Nassim Khadem Reporter

Nassim covers the accounting and tax rounds for BRW, as well as general business news. She previously worked for The Age newspaper covering general news, state politics and economics.

View more articles from Nassim Khadem

Garuda’s journey from Asia’s basket-case to global carrier

Published 05 August 2013 10:50, Updated 08 August 2013 00:46

+font -font print
Garuda’s journey from Asia’s basket-case to global carrier

Erik Meijer, Garuda’s director of sales and marketing (with Melissa, left, and Ferial) is the first foreigner on the board of any Indonesian state-owned company.  Photo: Arsineh Houspian

Named after the mythical bird that carried the Hindu gods in their legendary journeys, the national airline of Indonesia, Garuda, is again gaining altitude.

Garuda Indonesia is on a mission to transform its reputation as one of Asia’s disaster airlines. It has begun with intensified safety training, a revamped fleet, more destinations and improved service. The airline is offering extra weekly flights between Australia and Indonesia, and pushing into Europe, where it was once banned.

It has spent hundreds of millions on new Boeing 777-300ERs and become the official global airline for English premier league football club Liverpool.

But Garuda, plagued by a bad image – it had one of history’s worst aircraft crashes – still has a way to go to be trusted. Its own survey results show Aussies remain wary. Perception based on past tragedies is more powerful than current reality, says Garuda’s director of sales and marketing, Erik Meijer.

Meijer was appointed to the role in June. He is the first foreigner to be appointed to the board of directors of any state-owned company in Indonesia. “People who have never flown Garuda . . . they will still have negative perceptions,” he tells BRW.

“Once we’ve got them on the plane, we get them to see and feel the plane, meet the pilots that we have, and experience the service that we offer; it’s only then that perception changes.”

Garuda has had to rebuild from a disastrous image, which started with the airline’s near demise during the 1997 Asian financial crisis when it drastically cut routes.

In September of that year Garuda was responsible for Indonesia’s worst aviation disaster when Garuda Indonesia Flight 152 crashed near Medan in Sumatra, killing 234 passengers and crew. The death toll remains the fourth-highest of any aviation accident involving an Airbus A300.

The global airline industry was hit with one crisis after another, with the September 11 terrorist attacks in 2001, the 2002 Bali bombings and 2004 tsunami.

Garuda’s reputation, especially among Australian travellers, hit rock bottom in 2007 when the airline’s Flight 200, a Boeing 737-400, crashed and burst into flames while landing in Yogyakarta. The crash killed 22 people on board, including five Australians – Australian Financial Review journalist Morgan Mellish, diplomat Liz O’Neill, AusAid official Allison Sudrajat, and Australian Federal Police officers Mark Scott and Brice Steele. Sydney Morning Herald journalist Cynthia Banham was badly injured.

Garuda was immediately banned from flying in European air space. The ban stayed for two years.

Safety takes time

Since 2008, Garuda has obtained the safety audit certification from the International Air Transport Association three times. This accreditation is crucial – it means the airline is fully compliant with global best-practice standards for flight operations, maintenance and safety management.

Garuda is also reporting fewer “incidents”. In 2012, the incident rate per 1000 departures was 0.288 – the lowest in 10 years.

And airlinesratings.com, the online site where passengers globally are flocking to check airline safety and service ratings for 437 world airlines, this year gave Garuda a 5 out of 7 rating for safety and 6 out of 7 for product/service.

Run by veteran aviation writer Geoff Thomas, the safety rating changes when an airline has a crash that involves a death. Each time this happens, the airline will get a one star deduction. The new rating stays with the airline for 10 years from the incident date.

“It’s going to take us a few more years to get that extra star,” Meijer says. “The 2007 [crash] is not that long ago.”

Of course, “the best way to improve safety is to continue to fly right,” he says. “We are hoping that word of mouth will help.”

Passenger numbers on rise

Last year Garuda carried 20.4 million passengers (a 19.6 per cent rise from the year before) bringing total passenger revenue to $US2.69 billion. It plans to boost passenger numbers to 27.6 million a year by 2015.

Since listing on the Indonesia Stock Exchange in February 2011 (the Indonesian government still owns a 69 per cent stake in company and the rest are retail and institutional investors), Garuda has been operating more like a company than a basket-case. It’s far from perfect yet: in 2011 the airline faced a decline in its on-time performance rate (it fell to 84.9 per cent from 85.7 per cent), but most other performance measurements are looking good.

In June, Garuda got its first major public tick of approval when it won the Skytrax award for “world’s best economy class” and ranked eighth in the world’s top 10 airlines.

The awards, based on customer surveys conducted by Skytrax between July 2012 and June 2013, are based on the responses of 18 million passengers from more than 100 countries. The respondents are asked to compare more than 200 airlines in 38 aspects including service, on-time performance, food, safety and convenience.

The Skytrax award is also a sign that Garuda’s “Quantum Leap” strategy, which aims to boost competitiveness by 2015, is on track.

Revitalising the fleet

Last year Garuda acquired 51 new aircraft, bringing the fleet average to 5.7 years. “There are more aircraft, more routes, more passengers carried,” Meijer says. “We have one of the youngest fleets when it comes to large-scale full-service airlines.”

This year the airline acquired another 24 new aircraft, consisting of four Boeing 777-300ERs, three Airbus A330s, 10 Boeing 737-800NGs, and seven Bombardier CRJ1000 NextGens.

The first 777-300ER (Garuda has ordered 10 of the big planes, worth $150 million each) began servicing the Jakarta-Jeddah (Saudi Arabia) route on August 1. The company says the new Jeddah route is a response to demand from customers taking an umrah (lesser) pilgrimage to Mecca.

The rest of the new aircraft will be used for a Sydney-Jakarta-London route. The London flight was supposed to kick off this year, but has been postponed to next May because the 28-year-old runway and apron at Jakarta’s Soekarno-Hatta Airport are not strong enough to carry the aircraft with a full load of passengers.

The Boeing 777-300 is the showcase for the airline’s new first-class cabin (it dropped its premium cabin at the time of the GFC) with full-flat beds, a 23.5-inch touch screen LCD and on-board chef.

While its first-class fleet makes up a minuscule portion of the overall market, it’s an important change for Garuda. Airlines including Singapore Airlines, Cathay Pacific and Qantas earn about 40 per cent of passenger revenue from the premium segment.

Targets for 2015

Garuda serves 35 Indonesian and 22 international destinations across south-east Asia, north Asia, the Middle East and Europe (the Netherlands).

By 2015, the airline will operate 194 aircraft (from the current 112), the number of routes will increase from 41 to 62, and the number of flights from 1700 to 3000 a week.

Garuda’s plan to become a leading international carrier is largely dependent on the Australian market. There are more Aussies travelling to Asia, especially to Indonesia. Earlier this year it extended its weekly flights from Sydney, Melbourne and Perth to its two hubs in Jakarta and Denpasar. This month it’s launching daily flights from Brisbane to Denpasar.

That brings total weekly flights between Australia and Indonesia to 52, with more than 120,000 passengers flying Garuda between the two countries every month.

This equates to about 11,000 weekly one-way seats to Australia by the end of 2013, compared with about 7000 seats at the beginning of 2013, according to the Centre for Aviation (CAPA).

CAPA, a provider of aviation market intelligence, says in an online report that this will give Garuda a nearly 40 per cent share of capacity in the Australia-Indonesia market, compared with about 25 per cent at the beginning of the year.

Meijer says while the leisure market is the biggest for Aussie travellers to Indonesia, business trips are growing. “There’s still a lot of tourists flying in and out of Bali,” he says. “And we’re going to see more of that now that we are flying to Brisbane.”

He says currently there’s more demand for leisure than business travel, but that the latter is picking up. “That’s why last month we launched a daily flight from Perth to Jakarta,” he says. “We are now seeing an additional market in business.”

World in Garuda’s sights

Garuda is also launching more routes and services across Asia and Europe and connections with North America.

The international expansion will see the airline launch at least 10 new routes in 2013, including the postponed Jakarta-London (its second European destination after Amsterdam).

In addition to the extra flights to Australia, there will also be new short-haul international routes within south-east Asia and extra routes to Japan.

The airline plans to resume flying to Auckland (it stopped in 2004), possibly later this year, opening up connections between New Zealand and Europe. Garuda does not currently offer any non-stop services between Indonesia and Europe.

The Middle East is also a target: Garuda and Etihad Airways announced a code-share agreement in June.

The airline is looking at eventually launching non-stop service from Jakarta to Frankfurt, Paris, Rome and Milan.

And when it comes to the US, Garuda has been co-sharing with Delta (US) and ANA (Japan).

CAPA predicts Garuda will initially lose money on its long-haul operations, where competition is fierce, but that this is necessary short-term pain for a long-term gain.

Partnerships crucial

Garuda is building its profile. Its three-year partnership as the official airline of the Liverpool Football Club helps create brand awareness, especially in Europe, where its relatively unknown.

Garuda flies the team throughout the region, as it did last month when Liverpool played Melbourne Victory in a friendly game before more than 95,000 fans at the MCG. The partnership also gives the airline access to Liverpool Football Club’s global fan base of 500 million.

In July Garuda launched a co-branded frequent flyer card with Liverpool, giving fans special benefits and access to Liverpool games and related events. Meijer says having the team fly Garuda is “a significant stamp of approval”.

The airline is now looking at new business partnerships. It will join SkyTeam alliance in March next year. Garuda will be the seventh SkyTeam airline in Australian skies alongside China Airlines, China Eastern, China Southern, Delta, Korean Air and Vietnam Airlines.

“It’s been a very long process to make the alliance,” Meijer says. “It will open up a lot of new routes for our customers.”

Meijer says he’s also been speaking to local travel agents such as Flight Centre, as well as online agents. “More than half the tickets booked [by Australians] are online purchases.”

How soon can Garuda start cashing in?

New routes and extra passengers have helped Garuda’s net profit rise 72.6 per cent to $US110.6 million in 2012, while revenue grew 12.1 per cent to $US3.47 billion.

Although it’s been profitable for the past two years, Garuda suffered a $US34 million loss for the first quarter of 2013. Aviation consultancy CAPA points out that the airline runs on modest operating profit margins of less than 5 per cent. Capital costs are also high as Garuda introduces its new fleet of 777-300ERs

A CAPA report says the international expansion will allow Garuda to cash in on growing demand for services to and from Indonesia, and will also allow the airline to pursue “more fifth freedom traffic”, including on the extremely competitive Kangaroo route between Australia and Europe.

But the report says that establishing a profitable presence in Europe will be challenging. Garuda is the smallest international carrier among the six major flag carriers in the region (Singapore Airlines, Thai Airways, Malaysia Airlines, Vietnam Airlines and Philippine Airlines are all larger based on current seat capacity).

“A larger network, membership in SkyTeam and its new fleet of 777-300ERs will certainly be successful in raising Garuda’s international profile,” CAPA says.

“But achieving profitability across its expanded international network will be challenging as Garuda faces stiff competition from carriers across Asia-Pacific and the Middle East that have more-established international brands and much larger wide-body fleets, providing economies of scale that Garuda cannot match.”

Even Meijer concedes there’s a long way to go. And in the end it comes back to perception.

“The big challenge we have is to convince people to try us one time only. We are pretty confident that once you’ve tried us one time, you will want to continue using our services.”

Topics:

Comments