Garuda Indonesia's media console will soon make money for the airline. (Antara Photo/Lucky R.)
How Unknown Startup's Free Wi-Fi Helped Garuda Book $242m in Revenue
BY :HOTMAN SIREGAR & NUR YASMIN
MAY 09, 2019
Jakarta. National flag carrier Garuda Indonesia came up with a simple plan last year: offer free Wi-Fi services in all its passenger aircraft.
On the surface, this seemed like an additional cost to the airline, which was still grappling with hundreds of millions of dollars in losses from recent years. But what emerged from Garuda's annual report last month, came as a surprise. The company claimed that it was back in the black, turning around a $206 million loss in 2017 into net income of $810,000.
Two of the airline's commissioners even rejected the report, fueling market speculation that Garuda had committed accounting fraud.
However, Garuda said the case was much simpler.
At the center of the controversy was Mahata Aero Teknologi, an 11-month old startup, which agreed to install satellite-linked internet services in all Garuda's aircraft, including those of its subsidiary, free of charge.
More importantly, Mahata agreed to commit $242 million over the next 15 years in payments to Garuda. The airline then booked it as a receivable – standard practice in corporate accounting – which in turn boosted its revenue.
"They [Mahata] share profit from advertisements, in-flight connectivity and the entertainment services [they have installed on the aircraft]," Iwan Joeniarto, director of engineering and services at Garuda, said on Wednesday.
He added that airlines in Norway also successfully implemented a similar advertising profit-sharing scheme.
Iwan said Garuda conducted a feasibility study before selecting Mahata as a partner. The startup has contracts with international business entities such as Lufthansa Systems, Lufthansa Technik, Inmarsat and CBN.
"We, as a public company, also vet vendors before entering into partnerships with them," he said, adding that Mahata is backed by its parent company, the Global Mahata Group, which is valued at $640 million.
Equally important is Mahata's offer that Garuda does not need to spend a penny, while sharing the revenue.
"This is a new concept; zero investment," Iwan said.
Garuda plans to install free Wi-Fi services on 15 its own aircraft and 15 of its subsidiary, Citilink Indonesia, over the next 18 months. The installation will coincide with the aircraft's regular maintenance schedules, minimizing disruption to airline operations.
"The installation is indeed gradual, because it is subject to international aviation regulations and also because many of our aircraft are on lease," Iwan said.