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?
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?
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