Garuda Indonesia’s CEO has just warned of an imminent restructuring, which could see the airline shrinking by more than 50%.
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Garuda Indonesia could shrink massively
Airlines around the world have struggled to cope with the coronavirus pandemic, given the massive drop we’ve seen in passenger demand. Garuda Indonesia CEO Irfan Setiaputra has warned staff of a comprehensive restructuring that’s needed in order to survive, stating that if this isn’t done, it “could could result in an abrupt end of the company.”
With this restructuring plan, we could see the carrier’s fleet shrink by more than half. As the situation is described:
“We have to go through a comprehensive restructuring, a total one. We have 142 aircraft and our preliminary calculation on how we see this recovery has been going, we will operate with a number of aircraft no more than 70.”
That plan for just 70 aircraft refers specifically to mainline Garuda Indonesia aircraft, and not those of subsidiaries. In recent weeks the airline has been flying just 41 aircraft, as it has been unable to fly other planes due to lack of payments to lessors.
Garuda Indonesia is currently in $4.9 billion of debt, and that continues to grow each month, as the airline is unable to make payments.
Garuda Indonesia’s fleet could shrink by more than half
The real problem with Garuda Indonesia
Obviously the pandemic has been catastrophic for virtually all airlines, though the truth is that Garuda Indonesia was already an unprofitable mess before the pandemic.
Garuda Indonesia is in the camp of national airlines that are just extremely poorly run, which otherwise includes companies like Alitalia, Malaysia Airlines, South African Airways, and Thai Airways, just to name a few.
Garuda Indonesia has been so woefully mismanaged:
- The airline has largely been run with a motive of prestige rather than profit
- The airline has been through so many CEOs in recent years, and none has actually been there long enough to execute a vision; on top of that, corruption has run rampant (two of Garuda Indonesia’s recent CEOs were punished for smuggling and bribery)
- Garuda Indonesia has gotten enough support from the government to stay alive, but not enough tough love and/or financial support (you can go either way) to actually meaningfully restructure
As much as I hate to think of how many jobs could be lost if the airline shrinks significantly (especially given how fantastic frontline Garuda Indonesia staff are), that might just be what the airline needs to be sustainable in the long run. Unfortunately I’m not very confident we’ll actually see that.
Just look at the state of limbo that the other airlines I mentioned above are in, ranging from Alitalia to Malaysia Airlines.
Alitalia is also going through an endless restructuring
The added challenge with Garuda Indonesia is that it faces a lot of challenges with both short and long haul flying:
- We’ve seen a huge growth in Indonesian low cost carriers, making it hard for Garuda Indonesia to compete in short haul markets
- Garuda Indonesia’s long haul route network is pretty fragmented, and the airline faces competition from Gulf carriers, other Asian network carriers, and even some low cost carriers
- Garuda Indonesia faces the challenge of deciding between Bali and Jakarta as a long haul hub — Bali is obviously immensely popular with tourists but low yield, while Jakarta is the business market, but not necessarily that hot with tourists
Garuda Indonesia faces a lot of competition throughout its network
Bottom line
Garuda Indonesia’s president has warned staff that the airline is on the verge of collapse, and that it needs to shrink by over 50% in order to survive. The Indonesian national airline was already struggling before the pandemic, so I’m curious to see how this plays out.
Do you think the pandemic will lead Garuda Indonesia to successfully restructure?
As has already been mentioned, Singapore, which is at most 1-1.5 hours away from most cities within Indonesia, is a hub that offers connectivity to pretty much every major city in the world, and on a safer and superior airline to boot. There really is no reason for Garuda to exist apart from prestige reasons (and is it really that prestigious to run a failing airline?)
The Indonesian government should stop throwing money at a lost cause and just fold Garuda.
Or, alternatively, reduce the sky-high prices so that non-government travelers can afford to actually fly with them. I'd love to, but when a flight costs 10x more than every other airline, there's no incentive at all to try them out. And I don't mean 10x more than the lcc's, I mean 10x more than even premium carriers. Airlines like Batik provide an equivalent reliability and service. Air Asia is generally solid and clean. I've only...
Or, alternatively, reduce the sky-high prices so that non-government travelers can afford to actually fly with them. I'd love to, but when a flight costs 10x more than every other airline, there's no incentive at all to try them out. And I don't mean 10x more than the lcc's, I mean 10x more than even premium carriers. Airlines like Batik provide an equivalent reliability and service. Air Asia is generally solid and clean. I've only found it Garuda competitively priced once, out of maybe 90 flights taken around Indonesia. Once.
Garuda Indonesia Airlines is the National Flags carrier that more prestiges than business, nation mission in a front other than business profit? And no more popular in 2 decades in the aviation industry, even GA had already in a stake holder of public company.
Experience told us almost of National Flag Carriers failed to take a parts in this business, just named it? But pandemic made Aviation Business got more worst even they hire the best CEO on their company....
Do not forget Aerolíneas Argentinas... It receives more money on a national level than different National Ministeries (the equivalent of Departments in the USA, i. e. DOT, DOD, for example). Its CEOs come and go depending on the goverment which is in the power, and the direction of the carrier goes nowhere. And I am not even adding the unlawful practices the government imposes on the competence.
Cheers from Buenos Aires!
Garuda is always my.go to airline in Indonesia. Lion and others are not well run. Cost of course can run almost half of garuda but the complete service is much lacking. Not to mention safety. unfortunately with government tied and corruption eats up the management.
It could shrink to zero who cares ,mongoloid airline ,
Even pre-covid Garuda was never an option for leisure or business in my experience. I used to work in Jakarta, if we needed to fly someone in from Japan we’d pick either ANA or JAL. Some of the places we needed to go to domestically wasn’t even served by Garuda, I remember having to book someone on a business trip to MEQ and Lion group was the only one flying there.
Wealthy Indonesians would prefer...
Even pre-covid Garuda was never an option for leisure or business in my experience. I used to work in Jakarta, if we needed to fly someone in from Japan we’d pick either ANA or JAL. Some of the places we needed to go to domestically wasn’t even served by Garuda, I remember having to book someone on a business trip to MEQ and Lion group was the only one flying there.
Wealthy Indonesians would prefer to fly either Singapore Airlines or one of the middle eastern airlines where they’d get better treatment anyways, not to mention Garuda’s limited intercontinental network. Personally I don’t think it’s much of a loss to see it shrink to a small airline.
I don’t see GA moving to some sort of sensible profitable business plan at this stage - merely posing gloom and doom- put into place a recovery plan that is transparent and believable
Garuda has been protected by their government for too long, and they need to figure out how to be profitable. It’s about time they start making smart business decision even though it will be painful. However they need to understand what’s at stake. I hope the restructuring will not change the high level of service they currently provide, and put their hard-earned 5-Star status at jeopardy.
Prior to covid, Singapore Airlines could offer flights from almost anywhere through Changi to a range of destinations in Indonesia, Malaysia and Thailand. Transfer times could be as little as 55 minutes. In future they may profit handsomely from the demise of competition.
Great companies are the result of great management. Virus or not. Just sayin.
Well, in all fairness, for us passengers all of those government airlines are quite attractive, since they provide excellent service for a very decent price, in particular in J. Obviously, the financial bottom line is showing the result.
Moving their hub to DPS would be silly for so many reasons...plus, CGK is already rather built up and seems rather well run (at least that was my impression the numerous times I connected through it). Granted, Jakarta is sinking, but that's a whole other story. The low cost carriers, at the end of the day, aren't going to fill this void easily if Garuda goes under - I cannot see biz travelers, for example,...
Moving their hub to DPS would be silly for so many reasons...plus, CGK is already rather built up and seems rather well run (at least that was my impression the numerous times I connected through it). Granted, Jakarta is sinking, but that's a whole other story. The low cost carriers, at the end of the day, aren't going to fill this void easily if Garuda goes under - I cannot see biz travelers, for example, flying Batik from Jakarta to Tokyo on daily non-stops. Furthermore, some of Garuda's routes are lifelines for some of the more remotely-situated communities of Indonesia - this isn't a country with an easily-traversed landscape, after all...Garuda probably doesn't make money running dailies out to West Papua (I don't think Batik does, either...).
The main cause of Garuda troubles is a drop in tourist and business travel due to Covid. Even with the rise of lowcosters Garuda was the choice for reliable travel for wealthy Indonesians and tourists. Yes, you can fly Lion Air and Batik Air but their operation was a mess especially towards the end of the day. I stopped flying them and had less trouble with Garuda. "Deciding between Bali and Jakarta" - Lucky, what...
The main cause of Garuda troubles is a drop in tourist and business travel due to Covid. Even with the rise of lowcosters Garuda was the choice for reliable travel for wealthy Indonesians and tourists. Yes, you can fly Lion Air and Batik Air but their operation was a mess especially towards the end of the day. I stopped flying them and had less trouble with Garuda. "Deciding between Bali and Jakarta" - Lucky, what are you taking about? Bali is not a hub but rather a terminal destination for international carriers. Try connecting regionally from Bali in the pre-Covid days and you will find only very few local destination like Lombok nearby. Jakarta is a big business center with relatively wealthy folks flying flying worldwide and to weekends on the islands. Making DPS a hub is like moving Thai operation from BKK to HKT.
I think this could be a negotiating tactic to get more money from the government, or at least to allow for the govt. to sell more shares to raise capital in the short term. I don't personally see which planes they'd be willing to give up to meet this fleet reduction goal other than the turboprops. Maybe some 737-800 & Citilink's older A320s?
Alternatively, if they do shrink, they'll regrow in the medium term with...
I think this could be a negotiating tactic to get more money from the government, or at least to allow for the govt. to sell more shares to raise capital in the short term. I don't personally see which planes they'd be willing to give up to meet this fleet reduction goal other than the turboprops. Maybe some 737-800 & Citilink's older A320s?
Alternatively, if they do shrink, they'll regrow in the medium term with deliveries of A330-900neo jets. Maybe that'll be enough capacity to meet their demand afterwards.