and have a more efficient operation.

Garuda currently has seven subsidiaries. They are Citilink, Aero Systems Indonesia, GMF AeroAsia, Aerowisata, Cargo Garuda Indonesia, Abacus Distribution Systems Indonesia, Garuda Sentra Medika and Gapura Angkasa. There are also dozens of a "grand-children" companies, or subunits of subsidiaries.

Arif gave an example of how Garuda runs its operation, which optimizes plane utilization, plane rotation, cabin crew and cockpit crew shifts, through an automated system.

"The bigger the size of the business, to manage more than 190 aircraft, they all have to be automated, it cannot use manual services. We use system sharing for both Garuda and Citilink," he said.

Optimization via information technology to synchronize the airline's mileage reward system for customers who regularly fly with Garuda and Citilink.

"For example, those who fly with Garuda can secure mileage rewards, which can also be redeemed when buying tickets on Citilink. There is a conversion rate though, either to redeem or purchase other goods. Those are aspects we plan to strengthen within our group synergy corridor," Arif said.

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