Airline News
Garuda on track for third quarter profit, merger of Indonesia AirAsia and Indonesia AirAsia X dismissed
October 9th 2015
Garuda Indonesia chief, Arif Wibowo, remains optimistic his carrier will post a profit in the third quarter, despite the recent spate of flight cancellations caused by natural disasters. Read More »
Arif told media in Jakarta he was assured the airline's third quarter results would be in the black, but declined to provide details. Still, he admitted “July, August, and September were very tough” months for Garuda, with a large number of flights disrupted by forest fires and the eruption of Mt. Raung in Java.
As a result, the SkyTeam carrier was forced to cancel 1,870 flights during the three-month period and its its low-cost subsidiary, Citilink, cancelled 600. “Cancelling a flight can result in considerable losses, from catering costs, fees for cabin crew, burned fuel and wasted flight slots,” said Garuda’s commercial director, Handayani.
Lacklustre infrastructure development still hampers Indonesia’s and it’s flag carrier’s development. Neighbouring Malaysia and Singapore have been able to better cope with the region's haze crises as their airports are far better equipped compared with their Indonesian counterparts, said Garuda operational director, Novianto Herupratomo. “If only our airports had an instrument landing system, which helps assists landings [in] visibility levels of 800 meters,” he said.
Immediately after taking the top job at Garuda last December, Arif launched a series of measures, dubbed Quick Wins, to reverse the 60.5%-state-owned carrier’s fortunes. It suffered a disastrous $373 million loss in 2014 that wiped out all of its profits since it went public in 2011. To deal with ballooning interest expenses, Garuda issued $500 million in Islamic bonds in May. Another major problem for the carrier is the Indonesian rupiah, which has plunged approximately 25% against the greenback since 2013. While Garuda generates the majority of its revenue in rupiah, about 70% of its costs, such as buying aircraft and jet fuel, are in U.S. dollars. Its rapidly growing fleet, which has jumped from 87 aircraft at the end of 2011 to 169 by 2014, quickly became a financial burden. Garuda is understood to be re-evaluating its June commitment for 30 A350s intended to expand its long-haul network.
Indonesia AirAsia (IAA) and Indonesia AirAsia X (IAAX) have said they complied with Indonesia’s Ministry of Transportation requirements regarding equity and minimum aircraft fleet, refuting earlier reports the carriers would merge after authorities declared 13 airlines, including IAA, needed to turn “equity positive” or face suspension. IAA has since issued a statement saying its shareholders have converted the company’s short-term loans to perpetual securities or bonds with no maturity date, which are classified as equity, according to the financial accounting standards, allowing it to return to a positive equity position. IAAX has counteracted Indonesia’s Aviation Law No. 1 Year 2009, which requires a carrier to operate a minimum ten aircraft, by inducting eight more aircraft, all A320s from AirAsia Group subsidiaries, to its fleet, bringing its total fleet to ten aircraft.
