Garuda Indonesia

With the airline in such a poor state when he took over the top job in 2005, Satar quickly set about building a program to help strengthen and turn around Garuda at a time when the airline was also grappling with a dramatic fall in tourism after the second Bali bombings in 2005.

“Because of the problems we were facing, we had to break it into three stages – survival, turnaround and growth,” he added.

The airline’s battle for survival started in 2006, which Satar nominates as its “consolidation year. ” This saw Garuda trim its route network and return eight aircraft to lessors. It also began to seek out more efficiency from its operations by increasing its aircraft utilisation and reducing maintenance downtime.

The result was a major improvement to its operating results, only posting a loss of IDR197bn (A$25m), compared with IDR688bn (A$88m) in the previous year.

Importantly for Garuda, this came at a time when competition on some of its key domestic and international markets was increasing, thanks to domestic liberalisation and new competition from airlines including AirAsia, Mandala Air, Adam Air and Lion Air.

Serious work began in 2007, which Satar calls the airline’s rehabilitation year.

“Basically saying to just do things we are supposed to do – be on time and make sure the cost is efficient,” he said.

As a result, the airline was able to post a profit of IDR258bn (A$33m) for 2007.

But while the rehabilitation was underway, the crash of flight GA200 on March 7, when Boeing 737-400 PK‑GZC overran the runway while attempting to land at Yogyakarta, killing 21 people, took the shine off the airline’s achievements.

That accident put the spotlight firmly on Garuda, as Indonesia’s flag carrier, and also revealed major problems with the regulation of airlines in Indonesia, which later that year led the European Union to continue its ban on all Indonesian registered airlines from its airspace. The EU even took the unprecedented step of urging its citizens to avoid flying Indonesian carriers.

In Australia, the government was forced to defend itself from calls to ban Garuda from operating services to Australia.

As a result, Satar and the other managers at Garuda were forced into some serious soul searching and made a number of changes, while at the same time moving forward and passing major milestones, such as achieving its IATA Operational Safety Audit (IOSA) registration.

Consequently, Garuda has been working this year on dealing with the major corporate issues facing the company, as well as improving its product and service, ahead of some major plans set down for next year.

“Because of the problems we were facing, we had to break it into three stages – survival, turnaround and growth. ”

“Right now we are building a foundation for Garuda on how we can be stronger in the future,” said Satar.

A key issue for the turnaround is dealing with the large debt which still hangs over the company from successive years of losses.

“We have a total debt of approximately US$800m (A$956m) of which we hope to finalise the structure this year,” he said.

With that debt finalised, another big step set for 2009 will be a partial privatisation of the carrier, with the Indonesian government giving it the green light earlier this year. Although details are still to be finalised, it is expected that part of the carrier will be floated on the Jakarta Stock Exchange, but the government will retain control.

Safety

While the company has been working hard to turn itself around, Garuda has continued to battle a poor safety perception, stemming from a string of past accidents and incidents.

The importance of changing the airline’s safety culture is not lost on any of the senior management, least of all Satar. Garuda’s head of safety, Captain Novianto Herupratomo told Australian Aviation that Satar made safety one of his first priorities when he was appointed in 2005.

“At the time, I still remember, he did it himself in his own words,” said Novianto of Satar’s proactive approach to safety, which saw the CEO personally write out the company’s safety policy.

Since August 2007, Garuda has implemented a safety management system to increase the overall safe working of the airline.

This has involved installing a reporting database developed by British Airways and increasing the oversight of the airline’s safety audit department, to the point where there are 57 trained safety auditors operating in different areas of the airline.

“The philosophy that we adopt is basically we want to be more conservative,” said Satar, who encourages all Garuda staff to use the reporting system to report both small and large incidents as part of an effort to build a safety culture at the airline.

But for all its efforts, there is no question that the GA200 accident has seriously harmed Garuda’s safety reputation, which along with previous fatal accidents by other Indonesian airlines showed that Indonesia’s Directorate General of Civil Aviation (DGCA) was lacking in its regulation and oversight of the nearly 50 carriers spread across the archipelago.

Garuda’s training practices were also called into question from the GA200 crash investigation, which received a great deal of assistance from the Australian Transportation Safety Bureau. The final report showed that the aircraft, which was being piloted by Captain Marwoto Komar, was travelling at more than twice the recommended speed when it skidded off the runway at Yogyakarta and burst into flames.

Most sobering was the fact that the pilot had ignored a number of cockpit warnings and desperate pleas from the copilot to initiate a go-around. The investigation process has now led to criminal charges being laid against Marwoto, who in September was ordered to stand trial for manslaughter.

According to Novianto, the airline has learned a lot from the crash, and acted accordingly to change its practices, and stepped up its training for pilots flying the Boeing 737 to act on warnings from the ground proximity warning system (GPWS) and other warnings.

“If the pilot cannot be sure to complete a safe landing, he must go around,” said Novianto.

Changes to procedures have also been made to ensure that the copilot may take control during landing. “He [the pilot not flying] may continue a go-around or initiate a go-around if the other pilot flying does not react,” said Novianto.

But as the report also identified, there were a number of issues with the way that the DGCA regulates a number of airlines in Indonesia, where the large number of airlines“The philosophy that we adopt is basically we want to be more conservative. ”which have sprung up since deregulation has meant it has not been able to keep up.

Added to this has been a lack of investment in airports across the archipelago, and as the investigation showed at Yogyakarta, many airports in Indonesia are below ICAO standards.

Garuda’s management has been applying pressure on the Indonesian and individual provincial governments to address this through the wider Association of Asia Pacific Airlines and the Indonesian National Air Carriers Association, of which Satar is the chairman.

A key step for the company was completing its IOSA registration, which was granted in May this year following an independent audit carried out by an Australian firm.

The airline has been keen to stress the importance of the IOSA, and Novianto said that Garuda is pushing for the IATA audit to become the standard for all Indonesian airlines.

Garuda has also recently come under greater scrutiny form a number of foreign authorities, including the Australian Civil Aviation Safety Authority, which has been conducting flightdeck observations and more surveillance on Garuda’s flights to Australia.

“Overall, CASA has developed a far more ‘hands-on’ approach to the relationship with Garuda, as if they were an Australian Air Operator’s Certificate holder,” CASA spokesperson Michelle Harris told Australian Aviation.

She also noted that CASA has conducted a number of visits and interviews with key personnel at Garuda’s headquarters in Jakarta, and will also conduct a safety review of Garuda’s pilot training to ensure that the airline operates to a high standard.

“So far there are no major findings against Garuda,” said Novianto. “Of course there are several minor issues, like manual updates to the aircraft etc, and we always continue with our corrective action and we report to CASA. ” And according to Harris, “CASA is satisfied that Garuda has been cooperative throughout this process. ”

Regional and long haul growth

With the airline moving from its rehabilitation phase and into its growth phase from next year, there are major plans ahead, and Satar sees plenty of opportunities for the carrier going forward.

Garuda sees strong growth emerging from a number of key markets over the next seven years, with predicted market growth of nine per cent to north Asia, six per cent to Australia and New Zealand and eight per cent to other Asian destinations.

But, “The biggest growth is still in domestic. Last year we have reached more than 34 million passengers,” explained Satar, who added that the carrier expects to see 15 per cent market growth domestically.

However, this is not without challenge, particularly as Lion Air ramps up its fleet of Boeing 737-900ERs, while other airlines such as Mandala are now gaining access to foreign investment and technical expertise to challenge the flag carrier on its home turf.

One of the strategies that Garuda is taking to competition is to implement its own version of Qantas’s two brand strategy, and in late August relaunched its low cost carrier Citilink.

Citilink is now based in Surabaya, from where it operates two 737-300s on seven domestic routes, although the network will grow as it adds to its fleet up to 25 narrowbody aircraft.

“We will see new destinations in Europe and more flights in Asia, China, Australia and New Zealand. ”

“Initially it’s just going to be domestic, whereas later on it will go regional, probably to Singapore, Kuala Lumpur [and other] destinations within two-to-three hours,” said Satar.

With Citilink in operation, and planned improvements to Garuda’s mainline product, Satar sees the two airlines catering to different markets. “Garuda is focusing on the premium market… We are full service, they [Citilink] are low cost, and the market is big. The pie is big enough,” said Satar.

Nevertheless, he admits that there may be some cannibalisation. “I would say there might be some overlap, but we tend to think if we don’t do that, other carriers will take it anyway, so it’s better to keep it in the family. ” In order to meet some of this challenge and as part of its strategy to address some of the issues it has faced, Garuda earlier this year placed an order for up to 54 Boeing 737-800s, which will replace the 737-300s, -500s and -400s which make up the backbone of the domestic fleet.

Satar said that the airline will receive its first factory-fresh 737NGs soon, which will join the fleet of four leased 737-800s currently used on the Denpasar-Perth and Denpasar-Darwin routes. “Next year, we are expecting 14, the following year, there are another 10 in 2010,” he said.

The 737NGs will also be used on some shorter range international routes from Denpasar and Jakarta. “Some cities are better with more frequency than capacity, and on those routes we might use 737-800s,” said Satar, who nominated the Denpasar- Hong Kong route as an example.

With ASEAN moving towards open skies during the next decade, Garuda faces the prospect of more competition from the likes of AirAsia, Lion Air, Tiger and Jetstar, who are all keen to gain a foothold in a potential market of over 200 million passengers in Indonesia.

But if Satar is worried about this competition, he appears not to show it. “At the end of the day its competition,” he said.

“We just have to face competition, and the challenge for us is how we transform as soon as possible. ” As well as on its home front, Garuda is also planning to transform its medium and long haul network, where it has lagged behind its more successful regional rivals such as Malaysian Airlines and Singapore Airlines.

Since it cut its operations to North America in 1998 and Europe in 2004, the network has focused on routes to North Asia, Australia and the Middle East, operated by a fleet of six Airbus A330-300s and three Boeing 747-400s.

“We will see new destinations in Europe and more flights in Asia, China, Australia and New Zealand,” said Satar.

All of these flights operate from Garuda’s main hubs at Jakarta’s Soekarno-Hatta and Denpasar’s Ngurah Rai airports. The airline also operates flights to Jeddah from other cities during the Hajj pilgrimage for Indonesian Muslims.

In order to boost and grow its long haul network, Garuda placed an order in February for 10 Boeing 777-300ERs at the Singapore Airshow, which will replace the Boeing 747s and allow for further growth.

The first of these aircraft will arrive in 2010, at which time Satar hopes the airline will be able to resume flights to London, Frankfurt and Amsterdam, although that will rely upon overcoming the EU ban, something which Satar says really rests with the Indonesian government.

“We have done everything we can. We are IOSA registered and basically, we just have to wait,” said Satar.

The 777s will feature a new inflight product, including lie flat seats in business class and seatback video throughout the cabin. Before they arrive though, the A330s will receive a cabin upgrade to bring them to a similar standard to the new aircraft.

WORK HORSE Six A330-300s form the backbone of Garuda’s long haul international fleet. They are configured to seat 41 business and 251 economy class passengers. (Seth Jaworski) “We are putting in new seats, new IFE, but it will only happen [in] November next year,” said Satar, who noted that the installation would be completed locally in conjunction with a specialist interiors provider.

Longer term, Garuda plans to replace the A330s with 787-8s, although it has not yet placed an order for the type. In the meantime though, it is likely to add more A330s to allow it to serve more medium haul routes, such as to Australia’s east coast.

Further down the track, Garuda plans to join the Skyteam alliance in 2010, which will build on its strong relationships with KLM and Skyteam hopeful Malaysian Airlines.

Garuda is also hoping to continue its codeshare relationship with Star Alliance airline Singapore Airlines, which started this year after Garuda was granted its IOSA accreditation.

While the pressures on Garuda have been big, under Satar’s leadership the carrier has been able to turn itself around and has been making real progress on its safety reputation. With a new fleet on the way and an IPO due next year, Garuda appears to be well positioned to make the most of a major, growing market.