Garuda's Shining Light
In recent years, Indonesia has encountered one disaster after another, from deadly tsunamis, earthquakes and an erupting volcano to terrorist bombs. The European Union even put a blanket ban on its airlines for safety reasons. Yet through it all, Garuda Indonesia president and chief executive, Emirsyah Satar, has thrived on the challenges. He has turned his carrier from a one-time basket case into a modern, profitable airline and, remarkably, maintained his track record during the world’s worst global recession since the 1930s. TOM BALLANTYNE reports from Jakarta Garuda’s shining light Airline’s tireless boss plots a winning strategy from his ‘war room’
When Indonesia’s then state-owned enterprises minister, Soegiarto, asked Emirsyah Satar to take charge of the country’s troubled national flag carrier, Garuda Indonesia, in 2005 the banker initially turned down the offer. Satar had “been there and done that” as the carrier’s executive vice-president finance from 1998 to 2003. He had played a key role in spearheading a $1.8 billion financial restructuring that saved Garuda from bankruptcy during that time. Now the airline was in trouble again, bleeding cash, mired in debt once more and in desperate need of a strong financial hand at the helm. When approached a second time, Satar changed his mind. Why? Because Indonesia had a new government and a new president, Susilo Bambang Yudhoyono, whom Satar admired. “At the end of the day it was like duty calls and I said yes, OK, I’ll contribute something for the growth of this country,” he said. But the banker wasn’t about to take over with the same conditions that had driven Garuda into the red. Satar insisted the state-owned airline had to be transparent and needed liberty in terms of where to fly and where not to fly. He wanted the power to make equipment decisions “because I didn’t want to end up like Garuda in the past where it had so many types of aircraft and even different interiors in the same type of jet,” he said. But a third request, a government cash injection of $400 million, was rejected. “At that time the debt was over $900 million. I thought the sustainable debt was about $500 million, so I asked for $400 million to reduce the debt,” said Satar. “But they only gave me $100 million and told me to get the additional money by preparing the company for an IPO (Initial Public Offering).” Five years on, Satar has done exactly that and Garuda is headed for an IPO in February. In that time he has forged a “new” Garuda by driving through an aggressive restructuring plan, revitalizing staff and rebuilding the carrier’s once tarnished image. But even more remarkably, in the worst recession experienced by the global airline industry, Satar has made Garuda profitable. As of September, Garuda’s debt had been reduced to $477 million and last month the signing of a new debt restructuring agreement with creditors – including commercial banks and export credit agencies - was imminent, the last necessary act before next year’s IPO.
The IPO is expected to raise between $300 million and $400 million, reducing the government’s stake by up to 40%. More importantly, the proceeds will go directly to Garuda and not to the government shareholders. The 52-year-old Satar has taken a no-nonsense approach to turning Garuda around. He micro-manages the business from his ‘war room’ at the carrier’s new headquarters near Jakarta’s Soekarno-Hatta International Airport. His executives describe him as “tireless”. He expects staff to perform – and on time. He has now delivered three years of steady profits, with the signs pointing to more of the same to come. As a banker, Satar clearly understands the financial complexity of running an airline. But he also has a strong grasp of what is required operationally to make a carrier successful. He has cut non-profitable routes, returned old aircraft to leasing companies and added money-making routes. He has raised Garuda’s operational performance to new heights; efficiency and productivity has been drastically improved. In 2005, Garuda earned $21.34 in revenue for each of its employees. By the end of last year that figure was $35.25 for each of the airline’s 4,600 staff. Along the way he has raised service levels and launched an ambitious programme of fleet renewal. He has set firm targets for expansion and profitability. Garuda lost $90.9 million in 2004 and $77.1 million in 2005, the year Satar took charge. By 2006, with a five-year restructure plan – the Qantum Leap - under way, losses were trimmed to $22.1 million.
The following year, the carrier was in profit with income of $17 million. This rose to $109.3 million in 2008 and $114.1 million in 2009. Satar has set an annual profit target of $370 million by 2014. Now carrying more than 10 million passengers annually, he wants that figure to hit nearly 28 million by 2014. On the operational side, Garuda plans to expand its fleet from 75 to 116 aircraft. Satar wants to increase domestic departures by more than 150% and international departures more than threefold. Fleet expansion is well underway. Garuda operates 31 B737-300s,-400s and -500s, as well as 31 B737-800s, three B747-400s, four A330-200s and six A330-300s. This year Garuda took delivery of 24 new planes, 23 B737-800s and one A330. In 2011, nine B737-800s will be added to the fleet, allowing the retirement of older B737s, as well as two more A330s. In early 2012, the first of 10 B777-300ERs will begin to arrive, allowing the B747s to be retired. The fleet renewal has been coupled with a total revamp of the airline’s image, including new livery, aircraft interiors and inflight service offerings, all based on warm Indonesian hospitality and called the Garuda Indonesia Experience. The service improvements have seen Garuda’s Skytrax rating (the UK-based passenger research company) upgraded from three stars to four, one of only 27 airlines worldwide to achieve four stars.
Garuda is focussing on what promises to be high revenue markets. It launched services to Amsterdam in June, returning to Europe after halting services in 2004 as a cost-saving measure. Satar also has his eyes set, in due course, on other European destinations such as Paris, Frankfurt, London and Rome. The way to Amsterdam was cleared after Garuda was exempted from a European Union ban that had been placed on all Indonesian airlines because of concerns about failings in Indonesia’s regulatory oversight regime. It was a critical breakthrough for the carrier because Garuda has not been immune to accidents. In 2007, one of its B737s crashed on landing at Yogyakarta, killing 20 people. Satar has spared no efforts in making safety a top priority, improving Garuda’s own safety management systems. The airline has successfully passed the International Air Transport Association’s operational safety audit (IOSA). When the European ban was in force, he personally visited Brussels six times to argue the airline’s case before he finally won through. China, Japan, South Korea, Australia and the Middle East are among key international markets closer to home where Satar sees good growth potential. The Indian market is also a priority. Garuda has opened non-stop services from Jakarta to Sydney and Melbourne in Australia as well as Shanghai and Seoul, with direct Jakarta-Tokyo services added earlier this year. It aims to add more frequencies to Singapore and Hong Kong and introduce flights to Taipei. The Middle East is another key market. “We give special attention to the Middle East because of its enormous potential for pilgrimage trips from Indonesia. We currently have daily flights to Saudi Arabia, to Riyadh, Jeddah and Dammam. As part of this network expansion Garuda is joining the Skyteam alliance, although it will take up to 18 months before membership becomes official. “Being a member of an alliance helps make sure you are always up to date in terms of improving yourself, setting the standards or even being better than other members,” said Satar. He is well aware of the rising competition from the region’s low-cost carriers (LCCs) and is moving to meet the challenge. Garuda’s LCC subsidiary, domestic Citilink, is preparing to go international eventually. “Citilink has six B737s at the moment, but by the end of this year it will have eight. We have plans to increase that number to 25 aircraft,” said Satar. Indonesia’s LCCs – dominated by privately-owned Lion Air - improved their passenger numbers by 14% between January and October this year to 35.34 million, according to Indonesia’s transportation ministry. Total domestic passengers are expected to reach 48 million in 2010, up 10% from 2009. Satar is determined Citilink will grab a major piece of the growth. He said it will be at least two years before Citilink flies overseas. “First, I want them to be strong domestically. Based on our experience, dealing with the international market is much tougher than domestic. We don’t want to throw them to the wolves before they are ready,” said Satar. Satar agrees that Indonesia has not been presented in the best light in recent years by the media. Nevertheless, natural disasters continue to overshadow operations. The recent eruptions of Mount Merapi have caused the cancellation of domestic flights into Yogyakarta and revenue losses of around $500,000 for Garuda. It won’t turn profit into a loss, but it is another interruption to the carrier’s revenue stream caused by events outside its control. Satar is pragmatic when he explains how the airline remained profitable during the global financial crisis. “Because of the downturn people cut their travelling or they downgraded. The high premium airlines were suffering, but at Garuda our pricing was not expensive. Our cost structure is also lower so we benefit from that,” he said. “On the other hand, if you look at the leisure market, Bali was attracting a lot of traffic so we benefited from that. Japanese and Koreans who might have been planning to go to the U.S. or Europe came to Bali instead because it was much cheaper. The growth from Australia was an incredible 30% [during the financial crisis]. In addition, our domestic traffic continued to grow.” Reappointed in June as chairman of the Indonesian National Air Carriers Association (INACA) until 2012, Satar is concerned about the large number of small domestic operators in Indonesia. “In INACA, we have to make sure these airlines are run professionally and have high standards. There are too many airlines in Indonesia. In order to be strong we need to consolidate those carriers,” he said. “Because we have the ASEAN open skies coming up, our Indonesian airlines need to be very efficient and strong to compete. What INACA would like to see is the ASEAN carriers competing on a level playing field; meaning that what the other ASEAN carriers get from Indonesia, we would like to benefit from the same opportunities in their respective countries. Sometimes it is not like that.” With recovery underway in the airline market and with the Asia-Pacific leading the resurgence, the new Garuda is well placed to take advantage of the huge growth opportunities. As Satar puts it: “We have laid down a strong foundation. We are back in business.” News Source : orient aviation Thanks to Mr. Akhyari Hananto for the news tips!
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