CASE STUDY

GARUDA INDONESIA
Marketing

Young Professional 51BA – Syndicate 6

Metalia Kusuma Wardhani 29114752

Annisa Swavira 29114858

David Rinaldi 29114868

Rizki Lingga Waryono 29114904

MASTER OF BUSINESS ADMINISTRATION

SCHOOL OF BUSINESS AND MANAGEMENT

INSTITUT TEKNOLOGI BANDUNG

 2014

COMPANY PROFILE

Garuda Indonesia is a full-service airline. The class configuration is divided into

executive (business) and economy class. Aside domestic routes which serve Indonesian large
cities, the airline flies to a number of regional and international destination in South-East &
East Asia, the Middle East and Australia. The airline previously has a comprehensive
worldwide route network that included North American, European and African countries.
Unfortunately economic crisis that swept Asia in 1998 hard hit the nation and the airline,
forcing it to trim-down its network. As of September 2010, the airline has 75 aircrafts in its
fleet, including 3 Boeing 747-400s, 10 Airbus 330s and 62 Boeing 737 series. The airline has
put a firm order of 10 Boeing 777-300s, 14 Airbus 330 200s and 50 Boeing 737-800NG, of
which 23 Boeing 737-800NG has been delivered in 2010. The airline has 3 Strategic Business
Unit (SBU) and 4 subsidiaries which contribute to the company’s performance. The SBU is
an independents business unit within the company, which targets on optimizing resources to
maximize the company’s value. 3 SBU responsible directly to the boards are: Garuda Sentra
Medika – aviation medical services, Garuda Cargo, and Citilink – low cost carrier. Beside the
3 SBUs, there are 4 subsidiaries: PT Aerowisata – Hospitality & Tourism services, PT
Abacus Distribution System – GDS Provider, PT Garuda Maintenance Facility, and PT Aero
System Indonesia – IT Engineering. In conducting its operations, the company is supported
by 7,861 employees. Presenting a new standard of service quality in air travel industry,
Garuda Indonesia currently flyes to 64 destinations, consists of 55 cities in Indonesia and 20
cities abroad. In addition to serve its own flight routes, Garuda Indonesia also entered into the
agreement pf “code share” with 14 international airlines.

HISTORY
Indonesia’s commercial aviation history began when Indonesian people was in
struggle to defend their independence. The first commercial flight from Calcutta to Rangoon
was made on January 26, 1949, using a DC-3 Dakota aircraft with the tail number of “RI-
001” and the name “ Indonesian Airways”. In the same year, on December 28, 1949, another
DC-3 aircraft registered as PK-DPD and painted with “ Garuda Indonesian Airways” logo
flew from Jakarta to Yogyakarta to pick up President Soekarno. This Was the first flight made
under the name of Garuda Indonesian Airways. Then, in a year later, in 1950, Garuda
Indonesia officially became a state owned company. During that period, the company
operated a fleet of 38 aircrafts comprising 22 DC-3, 8 Catalina flying boats, and 8 Convair
240. Garuda Indonesia’s fleet continued to grow, and eventually made its first flight to mecca
carrying Indonesian hajj pilgrims in 1956. In 1965, the first flight to European countries
started was made with Amsterdam as the final destination.
Garuda Indonesia fleet and operations underwent large scale revitalization and
restructuring throughout the 1980s. This prompted the Company to develop comprehensive
training programs for its air and ground crews and established a dedicated training facility in
West Jakarta, named the Garuda Indonesia Training Center. In Addition the Company also
built an Aircraft Maintenance Center at Soekarno-Hatta International Airport. Then in the
early 1990s, Garuda Indonesia developed a long-term growth strategy which was applied until
the year 2000. The Company also continued to expand its fleet placing Garuda Indonesia
among the 30 largest airlines of the world. Along with initiatives in business development in
2005, a new management team took office and formulated new plans for the future of the
company. The new management undertook a comprehensive re-evaluation and overall
restructuring with the objective improving operational efficiency, regained financial stability
that involved efforts in debt restructuring, increased awareness among employees concerning
the importance of service to customers and , most importantly, revived and revitalized the
Garuda Indonesia spirit.
The successful completion of the company’s debt restructuring program opened the
way for Garuda Indonesia to go public on 11th February 2011. The company officially
became a public company after the initial public offering of 6,335,738,000 shares. The
company’s shares were listed on the Indonesia Stock Exhange on February 11, 2011 with
code GIAA. This was one important milestone after the company completed the
transformation on its business through hard work and dedication of all parties. As of
December 2013, the share holding structure of Garuda Indonesia as the Issue and public
company is the Republic of Indonesia (69.14%), employees (0.4%), domestic investors
(24.34%), and international investors (6,12%).
Additionally, on March 5, 2014, Garuda Indonesia officially joined the Sky Team
global alliance, as part of its international network expansion program. By Joining the Sky
Team, Garuda Indonesia passengers are now able to fly to 1,064 destinations in 178 countries
served by all Sky Team member airlines with more than 15,700 flights per day and access 564
lounge worldwide. As part of the company’s effort in continually improving its services to
passengers, Garuda Indonesia introduced the distinctive concept of service called “Garuda
Indonesia Experience”, which brings hospitality, culture, and everything best from Indonesia
through five senses, namely sight, sound, taste, scent, and touch, to be implemented in the
service of pre-journey, pre-flight, in-flight, post-flight, and post journey. Garuda Indonesia is
also listed as one of IATA Operational safety Audit (IOSA) operators, applying safety and
security standards equivalent to major international airline members of IATA. Garuda
Indonesia received IOSA certification in 2008
VISION

“A strong distinguished airline through providing quality service to serve people and goods
around the world with Ondonesian hospitality”

MISSION

“The flag carrier of Indonesia that promotes Indonesia to the world, supporting national
economic development by delivering professional air travel services.”

Corporate Value

Corporate value called ‘Fly-Hi’ consisting of eFficient & effective, Loyalty, Customer
CentricitY, Honesty & openness, and Integrity.

 Efficient & effective : Work in an accurate, efficient and timely manner to produce
high-quality result.
 Loyalty : Carry out duties with full dedication and responsibility.
 Customer Centricity : Serve with sincerity and focus on customer satisfaction.
 Honesty & openness: Uphold honesty, sincerity, openness and caution.
 Integrity : Maintain dignity and refrain from improper conduct that may damage
Company image and profession

INDUSTRY ISSUES

Safety regulation

Airline Industry is a regulation-intensive industry. It is because, there is a great deal

of regulations to observe by each airline company. The regulations are generally related to
three subjects, namely state’s sovereignity, flight safety, and economy. Regulations pertaining
to state’s sovereignty mainly affect the flights which serve international routes. Manual on the
Regulation of International Air Transport (Doc 9626, Part 4) issued by International Civil
Aviation Organization (ICAO) – an institution under UN that adopts aviation standards and
recommended practices, prevention of illegal intervention, and facilitation of inter-state flight
procedure for international civil aviation contains nine freedoms to be met by airline
companies in conducting their operations (Table I). The nine freedoms will eventually affect
the operational cost and freedom of a certain airline in performing its flight plan. The
folllowing regulation pertains to flight safety, which is the prime factor in aircraft operation.
Besides, the safety factor mentioned even shall be considered and calculated since the design
phase. Standard of aircraft operation, personnel and supporting apparatus have been stipulated
in civil aviation safety regulation (CASR), which is actually the civil flight safety regulation
applied in Indonesia. The regulation stipulates all works of designs, manufactures, and
operation of aircraft as well as its supporting apparatus, maintenance, and other operational
definitions, therefore, certain aircraft shall be prepared at a very tight and high level of safety
and security, far more intense than any other public transportation modes. Nevertheless, all
those mentioned shall be related parties’ accountability to perform as best as possible. Both
airlines and authorized party, which is general directorate of air transportation, shall supervise
the application. It is also general directorate of air transportation that authorized to issue
certificate of airworthiness, a certificate stating certain aircraft is feasible to fly and be
prepared or operatable. There was a deregulation in airlines industry in Indonesia, which
caused an extraordinary growth of national airlines industry. The growth was outstanding so
that it has depressed other transportation modes. At the end of 1990s, the number of airlines
was not more than ten companies with total passengers of approximately 6.3 millions.
However, in mid 2009, the number of airlines for scheduled transportation has been
multiplied five times, to more than 50 companies. Then, the mentioned airlines companies
operated at least 489 aircraft units, with number of domestic passengers exceeds 37 millions
people. Nowadays, all big cities in 34 provinces in Indonesia have already been served by
flight routes. The rapid growth of air transportation in Indonesia is not coincided with the
absence of problems. Numerous problems have frequently arises in line with advance of
transportation mode in this sector, and lots of them pertaining with availability of human
resources as well as aircrafts maintenance and management. No wonder, that afterwards there
have been a number of accidents; from the tragic incident of the disappearance of Boeing
737-400 PK-KI 574 owned by private operator Adam Air on January 1, 2007 in Majene sea
areas, West Sulawesi Province, ablaze of GA 200 Garuda on March 7, 2007 in Yogyakarta to
numerous findings on aircraft damages/breakages which were very disgraceful. As a result, in
accordance with ICAO recommendation, as of July 6, 2007, all Indonesian airlines companies
are banned to make fly to European Community countries. As a response, Indonesian
Government issued a series of regulations which primarily tighten flight safety rules in
Indonesia. As a result, Indonesian airlines companies concurrently made serious reformations.
Eventually, on July 14, 2009, four national airlines; Garuda Indonesia, Mandala Airlines,
Airfast Indonesia, and Ekspres Transportasi Antabenua have been delisted from the blacklist
of flight prohibition to European Community countries. In 2009, the Government of
Indonesia also issued Law No. 1 of 2009 which provides that only an airline having
Indonesian legal entity status, which is owned by state-owned enterprise (SOE, BUMN),
regional government-owned enterprise (RGOE, BUMD) or a private company, cooperative’s
legal entity in the form of PT is allowed to establish an airline. This law has to be enforced
because in fact, there are some airlines that are not capable of managing the air transport
business professionally, whereas such a business requires professional personnel in addition
to firm regulation (fully regulated), large capital (capital intensive), high technology, law
enforcement. Based on the Ministerial Decree No. 25 of 2008, to establish a scheduled-
service airline requires a minimum of two aircrafts and three controlled aircrafts, while
special cargo airline requires a minimum of two controlled aircrafts. Those requirements are
deemed insufficient; therefore, Law No.1 of 2009 stipulates that scheduled service airlines
shall have at least five aircrafts and control a minimum of five aircrafts which are capable of
sustaining the commercial airline business in accordance with the routes being served. On the
enforcement of Law No. 1 of 2009, Airlines having scheduled service or non-scheduled
service license may continue their businesses pursuant to the permits they own and are
obliged to make adjustment with the new regulation not later than three years following the
enactment of the law. For legal entities including SOE, RGOE and private companies that
will apply for business permit, the law is effective as from January 1, 2009.

ASEAN open sky policy

In 2015, all countries incorporated in ASEAN are expected to own international

airports. It is an implementation of ‘‘open sky’’ agreement that has been endorsed by ASEAN
leaders in ASEAN declaration in October 2003 at Bali, Indonesia. The implementation of
open sky agreement has been conducted gradually. In 2015, all countries in ASEAN region
are targeted to be required to apply. The open sky policy established in ASEAN declaration
was an advanced development of cooperation in areas of security, economy, and social-
culture among ASEAN states, primarily in airlines industry. This denotes that there would be
an open competition among airlines companies of each country in dealing with airlines
market within ASEAN region. Indonesia have 151 airports which are controlled by Technical
Administration Unit of the Ministry of Transportation (125 airports), SOE PT. Angkasa Pura I
(13 airports) and SOE PT. Angkasa Pura II (13 airports), of which 26 airports are classified as
international airports. Therefore, Indonesia which owns the largest amount of international
airports, largest region as well as largest amount of population (more than 230 million people)
would be a great opportunity for any other ASEAN states in seizing profits by the concerned
policy. In comparison with Singapore, who only has one airport and Malaysia who owns six
airports but only two airports already have been liberated, the composition that Indonesia
owns, therefore, clearly incomparable with the two countries/states. Therefore, besides taking
into account profit potentials may be acquired by this open sky policy, the Indonesian
Government and domestic airlines companies shall be aware of the airlines market share
threat within ASEAN region as well as domestic airlines market share. It can be said, that this
open sky policy is one of possible means to penetrate airlines market in Indonesia, who
acquires large area and lots of airports facilities. This airlines liberalization policy or ASEAN
Open Sky Policy shall not only apply for passenger aircrafts, but also for cargo aircraft.
Ministry of Transportation has assigned seven international airports that would serve the
traffic of mentioned cargo aircrafts. As for passenger aircrafts, the Indonesian Government
planned to assign other five airports to be liberalized in order to comply with this open sky
policy. The five airports concerned are; Soekarno-Hatta Airport in Jakarta (DKI Jakarta
Province), Kualanamu Airport in Medan (North Sumatera Province), Juanda Airport in
Surabaya (East Jawa Province), Ngurah Rai Airport in Denpasar (Bali Province), and
Hasanuddin Airport in Makassar (South Sulawesi Province). Essentially, Indonesian
Government is not exaggeratedly uneasy on the application of ASEAN open sky policy. It is
because, the growth in the number of passengers of domestic flights remains approximately at
10 percent per year. By the 10 percent growth per year mentioned, it is predicted that in year
2015, the number of domestic flight passengers may reach 77.6 millions. In addition, by the
purchase of lots of new aircrafts, it is believed that nation’s airlines may be capable of
competing with foreign airlines in seizing domestic airlines market shares either overseas
flight routes. Furthermore, concerning domestic airlines, the cabotage principle would remain
applied. It is stipulated that any airlines would entered inter-cities routes in Indonesia are
required to be modified as Indonesian corporate body. Therefore, the required minimum 51
percent single majority ownership of the concerned company’s shares shall be local investor.

Oil price

According to International Air Transportation Association (IATA), airline industry is

very susceptible to labor cost, fuel cost, and borrowing cost. Historically, labor cost always
serves as the cost component number 1. However, during IATA economic briefing in
February 2010, it was stated that fuel cost is now the cost component that is bigger than labor
cost. In 2008, fuel continued to be the largest single cost item for the global airline industry.
Based on a sample of 45 major global passenger airlines, fuel represented about 32.3 percent
of the total operating cost, up from 27.4 percent in 2007. These numbers are consistent with
global industry fuel share so this sample can be taken to be representative. Table II shows that
in 2008, labor’s share of airline’s operating costs in Asia Pacific was lower than in North
America and Europe, reflecting the relatively lower wage level in that region. However, with
relatively lower labor costs, fuel accounts for a much higher proportion of total costs (36.7
percent) in Asia Pacific than elsewhere.

Technology
 There are three technological aspects that affect the scheduled airline industry,
namely internet, aircraft technology and air-transport supporting technology. The internet has
had a notable affect on the airline business. In the 1980s airline revenues were dependent on
travel agents, who primarily took a cutout of every ticket. This was costly for both the airlines
and the customer. The industry found itself struggling with a third-party cost it could not
effectively control. For the customer, the ability to individually research, negotiate and
purchase tickets directly has altered the competitive equation between buyer and seller.
Before the Internet, ticket choices were primarily limited to the major airlines, and regional
airlines were not able to market effectively against the larger carriers. However, once smaller
carriers and customers could connect effectively, this synergy created a host of new, cheaper
travel options. The rise of participating consumer review content will also throw a large
spotlight on product and service standard differences between airlines. Passengers will
develop a good knowledge of the service and product to expect of each airline. For example,
crew service standards, seat pitch, meals offered, drinks offered and so on. With that
knowledge and insight, they will make their choices accordingly. Airlines that treat
passengers with indifference will find it much harder to retain existing passengers and to
attract new ones. The following technology comes from the aircraft suppliers. Two aircraft
suppliers dominating the world airline industry are Boeing and Airbus. Boeing is the world
largest aircraft manufacturer, not to mention its success after 1997 in acquiring McDonell
Douglas, a company formed from a merger between two aircraft manufactures – McDonnell
and Douglas. The development of aircraft manufacturing technology focuses on fuel
efficiency and flight safety improvement. The development in aircraft material has enabled
the aircraft manufacturers to realize their ambition to produce fuel-efficient aircrafts with
farther travel-distance yet reducing carbon emission.

The LCC phenomenon

‘‘Low cost’’ flight or LCC is also often called as budget airlines or no frills flight or
discounter carrier. LCC is a unique flight model with lower operating-cost strategy. Through
cost efficiency at all aspects, the LCC performs things beyond what common airlines usually
do. Airlines in general render additional value-added services by providing catering,
newspaper or magazine, in flight entertainment, in flight shop, lounge, free taxies after
landing, exclusive frequent flier services, and so forth. On the other hand, LCC eliminates
traditional airline services by reducing the catering, minimizing reservation by means of I/T
so as to simplify and speed up the service. This minimal (efficient) service results in the cost
decrease. However, safety factor is maintained tight to guarantee the passenger safety till the
destination. Hence, LCC is a flight business redefinition that provides affordable ticket price
with minimum flight services. The bottom line is that the offered product promotes low-cost
principle to press and reduce the operational cost so that it can seize broader low market
segment. The beginning of LCC is pioneered by Southwest Airlines that was founded by
Rollin King, Lamar Muse, and Herber Kelleher in 1967 in the USA. Southwest phenomenon
has become object of flight business study that is very interesting to discuss in numerous
business schools around the world. Efficiency covers all aspects including price (cheap),
technology, cost structure, route, and various operational equipment in use. This LCC model
was also adopted in Asia, marked by the emergence of Air Asia in 2000 with its headquarter
in Malaysia, Virgin Blue in Australia, and Lion Air and Wings Air (subsidiary of Lion Air) in
Indonesia. In Indonesia, there is none that implement real LCC business pattern, because
operational cost of airlines that reputed as LCC in Indonesia like Lion Air and Wings Air are
still above average of LCC airlines in general. Many financial analysts keep stated that the
cost per available seat mile still above the threshold of standard operating cost of a real LCC,
though its price structure has complied with LCC concept hence it might be more appropriate
being called as low fare carrier (LFC) as it only offer cheap price but not fully agreed with
LCC principles where the cost structure and productivity of the airline is still categorized
expensive. With the presence of LFC concept are benefited a lot potential customers, as they
provided with choices in utilized air transportation with cheap cost and fast. Often the price is
much cheaper than land transportation by bus or train that required longer time. For instance,
bus trip from Jakarta to Denpasar for 24 hours required cost for Rp, 350,000 while using
plane, for the ticket price offered start from price Rp. 269,000 with traveling time 1.5 hours.
Even at certain occasions the Air Asia (Indonesia) offers free seats to Bali by only pay the
administration cost for Rp. 19,000 only. This phenomena have ‘‘Make People Can Fly’’ in
line with jargon of Lion Air, which aware us that presently everyone can fly with affordable
price and no longer as old time where utilization of air transportation being monopolized by
middle to upper society. The development of flight business to the future still faced difficult
challenges, considering the fuel price (avtur) that keep increasing that is apparently the
biggest cost component of the total operating cost in flight business beside plane
maintenance. As consequences by the increasing operating cost, airline is forced to increase
the tariff. Therefore, the real LCC business strategy that aggressively able to make saving on
fuel consumption is very appropriate to be implemented in Indonesia by considering the
potential customers in Indonesia is very price sensitive, hence the customer tend to choose
airline that offers cheap price, however, the LCC airline still gain profit from its business.
Therefore, to the future it is very possible that only airline applied LCC pattern that will be
more able to survive than other airline with traditional service pattern. However, on April 14,
2010 the government has passed a regulation of new upper tariff threshold where the
government categorized airline that operate in Indonesia based on three types of service.
Airline that provide maximum standard services is allowed to apply maximum upper tariff
threshold up to 100 percent, while for the middle is 90 percent from upper threshold, and
those provide minimum services or no frill airline only allowed to apply 85 percent of upper
tariff threshold. The amount of upper tariff threshold that allowed to charge is being adjusted
with services that provided to the passenger. The government gives deadline until June 2010
to the airlines for adjusting the upper tariff threshold according to the new regulation to its
ticket reservation system. Responded to the government regulation, all airlines in Indonesia
will increase its tariff, even Sriwijaya Air – one of the new comer private-owned airlines
company in Indonesia – reaffirm to prepare it self to enter premium class and become
challenger of Garuda.

The airlines alliance

Globalization has forced many countries around the world to implement free trade
policy, privatization, and an open market as well as an open sky policy. This has resulted in
fierce competition in the commercial airline business between countries. Consolidation and
alliances between airlines have become necessary in order to create advantages in route
networks which one airline could not absorb single-handedly due to the exorbitant expenses
that would be incurred and resources that would be involved. An airline alliance is an
agreement between two or more airlines to cooperate on a substantial level. Alliances are
formed in order to assist member airlines in their cost synergies which include an increase in
bargaining power in cases where there is joint purchasing of spare parts and services, joint
reservation and sales offices and joint airport lounge facilities. Alliances provide a network of
connectivity and convenience for international passengers and international packages.
Alliances also provide convenient marketing branding to facilitate travelers making inter
airline code-share connections within countries. This branding goes as far as to even include
unified aircraft liveries among member airlines. The three largest passenger alliances are the
Star Alliance, SkyTeam, and Oneworld.

Market

As one of the most cyclical industries, it is not surprising that the financial
performance of airlines is closely tied to economic growth in the network areas they serve.
But it is unique to this industry that those network areas are tied to local conditions. Although
there has been further development of alliance co-operation, joint ventures and some mergers
and acquisitions it is the case that airlines are still highly dependent on the traffic generated
by their local economies and trade lanes. This is in contrast to many of the companies listed
on major stock exchanges that generate their earnings from across the globe; these companies
are not restricted by the market and ownership rules that constrain airlines. As a result, the
airlines doing well in today’s environment are those in Asia and Latin America where
economic growth has revived the most. The weakest markets in Figure 3 below are clearly
across the North Atlantic and within Europe, where the economic recovery has faltered, under
pressure from consumer debt and still weak bank balance sheets. Travel has diverged
dramatically by seat class as well as market. Economy travel is within a few percentage points
of its early 2008 peak levels. Premium travel remains 17 percent below. The concern had
been that this was a permanent shift by business travelers to cheaper seats. The good news is
that the decline in premium appears to be due to the unprecedented cyclical decline in world
trade and financial markets, and some upturn is evident. The bad news is that the cyclical
upturn is not expected to regain the pre-‘‘Great Recession’’ trend line, given debt problems in
the west. Moreover, yields may have suffered some structural decline. Business travelers still
want full service on long-haul, but corporate buyers are not prepared to pay as much.
Premium yields have picked up but are still 20 percent below early 2008 levels. During 2005-
mid 2009 period, service performance of Indonesia air transportation keep experienced
improvement. Number of national scheduled business air transportation fleets that being
operated increasing from 214 units to become 489 units. The amount is predicted will keep
experienced significant increase. Up to April 2009, number of domestic passengers reached
41.1 million people and international passengers reached 4.5 million people, while for cargo
services up to April 2009 is reached 372.1 thousand ton and international cargo reached 46.7
thousand tons. The increase on International passenger amount mainly caused by the increase
of Indonesian citizen that traveling abroad that being motivated by business activities and the
freed of fiscal for owner of tax identification number. Moreover, international businessman
and tourist factors that return to its country also effected, in line with the increase on
international tourist visit to Indonesia. Number of international tourists are reached 6.42
million people with state income reached US$7.37 billion. Almost 67.5 percent of total those
international tourist are utilized air transportation. The increase in domestic passenger amount
is caused by among others, capacity improvement, decreased ticket price, and the increase on
numbers of newly open flight route. Factor of ticket price is considered as the determinant
factor, as ticket price ticket more affordable, in particular on market segment that being
serviced by low fare and low cost flights. The increase is occurred mainly due to Lion Air
keep increase its planes numbers, flight frequency, and number of routes. Recently, it has just
brought three units of ATR 72-500 to service flights in Eastern part of Indonesia. Second
position is held by Garuda Indonesia that flight 8.39 million passengers or 19.28 percent of
the total passengers. Being followed by Batavia Air that flight 6.10 million passengers or
14.02 percent of total. At this first quarter of 2010, Lion Air market share is jumped up to
41.9 percent. While Garuda decrease slightly to 19.1 percent, in the meant time position of
Batavia Air is replaced by Sriwijaya Air with market share for 15.9. Though, with different
market segments, but it seemed the competition among airlines is focusing on premium and
full service segments such as Garuda and other airlines that catch medium segment is
unavoidable. For international flight, during 2009 Air Asia Indonesia is the holder of the
biggest market share by transported 406,571 passengers or 46.9 percent. The next position is
held by Garuda that able to fly 295,565 passengers or 34.1 percent, the next is Lion Air
owned market share 14.2 percent with passenger amount 123,170. Lion Air has started its
international route expansion since this February 2010 by increase flight frequency to Jeddah,
however, for two years ahead Lion Air is still focused to consolidate its domestic and regional
market. This 2010 is seemed to become a year where many local airlines open international
routes. Beside has opened route to popular international destinations such as Singapore, Kuala
Lumpur, Bangkok, Hong Kong, Macau, and Jeddah, several local airlines were also managed
permits for flights to China, Japan, and Australia at the latest end of this 2010. Especially, for
Hajj, up to date Garuda is still the only local airline that transport regular and plus Hajj
passenger in Indonesia. Though the government based on approval from house of people’s
representative has opened opportunity for private airlines to enter Hajj transportation
business, there is no national private airline that interested. Lion Air as one of two Indonesia
airlines that possessed permits to land in Saudi Arabia is not yet shown its serious interest to
enter the lucrative business. Last year, Garuda transported Hajj pilgrims from embarkation of
Banda Aceh, Medan, Padang, Palembang, Solo, Balikpapan, Banjarmasin, Makassar,
Surabaya, and Jakarta except West Java. In 2008, Garuda transported 302 flight groups with
number of 259,000 pilgrims. While in 2009, Garuda transported 300 flight groups with
number of pilgrims increased to 264,000 persons.

Supply of pilot and other skilled personnel

The rapid increase on number of airlines and planes in Indonesia has caused increase
demands for professional personnel such as pilot, technician, steward, and so forth. Currently,
in Indonesia there are seven flying school with capacity to graduate 100-150 pilots per year.
While demand for national airline pilot either scheduled or chartered are reached 500 pilots
per year. That is why since this 2010 Indonesian Government is allowed foreign pilot to work
for local airline, not only as instructor refer to the previous regulation, but is also allowed to
become flight officer or co-pilot. Beside pilot personnel, flight industry also required plane
technician personnel. Lion Air alone in this 2010 requires about 180 technicians that have just
fulfilled 30 personnel. That is why airline in Indonesia, mainly that possessed big market
segment is actively create cooperation with various formal education institutions to improve
educational quality of technician and increase the capacity of its graduate.
CORPORATE STRATEGY

The agreed corporate goal is to become a leading airline with reputation equal with
other world-class airlines. While, corporate objective that would be implemented is to create
continue to grow and expand company with everlasting profit. Corporate goals and objectives
is formulated in strategic plan period 2006-2010 that include stages that must be achieved to
reach annual objectives and return to significant growth level. As part of the translation
processes of the company strategy from the form of intangible assets to become tangible
assets as well as to sketch out the causative relationship among the strategic objectives,
therefore, being developed a strategy map that consisted of four perspectives in balanced
scorecard: learning and growth perspective, process, customer, and financial (completely
described in Exhibit 10). Strategic themes for 2008 are:
 Financial restructuring
 Revenue enhancement
 Operational efficiency
 Consistency of product and services; and
 Intensify network
The Management was integrating dynamic program to give focus to the company
management process. This program named ‘‘Wildly Important Goals’’ (WIGs) is intended to
improve three objectives that consisted of:
1. Profit
2. Service level
3. On time performance (OTP).
Company’s WIGs are described on Exhibit 11 that include work frame for objectives
that need to become priority. With detail description, WIGs are expected drive the creation of
culture of execution at entire company levels in achieving the collective purposes. Afterward,
fromthe result of developing strategymap, strategy objective,WIG, and detailing of main
program then being determined targets of key performance indicator (KPI) for year 2010. The
corporate’s KPIs then cascade into individual KPIs.

Finance

During year 2009, management of Garuda Indonesia has conducted a number of

financial and accountancy programs; such as finalization and completion of debt restructuring,
preparation for IPO, funding of new aircraft, cash flow optimization, and increase natural
hedging. The second restructuring started in 2005, Garuda Indonesia at that time decided only
to pay interest and stop paying principal payment. The creditors were group in three main
categories, secured, unsecured, and government related debt.
 In general, company financial performance has shown significant improvement from
the previous years, though for several account is shown decline. During year 2009, company
has obtain operational revenue for Rp. 16,694.19 billion or decrease 7.19 percent from the
previous year. This condition is followed by decrease on operating expenses for 5.43 percent
(due to decrease on price fuel until 32 percent). On the other hand, during the current financial
year, company has earned other incomes for Rp. 284.01 billion, so that the company’s profit
increase 18.82 percent to become Rp. 1,009.28 billion. In terms of taxes, during year 2009
company has paid taxes for Rp. 1,779.2 billion or increase 99.4 percent compared with the
previous year. From equity point of view, during year 2009, company has experienced
decrease on assets value for 4.6 percent compared with the previous year. This achievement is
declining if compare to the gain of assets increase for 27.7 percent in year 2008.

Human Resource

In order to acquire excellent employees that capable of conducting effective and

optimal role at various key positions, Garuda Indonesia is concentrating on human capital
management approach by focusing on personnel as valuable assets for Garuda and not merely
as a supporting factor or an available resource. Each employee is required to put an
excellence on which includes; knowledge, skill, and working attitude, therefore, they may
enhance productivity and performance, either in working environment and individual life
generally.
Garuda Indonesia’s commitment on learning process and development of employees
are reflected in the attendance rate at Garuda Indonesia Training Center (GITC), which has
been long operated. GITC, which located in West Jakarta, acquires completed learning center
facilities, with various programs and learning systems, including electronic learning (e
learning), purported to create an optimal training quality at the entire levels of organization.
In order to maintain international standardized training quality, GITC has acquired
CASR 121 certification as well as CASR142 and 147, as some of requirements for GITC to
be assessed capable of providing training to third party. In addition, ISO 9001 certification
and trainingmaintenance aircraftmaintenance training organization certification have also
been acquired; therefore, competency and quality of instructors and training provided in
GITC have been more completed. Through GITC, Garuda has conducted various mandatory
and non-mandatory training program for aircrews and ground staff. Mandatory program
includes training in regulation area, flight operations, and safety, in line with corporate
strategic objective to fulfill flight safety, comfort, and optimal services. Basically, through the
training conducted in special sessions or daily works activities (on the job training), Garuda
has always been trying to develop leadership capability, insight, communication skill as well
as development of Garuda’s culture/values and work ethics.
 This learning management is expected to be capable of building a learning culture
through high-impact learning organization. In order to develop employees in accordance with
Garuda’s strategic objective, learning process is designed as a derivation ofGaruda’s strategy
and business plan, which among others conducting integration of Fly-Hi value order into the
syllabus of the existing training program. One of survey objections is to ensure that the
remuneration package in Garuda Indonesia is still competitive, therefore, Garuda may be
remain a chosen one for professionals who have potentials and interested in joining or remain
working with Garuda Indonesia.

Operation

Garuda Indonesia manages a fleet of 70 aircrafts in December 31, 2009, which

consisted of 67 aircrafts which are operated in main brand (Garuda Indonesia) flights and
three aircrafts operated in Citilink flights. As a result of utilization development and addition
of aircrafts, Garuda still manages to improve its capacity of ATK for main brand flights at
7.16 percent. Likewise, ASK and FATK increase at 3.97 and 17.25 percent, respectively,
compared to 2008.
By a turnaround spirit that emphasizes aircraft reliability and safety as one of main
priorities, in 2008 Garuda Indonesia has successfully achieved a milestone in its efforts as one
of leading airlines internationally, by achieving IATA Operational Safety Audit (IOSA)
certification and be included in the list IOSA operators as of May 14, 2008. IOSA is a
certification on flights safety and security, which has been accredited internationally through
analysis of eight operational performance aspects, which includes 900 flight operational
standards. Garuda Indonesia has become the first airline in Indonesia that has satisfied the
very stringent IOSA standards. The success of IOSA Certification achievement has promoted
a very positive impact against Garuda Indonesia’s reputation. Some international airlines even
have planned for reopening the operational cooperation (code-share) with Garuda Indonesia;
it is because as an IOSA operator, Garuda Indonesia acquires an equal safety level with other
IOSA operators.

Marketing

Garuda flight network connects 29 domestic cities and 24 international cities,

includes nine cities, which are served by company code-share partners. The domestic flights
frequency has reached 69,644 times of flights, 80.84 percent of the entire flights frequency of
Garuda. In 2007, domestic flight frequency reached 80.7 percent, while in 2008 is reaching
79.4 percent. The concerned amount of flights allocation is purported to make the frequency
of Garuda flights services in domestic market shall acquire dominant frequency share and has
strong competitiveness. Domestic flights frequency is represented in 38 routes. The
international flights frequency is at the rate of 19.16 percent, by considering the acquired
international flights route network and the number of jumbo-size aircraft which served for
long haul routes, such as to Japan, Korea, China, and Middle East. In the beginning of June
2010, Garuda Indonesia reopened flight from Jakarta to Amsterdam through Dubai.
Amsterdam is the first city of several other destination city in Europe, which in steps will be
serviced by Garuda Indonesia, those are Frankfurt, London, Paris, and Rome.
In the re-flight to Amsterdam, Garuda introduce ‘‘Garuda Indonesia Experience’’
service, a service that being inspired by the hospitality and uniqueness that being
characteristic of Indonesian at entire aspects of Garuda Indonesia services start from services
of pre journey, preflight, in-flight, post flight, and post journey. This service being inspired by
the five senses, those are: sight, sound, smell, taste, and touch, for instance cabin interior with
bamboo and batik motifs, music, and food/beverage choices of Indonesian menu, aroma
therapy, as well as ‘‘GarudaGreeting.’’ Arzyanti, Senior Public Relations ofGaruda
emphasized the delicious of mini nasi tumpeng (cone formed rice) and martebe juice (passion
fruit and Dutch eggplant) that being served by Garuda, ‘‘Must be tried, certainly will ask
formore’’she stated convincingly.
At this flight, Garuda Indonesia also introduced new uniform with batik motif, as
creation of Indonesian fashion designer. The new uniform is in the form of modified kebaya
that being inspired by batikmotif of ParangGondosuli that possessed philosophy value of
‘‘aromatic life radiant’’, and give beauty and elegant impressions to its wearer. This uniform
comprised of three colors of Tosca green with tropical sophisticated and refresh concept,
orange that give warm, hospitable but full of energy, as well as blue that give impressions of
reliable, trustworthy, enduring, and relaxing.
There are also sponsored events by Garuda such as Indonesian festival, Indonesian
Food Festival, and Indonesian Night in various countries. Beside that, it also worked on
mailing list networks in Australia (in particular student’s mailing list) and social network
(facebook, twitter) to promote Garuda. All those efforts are fruitful, which is by the increasing
load factor (LF) that initially below 60 percent become 70 percent, the target is beyond 80
percent to be profitable like flight to Bali that always has LF 85 percent. Garuda Indonesia has
implemented a new concept of price regulation system, by implementing several pricing
concepts with different application to each segment and channel (different price for different
segment or channel). This new price regulation systemis conducted to catch segment at lower
market segment such as worker, student and switcher, and others. Implementation of the
system is also to increase awareness that Garuda Indonesia possessed various level of offering
price, so that the currently planted image as airline with high price can be removed.
Implementation of many pricing concept is not for lowering price as competitors did,
however, by fixing route profitability then customer can get added value with similar price.

SWOT

In order to identify a strategic niche that the organization might exploit, it is needed
to analyse the SWOT of Garuda Indonesia.

STRENGTH
o Good Services
ICSA Award in 2001 ( Indonesian Customer Satisfaction Award) in
the category of Total Customer Satisfaction and also Best On Time Airline
Award from Schiphol International Airport Amsterdam.
o Good Brand
Proved by two award received in 2001 from Mark Plus & Co for
Experimental & Emotional Branding Champion, and in 2002 received from
MARS & Swasembada Magazine for the most valuable brand in airline
category.
o Good Finance
After going through a tough negotiating process and succeeding in
completing its debt restructuring, Garuda was awarded the10 " Best
Corporate Finance Deal of the Year 2001 " from Air finance Journal-London
on April 8, 2002.
o Good Information System
It is proved by two award. First, it comes from PT SAP Indonesia
awarded Garuda Indonesia on 17 October 2000 its "Best Implementation of
1999" award. The SAP system is an integrated data software processing
system containing modules covering accounting, finance, asset management
and human resource management etc. Second, award from DNV (Det Norto
Veritas), A Netherland –based standard certification institute, presented
Garuda Indormation Systems with an ISO-9001 Certificate on 25 May 2000.
o Good management
It is proved by an award for Innovator : Crisis Busting Award.
Travel Weekly East Magazine, Singapore, presented Garuda Indonesia
Innovators Award 2001 Airline (International) : Crisis Management. Award
are given to institutions, businesses and individual as an acknowledgement of
 their extraordinary achievements or to those who have succeeded in
formulating and carrying out an innovative concept or idea
o Good Human Resources Development.
The pilot is known as a good pilot that are wanted by many airline.
The adept knowledge of the Garuda Indonesia pilots is as impressive as the
technological wonders they fly. Garuda pilots are one of the most
experienced pilots in the world. Among 642 pilots that Garuda Indonesia has,
306 pilots are Captains with the equivalent of 408,294 flying time, or an
average of 13344 flying time each. To further hone the capabilities of Garuda
Indonesia's pilots, they are rigorously trained and regularly tested in state-of-
the-art flight simulators located at the Company's modern GAT training
facility in Jakarta.
o Good Maintenance Service.
Administration (FAA) on 28 February 2000 announced the Garuda
Maintenance Facility had fulfilled requirements as11 an "approved repair
station" in accordance with FAR 145, and had satisfied the quality guarantee
needed to carry out maintenance, including engine and aircraft components,
on aircraft owned by US airlines
o Good and Modern Aircraft.
Garuda Indonesia's fleet is supported by 47 aircraft, which consists of
five types of excellent-functioned aircraft. 37 of these aircraft are fairly new
and are added to the fleet to phase out older, obsolete aircraft. The new
aircraft include three Boeing 747-400s and nineteen Boeing 737s. Garuda
Indonesia's fleet is supported by 47 aircraft, which consists of five types of
excellent-functioned aircraft. 37 of these aircraft are fairly new and are added
to the fleet to phase out older, obsolete aircraft. The new aircraft include three
Boeing 747-400s and nineteen Boeing 737s.

WEAKNESS
1. Financial Problem
That is most comes from the big debt and the decline of earning.
Details as follows :
o Even
Successfully for debt restructuring on 1998, but in this
periode the debt still big and in other side, unfortunately earning that
is targeted equal to US $ 1,2 milliard estimated to go down 18%
because of the decline of sales.
 o Still facing a big problem in capital structure.
Garuda have a big amount of debt and should be able to pay
by installments so that is not threated as default. Till first quarterly
2003, debt position Garuda is equal to Rp. 6,121 triliun. The
problem of this payment are more critical because of the decline of
earnings. Operating income of Garuda during 2002 was declining
become Rp. 9,87 trilliun.
2. Human Resources Problem
o There are a keen conflict between employee and management
o Audit finds that Garuda Indonesia are over-employee. This time
Garuda employees more than 9.089 people, by 1.906 without
clearly position.
3. Customer Relationship Problem
o Compared to other airline in ASEAN, Garuda is not pertained
big airline firm.
o According to the e-research result, it found that customer still
have complaint on Garuda services especially in Dated
entertainment system, pilot announcements, unexciting lounges,
no frequent flyer program and public perception.
4. Barriers of Implementation of the strategy
o Struggle from subsidiaries employee that are refuse spin-off
strategy. On May, 2003 counted 641 technician, from 25
domestic airport and 5 abroad menacing to conduct direct action
protest this strategy.
o No good communication between management and employee
about its Strategy.

OPPORTUNITY
o Global airline industry
The declining of global market that was caused of the September 11,
made more than 1.000 aircraft abroad were grounded. This condition has
made airline in US getting problem with idled a large number of passenger
jets and made them available for leasing at rock-bottom rates. Medium range
jets as a Boeing 737-300 can be picked up for $45.000 a month, compared to
$ 120.000 two years ago. For Indonesia airline it is an opportunity, airline
firm could added its aircraft with lower cost. r travel is the primary means of
 getting around the country’s 13.000 islands scattered over an area the size of
the United States.
o Economy
Overvalued currency- making it easier to pay fixed costs pegged in
U.S dollars.
o Industry
Domestic flight : In years 2002, domestic airline industry, especially
in Jawa Timur Province were growth 34,52%. Jakarta-Surabaya is the
busiest route, for Garuda it gives the highest contribution,70%.13.
o Customers
Estimated that there will be 9,7 million potential air passenger in
2003 and 10,4 million in 2004 in Indonesia.

THREATH
o Global airline industry
Prior to September 11, the airline industry was already in a downturn.
Growth in revenue-passenger-kilometer was rapidly declining. And a drop in
first-reduction in revenues, an impact most pronounced in the United States.
Post-September 11, the situation worsened. Travelers’ continuing concerns
about personal safety, corporate drives to reduce costs, and an increase in the
hassle factor all warked to discourage passenger from air travel.
o Government
The government regulation about reference tariff that is too low ( SK
Dirjen Perhubungan Udara No. 35)
o Competitors
There are some of new domestic airline competitor come in airline
industry such as : Airmark, Awair, Bayu Indonesia Airline, Deraya,
Indonesia Airlines, Avi Patria, Lion Airlines, Peliya Air, Rusmindo Internusa
Air, Star Air, Alatief Air International, Asia Avia Megatama, Bali
Internasional Air Servics, Nusantara International Services, Satrio Mataram
Airline ( Jakarta Post, 17 June 2003)
o Supply chain
In the leasing world market, the secondhand aircraft prices are drop.
Even though this condition give advantages, cause Indonesia domestic
airliner can lease by lower price, but in other side for Garuda itself, this
condition make a serious problem. New competitor can add its aircraft, and
then make low-cost and low price strategy. It makes the competition in
 domestic route become so tight. Further, price war in Indonesia domestic
airline industry can not deny anymore.
o Epidemic disease
SARS still an epidemic that discourage people for traveling. The
outbreak of the SARS virus, which has killed at least 205 people worldwide,
has caused a further downturn.
o Customers fear for terrorism attack
Bali-bomb case, Iraq war, September,11,2001 event. Flights to
Europe, United States and Australia were trimmed due to the war in Iraq.14
o The impact of economic crisis
The 1998 crisis slashed passenger numbers by more than half, from
13.4 million in 1998 to 6.2 million in the following year.

Marketing Mix

Price

Pricing decision cannot be made in isolation, but see in the context of the Marketing
Mix, together with the product. Futhermore, government intervene domestic economy
passenger tariffis, set upper limit an airline can applied for its economy class passengers,
while international passenger tariff are determined by government billateral agreement.
To help determine optimum pricing, the airline uses revenue management system.
The system allow the capacity on board each aircraft to be divided into 9 economy classes (H,
V, B, Q, N, K, L, M, Y, with H being the most affordable Y being the most flexible) and one
executive class (C, full fare business classes). The airline continously increased capability of
its revenue management system which was used to assist in managing existing capacity by
understanding the caracteristic of each category of passengers and market condition so that
optimum yield and Seat Load Factor (SLF) can be achieved. On its turn, optimum yield and
SLF would help to establish optimum revenue.

Product

The airlines cover 31 domestic and 19 international destinations. The airlines uses its
Boeing 737 fleet, primarily to serve domestic and short-haul regional routes. The airbus
A330s is used to serve medium regional routes as well as long-haul routes prior to arrival of
ordered Boeing 777-300ER.
Each of Garuda Indonesia’s aircraft is configured in two-class layout, Executive
Class and Economy Class. Economy Class offers a 17 inches wide seat with pitch ranging 30-
35 inches, while Executive Class offers a 19 inches wide seat with pitch ranging 42-58 inches,
depending on the aircraft type. The Executive Class in Airbus 330 also features a full flatbed
seat, greatly enhanced the comfort for medium to long haul routes. In-flight services starts as
soon as passenger boards the aircraft, with the cabin crews extend Garuda Indonesia-Style
greeing and welcoming passenger. Depending on length of flight and sector flown, passengers
may enjoy a variety snacks, hot meal and beverages. Selection of hot meals available to
Executive Class passengers, served in China and crystal utensill, also an assortment of fine
red and white Australian and French wines, Champagne, liquors.

Place

Garuda Indonesia employed both direct and in-direct distribution channels. The
airlines direct distribution channel of local and overseas branch offices, 24-hours Jakata-based
class cnter, and internet booking engine. As for in-direct distribution channel, Garuda
Indonesia traditionally relied on travel agents, applying uniform commision to all travel
agents-5% for each domestic route ticket and 7& for each international route ticket.

Promotion

Promotion represent all communication used in marketplace, including advertising,,

public relation and slaes promotion. In the advertising, garuda Indonesia is known to have
produced attractive commercials, engaging pride side of customer in each of its ads. Different
types of media are being used by the airline, including TV & Radio, Newspaper and
Magazine, as well as outdoor media such as billboard.
As for the sales promotion, the airline tailored special promotion package especially
in new routes. In addition, the airline also has annual travel fairs and pratners with credit card
issues to give discount as well as other promotion program.

KEY ISSUES

Garuda Indonesia Before Company Turnaround

For several years ago, Garuda Indonesia was an airline that seemed to be on a path of constant
turbulence. The airline’s financial performance is deteriorating as a result of debt-ridden,
inefficient operations and chronically corruption practices.

Having previously served extensive international network that includes a number of countries
in Europe and North America, the airline is forced to trimmed wingspan. Aging fleet and
increasing service level expectation of foreign customers made the airline unable to compete
in the international market.

In regional and domestic market, deregulation of airline industry and revolution of Low-Cost
Carrier have brought a serious competition for the airline. Many of these new coming airlines
drove down airfares and initiated the price war in the market. As a result, its market share is
significantly eroded and its margin had been cut in half.

In June 1998, Garuda was hit hard by the Asian financial crisis of 1997-98. It suffered both
from unfavorable currency valuations (most of its costs were in U.S. dollars) and from a fall
off in tourism. To survive, the airline sold off 20 planes, cancelled orders, and closed money-
losing routes, including all those to the United States. Layoffs were put off until the fall of
1998; 3,000 of 13,000 employees were cut. Fares were also raised. Still, the crisis left Garuda
with a debt of $1.8 billion. New management was installed in November 1998, and the new
team was able to restore profitability within a year. The airline was seen as a model of
recovery.

In 1999, Garuda saw its first profit in a decade, Rp548 billion ($62 million). The airline was
flying about six million passengers a year. It posted sales of 9.279 trillion rupiah in 2000, up
from 7.541 trillion the previous year. Net profit was Rp77.9 billion. Garuda began to reopen
some of the 17 international routes that had been closed in the wake of the Asian financial
crisis and secured a leasing deal for seven Boeing 737s to replace lost capacity.

The Asian financial crisis cut domestic passenger counts (and airline fleets) in half and
grounded one local carrier, Sempati Air. The Indonesian government responded by
deregulating the air market. A half-dozen start-up airlines appeared in the domestic market in
2000 and 2001, adding to the handful of established airlines.

After the September 11, 2001 terrorist attacks on the United States, some European
governments issued travel advisories warning tourists to avoid Indonesia, which was home to
some small but highly vocal radical Islamic groups. However, Garuda was able to hold on to
profitability. It posted a profit of $60 million (Rp503 billion) in 2002 on sales of about $5.6
billion.

Plans for privatization were still alive, though deferred till 2003. In August 2003, Garuda
announced plans to spin off its maintenance business, with 2,750 related employees, as well
as other non-core units, as part of the privatization preparations.

Steps taken included returning several expensively-leaded aircraft, renegotiating and

severance of contracts, closure of non-profitable international routes, abolition of the discount
ticket system, streamlining aircraft types, implementing a fleet assignment policy, and a
change in orientation from “market” to “product”.

In detail the consolidation program since 1999 until now are listed below.

1999

Rehabilition Program. After successful consolidation in 1999, Garuda carried out a

rehabilitation program as carried out using five enhancement programs, namely operations,
service and revenue enhancement, as well as effective cost management and effective
management. Throught the rehabilitation program, Garuda has succeeded inraising its on time
performance levels, seat load factor yield, positive operations and cash flow, as well as
increased profits.

2000

Increased Service and Communication. This program was carried out by Garuda to raise all
aspects of the airline’s service, and at the same time communicate it to general public as part
of the airline’s effort to improve public perception of both the service and image of Garuda.

2001

Efficiency Program. Focused on increasing efficiency in all aspects of Garuda activities, this
program seeks to raise organizational profitability in an optimal manner. Garuda are
achieving this by building competences and applying efficiencies in all aspects of company
performance such as organizational efficiency, administration, operations, finance and
procurement, throught the creation of an efficient organizational structure, work methods,
system andprocedures, as well as nurturing of a positive attitude.

2001

Expansion and Development Program. Throught this program, Garuda will seek to expand
its routes, services and products, as well as its fleet. It intention is not only to become the
domestic market leader, but also to prepare for competition with the international market
place and privatization.

2003
Privatization. Following the phase given above, Garuda expects to carry out privatization
and become a public company in 2003.

Garuda Indonesia Behind Emirsyah Satar Leadership

In 2004, Garuda Indonesia terminated all European services with the latest being Amsterdam
on November 2004 as it continued to experiences losses in the sector. The airline also
terminated its service to Seoul in September 2004. Yet it continued to bleed nett loss up to Rp
139 billion by the end of March 2005. 71% of the airline’s domestic routes are losing money
in January 2005, increasing up to 85% in the next month. 65% of internationalroutes are also
losing money, up to 91% the next month. Meanwhile, its SBU Citilink is losing money in all
its routes.

Assuming office of CEO Garuda Indonesia in March 2005, Emirsyah Satar first objective was
to stop the bleeding. Reviewing its domestic and international routes, the airline shut down
non-profitable routes and reduced frequencies on certain routes. At least 10 routes are shut
down in June 2005, including Denpasar-Kuala Lumpur, Medan-Kuala Lumpur, Surabaya-
Makasar-Timika-Jayapura, and Jakarta-Bangkok, although later the airline resume Jakarta-
Bangkok service as demand catch up. It also reduced frequency on Jakarta-Banjarmasin,
Jakarta-Padang, and Jakarta-Denpasar. Service to Fukuoka and Damamm are also being
halted in 2006.

The airline then increased frequency in money-making routes to boost its revenue. inJuly
2005, it added frequencyof service to Shanghai, Beijing, and Guangzhou. In October 2005,
the airline introduced the only daily direct flight Jakarta-Mataram at the time, previously
served throught Jogjakarta with 70.000-80.000 passengers each year.

The airline did aware of seasonality nature of the industry. Annually, only four months are
considered peak season in which average load factor can reach 82%. It domestic routes load
factor can even reach 87% during this season. However, during low season, the load factor
should also be reasonable and profitable to fly. If it did not, then the airline has to make tough
decision to shut down the route, despite any other concerns.

In the past, upon stumbling into any potential market, the airline immediately fled the
potential sectors. The result is a fast product cycle, it closed as fast as it opened. In the long
run, not only it wasted a considerable investment but also it severely damaged the airline
image as the airline will be percept as not professional. Airline business is about long term
relationship with the market and not an overnight success as it takes time to build market.
Learning from the past experience, Garuda Indonesia closely monitors and continuously
evaluates potential market.

In line with network trimming, the airline also reseized its fleet. In 2005 the airline returned 5
old leased aircrafts of Being 737 classicseries (300/400/500), replacing them with one Boeing
737-800NG, reducing its fleet size to 55 aircrafts. The following year, Garuda Indonesia
returned another 2 Boeing 737-300 and 7 Boeing 737-400, and received another Boeing 737-
800NG, reducing its fleet size to 47 aircrafts, maintaining the fleet size until 2007.

Financial Turnaround

In 2005, Garuda Indonesia bleeds a nett loss Rp. 688 billion. Its debt amounted US$ 800
million with Earning before interest, taxes, depreciation and amortization (EBITDA) US$ 50-
60 million. The only way for the airline to get away is to grow sustainably. It urgently needs a
fresh capital of around US$ 400 million. The government only able to provide US$ 100
million in two tranches and is it, no more. A turnaround is due.

In 2006, the airline start the financial turnaround by commencing debt restructuring and
restructure internal organization. In 2007, its nett profit improved from negative Rp 197
billion to positive Rp 60 billion and growing eachyear. With this initial improvement, the
airline layout its grand strategic plan to completely turnaround and expand its business.

Following steps are taken in Garuda Indonesia financial turnaround: first, debt restructuring.
Second, balance sheet restructuring. Third, improve decision making through financial
analysis and complete management report. Fourth, manage cash-flow, secure funding to grow
the company, appropriate risk management as well as further cost efficiency, and build high
performing organization.

It debt restructuring effort including converting its debt to Bank Mandiri, Angkasa Pura I & II
into mandatory convertible bond (MCB) with significantly low interest – LIBOR plus 1,75%,
as well as extending trade debt with Pertamina. The result is significantly reduced debt, from
US$ 827 million in 2007 into US$ 516 million as per March 2010.

The implementation of the financial strategy rolled over its liabilities up to 2016, converting
debt into equity, converting trade debt into junior loaned, and buyback of its floating rate
notes in a reverse dutch auction process resulted in a weighted average price of 56%. With all
these restructuring action, Garuda Indonesia received Best Debt Restructuring Deal of The
Year 2009 in South East Asia from Publisher Alpha South Asia based in Hong Kong. The
award marked the successful restructuring amidst economic adverse situation.
The result, Garuda Indonesia financial performance is at its best, as the balance sheet become
more solid and the airline also have liquidity to support its planned expansion. The cost
structure of the airline is also improving as volatility of fuel price and currency are under
control. From Rp 811 billion losses in 2004, the airline posted Rp 1 trillion profit in 2009, an
almost Rp 2 trillion turnaround in 5 years.

Strategic Turnaround

Garuda Indonesia’s Corporate Goal and Targets were formulated in the 2006-2010+ Strategic
Path, clearly laid out phases to achieve yearly targets and regains meaningful growth.

The first phase is survival in the competitive and aggressive aviation industry. The airline was
successful in implementing its consolidation strategy in 2006 and rehabilition strategy in
2007, booking satisfactory results both years. In this phase, operational and management
activities were rearranged, enabling the airline to provide on-time flights with service
excellence. The business processes also reengineered to create a completely positive airline.

In the second phase, Turnaround, commenced in 2008, the entire organization and
management were restructured to become a more effective organization by focusing on debt
restructuring, product andservice improvements as well as preparations to privatize through
an Initial Public Offering (IPO) to direct the Company for comparable growth comparaed
with other international airlines. After suffering lossess for three consecutive years, in 2007
Garuda Indonesia managed to gain profits, laying the foundation for future growth.

The third phase, Growth, capitalized on the previous efforts through the privatization
program. The program will be accomplished through an Initial Public Offering (IPO) that will
project the Company for sustainable growth in 2010 and the following years. The company’s
operations and business will be further refined to expand its network to increasingly wider
destinations around the world to realize its corporate goal, to be a leading airline with a
comparable reputation to other world class airlines.

Following the 2006 – 2010+ Strategic Path, in 2008 the airline layout “Garuda Indonesia
Quantum Leap 2014” comparised a set of goal to be achieved by2014. Along with the fleet
modernization, fleet expansions will double the number of aircrafts. The airline planned to
double its domestic departures and fly to every province capital cities in Indonesia. It also
plans to boost its international departures by triple. The airlane is also determined to achieve
5-star Skytrax airline rating.
Pride Turnaround

After struggling for several years, the airline need to rsestore stakeholder trust, put back some
dignity, and drive the people spirit to company culture. Several efforts to reinstate the pride
side include launching Garuda Indonesia Theme Song “My Pride”, introducing corporate
value FLY-HI, and corporate brand refreshment.

In 2009, Garuda Indonesia is transforming again with the new look, new typography, with a
clean and modern look creating complete harmony with timelessness of Garuda bird icon
which move ever higher, inspired by natural riches of Indonesia as seen in nature’s wings in
green of palm, petal of flower, water ripple, and wing of bird, the essence of new color
palette. This entire best seen in fleet revitalization with new liveries and newly cabin interior.

Part of its pride, Garuda Indonesia CEO and Boards of Director are reaching out to all their
stakeholders, open up for up close and personel interviews, guest speaker at industrial
conferences, and many other events, celebrating and sharing success story of turn-around the
airline. A number of awards also echoed the overall success, with Skytrax naming the airline
as World Most Improved Airline and later it tops on Airline Service Quality Survey carried
out by Centre for Asia Pacific Aviation (CAPA).

Conclusion