STRATEGIES TO REVITALIZE GARUDA INDONESIA ROUTE PROFITABILITY TO IMPROVE FINANCIAL PERFORMANCE

• Main Author: Monika, Lidia
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/49239
• Institution: Institut Teknologi Bandung

PT Garuda Indonesia (Persero) Tbk ("Garuda Indonesia") is an Indonesia flag carrier. In 2011, Garuda Indonesia issued a long term plan: The Strategic Milestones Quantum Leap 2011-2015. The strategy map aims to expand the business massively, including the number of aircraft in service. The target is to increase the number of fleets from 73 aircraft in early 2011 to 194 aircraft by the end of 2015. During this time, Garuda Indonesia also adding three new aircraft types the Boeing 777-300ER (“B777”), Bombardier CRJ1000 Next Gen (“CRJ 1000”), and ATR 72-600. In 2014, the world economy was slow down and directly impacted Garuda Indonesia's massive expansion. Garuda Indonesia report losses USD 399.3 million in 2014. Garuda Indonesia’s income statement continuous to report fluctuating incomes while Garuda Indonesia captures most of the good domestic flight route at a premium price. The root cause of income fluctuation needed to be identified and amended. The research conducts external analysis using PESTEL and Porter’s 5 Forces analysis, and it can be concluded that the aviation market has become a very competitive industry in a price-sensitive market. Government’s program to attract 20 million international tourists per year and build 5 Super-Priority Destinations gives an opportunity for Garuda Indonesia to grab the new market. It is important considering the impact of Covid-19 pandemic on the airline industry. Airline production is estimated to reduce 50% in 2020 and won’t recover until 2023. This research also conducts internal analysis of Garuda Indonesia by compares its revenue and cost performance to other airlines. In general, Garuda Indonesia’s Passenger Yield ratio is below other airlines. Garuda Indonesia’s ratio of Revenue per ASK and Cost per ASK is also lower compares to other airlines. In Chapter 3, the authors conducted a Root Cause Analysis of Garuda Indonesia's business problems. From the analysis, it can be concluded that Garuda Indonesia's main product, passenger tickets business segment, has a negative financial performance. It also means that Garuda Indonesia's profitability highly depends on its ancillary products. This situation is the impact of low Passenger Yield and Passenger Load Factor on international routes. The trend of the number of passenger seats that continues to increase when the number of passengers is reaching its saturation point encourages price war among airlines. The second root problem is the oversupply of seat capacity on domestic routes. The condition led to an increase in the ratio of Cost per ASK, even though the production decreased. This research recommends three solutions for the root cause. The first solution is to propose a collaboration with the government to attract 20 million international tourists per year. Garuda Indonesia, as a flag carrier, can use the opportunity to increase its capacity and support the government program at once. Garuda Indonesia can develop new routes or increase flight capacity from the origin country of targeted tourists to the nearest HUB or directly to the nearest airport of the Five Super Priority Destinations. However, Garuda Indonesia also needs to propose a cost-sharing scheme to reduce the risk of loss, since expanding routes need huge investment before it becomes profitable. Government programs to attract international tourists bring four million new markets to international routes. To ensure that Garuda Indonesia gets the most benefit of this new market, Garuda needs to collaborate with the Government to develop a marketing campaign that promotes Indonesia & Garuda Indonesia at once. The target is to put Garuda Indonesia as the top of mind for travellers to Indonesia. The third solution is to reduce the impact of oversupply of seat capacity in domestic routes on Garuda Indonesia financial condition. This research recommends strategies to increase the utilization of aircraft. This research calculates the future profitability of the ATR 72-600 and CRJ1000 aircraft using the RP Model. Calculation of the RP model has considered the effect of the COVID 19 pandemic on the aviation industry. The best scenario, according to the calculation, is to transfer the ATR 72-600 aircraft to Citilink and sublease some of the CRJ 1000 aircraft.