In mid-2021, Garuda Indonesia announced plans for a major restructuring. The airline had been losing money for years (even pre-pandemic), and had crippling debt. It looks like the airline is now headed into a completely new direction, and… I’m not sure this is gong to end much better?
In this post:
Garuda Indonesia’s new business plan
Indonesia’s State Enterprises Minister, Erick Thohir, has revealed new plans about what a restructured Garuda Indonesia will look like. As reported by Bloomberg:
- Garuda Indonesia will stop flying most international routes, with few exceptions, including pilgrimage flights to Saudi Arabia; most long haul flights will instead be operated as part of codeshare agreements with other airlines
- Garuda Indonesia will instead focus on selling business class, premium economy (which the airline doesn’t currently have), and economy seats, on “local” flights; Garuda Indonesia may no longer offer first class, but the writing was on the wall for that anyway
- The airline currently only has around 30 planes, but intends to have the fleet return to the pre-pandemic size of roughly 120 planes; Garuda Indonesia will acquire additional planes from leasing companies
- Garuda Indonesia needs to restructure $9.5 billion in debt, and a deal has allegedly been reached with creditors
Oh, and Garuda Indonesia already plans to turn a profit in 2023(!!!).
This seems like a recipe for disaster
Garuda Indonesia is an airline with incredible employees but horrible management. At least that has been the case historically, as two former Garuda Indonesia CEOs were fined and arrested for corruption.
The issue is that Garuda Indonesia has kind of put itself in a spot where it no longer has a viable business model, as is the case with so many government owned airlines. Yes, it’s absolutely true that making money on long haul routes is tough, and historically Garuda Indonesia has probably operated too many routes for prestige rather than profits.
At the same time, how is Garuda Indonesia supposed to compete when it comes to local flying?
- Indonesia has fast growing, efficient, and robust ultra low cost carriers, which serve virtually every regional route
- I can’t imagine Garuda Indonesia can get its cost structure to the point where it competes with the likes of Lion Air and Air Asia; even with eliminating a lot of debt, Garuda Indonesia has so many legacy cost issues that can’t be fully addressed
- Admittedly some people are willing to pay more to fly a full service airline, but that’s probably not a big enough market to create a sustainable business model; that’s especially when you consider other global Asian carrier fly to Jakarta, so the airline will be competing against Cathay Pacific, Singapore Airlines, etc.
It seems to me like Garuda Indonesia’s sweet spot (admittedly it’s not that “sweet”) would be operating as an efficient global airline:
- Stop hiring CEOs who are corrupt, and who look out for their own interests, rather than those of the airline
- Have a simple, efficient fleet, and configure planes more viably as well, with an efficient economy layout, and a good business class product
- Focus on operating routes that provide connectivity between other parts of the globe via Indonesia, as well as flights to & from Saudi Arabia; for example, Garuda Indonesia was never as efficient as it could have been with connecting Europe to Australia, even though that’s a big market
I feel like this would minimize Garuda Indonesia’s losses while continuing to give Indonesia connectivity to the world on the national carrier. Obviously Garuda Indonesia’s old business plan didn’t work, but I don’t think the airline being focused on local flights will succeed either, given the competition.
Bottom line
Garuda Indonesia is undergoing a restructuring, and the latest plan is for Garuda Indonesia to focus on being a local airline, and operate very limited long haul flights, including to Saudi Arabia. As part of this, Garuda Indonesia also plans to grow back to its pre-pandemic size, and increase its fleet to 120 jets. I don’t see this ending well, but that’s just my take…
What do you make of Garuda Indonesia’s new business plan?
People choose to fly Garuda despite the premium ticket prices because they are perceived to be safer than their domestic rivals. Lion Air is infamous for the many accidents that they had a few years ago. So I'd say this is the right move to focus on the domestic market. They are less competitive internationally save for a few fat routes like CGK- SIN.
What I hope does not happen is what we've all seen happen elsewhere. The government is both civil air regulator and the owner of an airline, so it takes advantage of that conflict of interest by regulating the competitors out of business. In the short run that hurts consumers and in the long run makes the flag carrier less rather than more competitive, but it's a common temptation.
Seen from that perspective, the solution would...
What I hope does not happen is what we've all seen happen elsewhere. The government is both civil air regulator and the owner of an airline, so it takes advantage of that conflict of interest by regulating the competitors out of business. In the short run that hurts consumers and in the long run makes the flag carrier less rather than more competitive, but it's a common temptation.
Seen from that perspective, the solution would be to privatize Garuda, but I recognize that's not politically possible.
The only part of an all domestic plan that checks out is that Indonesia is the 4th most populous country in the world. But they need to dramatically increase wages and discretionary spending in order for that to matter.
They definitely have to do something about their corporate structure, the rate of internal corruption is unacceptable. Indonesia generally require a lot of pilot and Garuda has a lot of them, so changing business model might sound good but they do have to see their strengths and weaknesses with clarity. Garuda as a company has a tendency to repeat their mistakes because of bad bureaucracy. I hope they can be better, but i do really...
They definitely have to do something about their corporate structure, the rate of internal corruption is unacceptable. Indonesia generally require a lot of pilot and Garuda has a lot of them, so changing business model might sound good but they do have to see their strengths and weaknesses with clarity. Garuda as a company has a tendency to repeat their mistakes because of bad bureaucracy. I hope they can be better, but i do really think the best way out is to dissolve and create a new one with less government intervention and more professionalism, like sq, ana,emirates, etihad,qatar, etc.
Indonesia need to focus on building more tourism. Look at Vietnam airlines. Vietnam is a smaller sized economy than indonesia with less populations and ULCC everywhere.
I’m a diamond medallion and will try to fly skyteam because of benefits but very difficult to do. GA CGK-SIN route is as expensive as SQ. How does that make sense?
my wife is one of civil servant. currently when she going to do job outside province, she and team won’t take garuda fleet. the reason is easy, less schedule, most expensive and less destination. if many civil servants do the same thing, it will cause problem with garuda in long term finance. civil servant, one of the important source of revenue. they need to operate more flight and cut the price, so it will be between finance ministry budget for travel.
Their management is focus on revenue, doubt they will cut the price plus domestic routes they are still the king (as of now).
How exactly are they king of domestic routes?
Domestically GA may not be able to survive since they have to compete with the local LCCs. It might be better if they optimize their domestic routes and just focus their service on routes that will be profitable.
International market will be a better option for GA to grow. They will have to face competition with the likes of SQ and QR but they already have a good product and should be able to...
Domestically GA may not be able to survive since they have to compete with the local LCCs. It might be better if they optimize their domestic routes and just focus their service on routes that will be profitable.
International market will be a better option for GA to grow. They will have to face competition with the likes of SQ and QR but they already have a good product and should be able to survive.
Focus should be on destinations that will bring in most passengers and profit. Direct flights to DPS from cities like NRT/HND, PEK, TPE, HKG, BKK, DEL, BOM, SYD, MEL, BNE, PER, AKL, and even from SFO or LAX via HNL or TPE might be a good option.
Even European routes to DPS from AMS, CDG, LHR with transit at DXB, AUH or DOH might works.
To be successful GA needs to focus on consistency. Their soft and hard products (service and planes) are already top notch and quite consistent hence the Skytrax 5*. However it seems at times their management strategies are fickle and can change abruptly, such as sudden changes in their routes, schedule, and aircraft configuration, with minimum communication to their customers that will inconvenience their passengers and will have negative impact to their credibility.
This is a tricky situation. By focusing on domestic routes within a small country (geographically, not population wise) I would think it unlikely many passengers would pay a premium to fly a full service over an LCC on such a short flight.
What are they actually offering that's better than their competitors beyond a checked bag?
In a wealthy country maybe, but not in a developing country like Indonesia.
I do think...
This is a tricky situation. By focusing on domestic routes within a small country (geographically, not population wise) I would think it unlikely many passengers would pay a premium to fly a full service over an LCC on such a short flight.
What are they actually offering that's better than their competitors beyond a checked bag?
In a wealthy country maybe, but not in a developing country like Indonesia.
I do think there's potential to offer regional flights to Australia, NZ and North Asia/Japan with a proper widebody intl service. I think people would pay a premium for that over Malindo/Jetstar and airlines operating narrow Bodies
Garuda needs to play the premium and safety card well. Indeed many affluent people, officials and especially those on business don't want to be put together with the folks in the cattle class of the low cost carriers. Lion with Batik is trying to steal a piece of that premium cake, but personally I found their premium offering is half hearted, and not anywhere close to the quality Garuda offers.
In short, I don't...
Garuda needs to play the premium and safety card well. Indeed many affluent people, officials and especially those on business don't want to be put together with the folks in the cattle class of the low cost carriers. Lion with Batik is trying to steal a piece of that premium cake, but personally I found their premium offering is half hearted, and not anywhere close to the quality Garuda offers.
In short, I don't think the strategy is wrong, as long they execute it well. Once the books looks better they then can reintroduce the international routes esp on the fat ones.
Sovereign carriers are a license to steal, only today, the creditors get a haircut as the Leasing Companies will open bank accounts 4 the Pro-curement officers.
Put a fork in it
Its too late to re-build this airlines to survive. No matter how much money they got from the government, they will keep loosing. As you said, their business model and uneffficient routes are still the major problems. Sorry, but I doubt that this airlines will survive for 5yrs from now.
Well, some elements of the strategy might work, others not. I guess codesharing on the KLM flights from CGK and DPS to AMS (and beyond) is certainly better than bleeding money on that route. Also codesharing on China Eastern to mainland China makes sense, in particular given the very limited international traffic to/from mainland China due to COVID restrictions. Same with China Airlines to TPE.
On the other hand side, I'm not sure if...
Well, some elements of the strategy might work, others not. I guess codesharing on the KLM flights from CGK and DPS to AMS (and beyond) is certainly better than bleeding money on that route. Also codesharing on China Eastern to mainland China makes sense, in particular given the very limited international traffic to/from mainland China due to COVID restrictions. Same with China Airlines to TPE.
On the other hand side, I'm not sure if they can compete with Air Batik on the domestic and regional routes in the premium segment, as others said. However, this leaves us with basically ... nothing but a few codeshares ...
The entire south-east Asia just suffers from severe corruption and being outmatched in every way to Singapore, at least in terms of the aviation industry. If you're a rich Malaysian or Indonasian, why fly your national airline with a questionable safety record, limited flights out of the country and an inferior hard product if you can just fly Singapore Airlines in First or Business and receive award winning service, revolutionary hard product and very minor...
The entire south-east Asia just suffers from severe corruption and being outmatched in every way to Singapore, at least in terms of the aviation industry. If you're a rich Malaysian or Indonasian, why fly your national airline with a questionable safety record, limited flights out of the country and an inferior hard product if you can just fly Singapore Airlines in First or Business and receive award winning service, revolutionary hard product and very minor inconvenience with a connection in Singapore, the best airport in the world but receive far more flight options and better connectivity.
Singapore Airlines is just a first world airline operating in a third world region and it's just hard to convince the richer business or wealthy travelers to choose their national airline over Singapore, especially since the inconvenience to connect in Singapore is so minor because of Geography.
They need to fly to more routes Bali to Australia, Australia only really has the shocking airline jet star flying to Bali, and air Asia as well. If they come in, be reliable, competitive cost and don't cancel flights. Australians will soon choose them over crapstar.
The problem is most people won't pay for premium cabins on very short flights
More so when the price different is staggering (usually at 5-6x Economy).
Dear CEO,
years gone and comes without marks that this flag carrier tootless in home business, keep repetitive and looping program on products and flight schedules and in consistence make the market and customers looks choose more attractive offer from your competitor. simply just get away from old vision drasticly, win back the market , streaming domestic efficiency and direct control from management.
This strategy is so bad, I feel it has to be a result of even more corruption. I think they would be far better off looking at MH's approach of focusing on regional routes with a couple of Long Haul.
I concur, looking at the load factors on MH and the investments they are making on new aircraft I would say that the strategy is working so far. Adding a robust alliance support in OW the strategy sort of makes sense.
Which airline has crashed the least aircraft in the last, say, five years?
Something to seriously consider in south Asia given the raft of ULCCs flying the skies in the region.
As you mentioned, corrupt CEOs and other executives are a major cause of the airline hemorrhaging money. But it seems no one is held accountable. I agree, it’s a recipe for disaster.
They should be focusing more on feeding traffic between other skyteam partners and SE Asia regional traffic. So limit long haul to TPE, ICN, LAX, SEA, etc.
Garuda has has a very limited international network to begin with. Pre-pandemic, they flew scheduled long haul only to AMS (due to politics), SYD, MEL, PER, ICN, TYO, KIX, NGO, PEK, and PVG, in addition to the necessary pilgrimage flights to Saudi Arabia. They also had a LHR route but it was on and off.
The way I read this, this round of cuts would leave very few destinations to just TYO (both NRT and...
Garuda has has a very limited international network to begin with. Pre-pandemic, they flew scheduled long haul only to AMS (due to politics), SYD, MEL, PER, ICN, TYO, KIX, NGO, PEK, and PVG, in addition to the necessary pilgrimage flights to Saudi Arabia. They also had a LHR route but it was on and off.
The way I read this, this round of cuts would leave very few destinations to just TYO (both NRT and HND, apparently very profitable), SYD, and maybe a Chinese destination, in addition to Saudi.
Garuda will most definitely lose money if they were to fly to the US.
So many examples in Southeast Asia of national airlines trying to compete with LCC.
Malaysia Airlines
Philippine Airlines
Thai Airways
Vietnam Airlines
All on the verge of, or already went bankrupt.
Garuda should see all the writings on the wall.
They were already contemplating to shut down Garuda and replace it with Pelita Air. But the name Garuda carries too much pride for the country, no less due to it being the name personally chosen by the country’s founder.
It's 'writing on the wall'. Not "writings (sic) on the wall". Clearly the young lady paid no attention in Sunday school.
There are five official religions in Indonesia, and three of them had writing on the wall, so yeah it’s “writings”
But remember Garuda managed to pull the impossible once already, from a loss making airline with bad reputation to profit making premium 5* Skytrax airline a decade ago.
Very unfortunate that the guy who managed to pull that trick is in jail - a great CEO but unfortunately not free from corruption as well
It feels like watching a once-promising student at least aiming to work at JPMC now barely making it by at a regional boutique bank. I had such love for them. Oh well, the world keeps spinning
I'm no expert at all, but I'm a very frequent flier in Indonesia. In any other country, I pay more for a full service airline, but in years of flying have only once found Garuda to be a value proposition. Their fares are just so vastly out of whack, at least 2-3 weeks out. A recent flight I checked from Jakarta to Surabaya was $50 on Lion and Citilink, $65 on Batik, and $290 on...
I'm no expert at all, but I'm a very frequent flier in Indonesia. In any other country, I pay more for a full service airline, but in years of flying have only once found Garuda to be a value proposition. Their fares are just so vastly out of whack, at least 2-3 weeks out. A recent flight I checked from Jakarta to Surabaya was $50 on Lion and Citilink, $65 on Batik, and $290 on Garuda.
If you want to compare apples to apples, compare garuda to Batik. Batik is a full service airline, and it has a top-notch business class that includes privately run lounges. I fly them constantly, because the product is solid and comfortable, and the prices are often a fraction of Garuda's. Often Batik business is cheaper than Garuda economy. Finally, Garuda's pull back in scheudling make many connections ridiculous. So many connecting routes require 20 hour layovers. In short, there's just no reason to fly them.
Also note there are several new competitors. Air Asia has pulled back in Indonesia, but Lion Group recently launched SuperJet, and Pertamina (the gas company) is now starting Pelita Air. Competition will be thicker than ever.
Do you think Batik will eventually overtake Garuda as the bigger player in international aviation in Indonesia?
@Ray
As far as I’m aware, the Indonesian Batik will not focus on international flights outside select regional destinations like Singapore or Kuala Lumpur, as well as charters to China. International connectivity will be handled by the Malaysian Batik (previously Malindo), the two of which are meant to complement each other.
I don't know how much they will expand internationally, but anecdotally, Batik launched DPS-PER today.
You’re completely right, Garuda’s value preposition hasn’t made any sense in recent years. I’d imagine it’s attributed to Garuda’s management being in limbo before made worse by the pandemic.
This was similar to what I found. The full service airlines within the Lion Air group are actually quite decent and their business class is cheaper than economy on Garuda.