News Backgrounder
Can number cruncher boss fix Garuda?
Garuda Indonesia has had a bad start to the year, but the carrier’s new president believes there are better times ahead as he launches a business transformation plan to improve the carrier’s financial performance.
July 1st 2017
When new Garuda Indonesia president, Pahala Nugraha Mansury, a 46-year-old banker, had his first meeting with local media after his surprise appointment in April, he made his position clear: the thought of turning down the job never occurred to him. Read More »
Previusly a finance director at Indonesian bank, Mandiri, he insisted to reporters that Garuda was a good brand and the challenge to improve it was irresistible. “Who doesn’t know this company? Only after joining it, did I realize it was a 24-hour industry. It was a bit of a shock, especially since this industry demands perfection. No mistakes, however small, are allowed,” he said.
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| 'I proceeded to look at the company’s problems in more detail. Just looking at those losses made me shiver. The margin is just too wide. The costs are increasing by about 21%, while income is growing at six percent and aircraft numbers continue to increase' |
| Pahala Nugraha Mansury Garuda Indonesia president and CEO Tempo magazine June 2017 |
“Garuda Indonesia will focus on improving its performance by taking 10 financial and business performance initiatives in such a way that its operational and financial conditions will be better. We are quite optimistic about achieving it in one to two years.”
The government has given Pahala 12 months to fix Garuda’s finances and there is no doubt his first months in office will be difficult. The Indonesian flag carrier reported a US$98.55 million loss for the first quarter of it’s latest fiscal year, to March 31, 12% higher than a year earlier. Rising jet fuel prices, up by 54% to $292.3 million, were largely blamed.
As a result, operating costs increased from $840.1 million to $1.1 billion. A 6.2% revenue increase, from $856 million to $909.5 million, was no consolation. “When I saw the financial report, I was shocked,” the accounting and economics graduate told Tempo reporters.
Nevertheless, Pahala, who replaced Arif Wibowo, insisted he could see better times ahead for Garuda. “The liquidity, balance of payments and other indicators remain positive until the end of this year,” he said.
“We hope to achieve stability by the end of 2018. The recovery period could take nine to 12 months. The losses in the first quarter of 2017 are an opportunity to improve our performance.”
He dismissed rumours Garuda was in serious difficulty and clearly had studied the carrier’s situation. In the Tempo news article, which was his first media interview, he admitted: “I proceeded to examine the company’s problems in more detail. Just looking at those losses made me shiver. The margin is just too wide. The costs are increasing by about 21%, while income is growing at six percent and aircraft numbers continue to increase.”
Pahala wants to rationalize routes, fleet leases and management, renegotiate lower supplier contracts for fuel, inflight services, MRO and marketing and put a rocket up the performance and work ethic of Garuda employees. He also wants to develop passenger services based on substantiated research.
“At Garuda, there are 144 airplanes - 136 are leased and eight are owned. Citilink has 55 aircraft with 47 leased and eight wholly owned. This year we plan to add one aircraft, which means an increase in operational costs. Four years ago, one aircraft cost 12% to 14% of Garuda’s basic costs. Today, it’s 27%,” he said.
“The only revenue comes from cargo, which is growing by double digits, or 19%. The airline industry is really tight. If we can book a two to four per cent profit margin, we would be very happy. Only 20 per cent of our fuel is hedged. The rest is bought on spot.”
Pahala said: “If necessary, we need to renegotiate the terms of the rentals. We also must talk to the aircraft manufacturers about faster delivery of aircraft. If we manage this, we can clamp down on three to five percent of our costs.
“I also must optimize routing. For example, the Jakarta-London route has a 65% load factor. “We must review our routing and flight schedules to match our aircraft to the right routes.
“There’s also the problem of the unsatisfactory performance of Garuda employees. Finally, to lift revenue, we must create a price structure based on consumer behavior.”
Garuda’s B737 fleet is operating at more than nine hours day, which is reasonably good said Pahala. However, 18 Bombardier CRJ1000s and 12 ATR turboprops are only flying between five and seven hours, when they should be achieving above eight hours.
He also is advocating more integration with domestic subsidiary, Citilink, so it does not fly on the same routes as Garuda. The carrier is reviewing up to 20 of its domestic routes. “In the meantime, improving the performance of subsidiary companies needs innovation,” he said.
“Aerowisata can seek customers other than Garuda for its catering services. Aerohotel can be integrated with ticket bookings, so passengers have the option to stay at our hotels.”
Pahala said Garuda “is in very good condition in terms of operations and services to the public”. “This phase of the business cycle that Garuda Indonesia is going through is only temporary in terms of infrastructure, human resources and products. All the business lines of the company have a good platform to improve performance,” he said.
Arif Wibowo abruptly resigned as president and CEO of PT Garuda Indonesia within hours of the airline’s annual general meeting in Jakarta on April 12. Media friendly Wibowo, who had run Garuda domestic subsidiary, PT Citilink Indonesia, for several years before he was appointed Garuda’s boss, served two and a half years of an expected five-year term. Analysts said Wibowo lost his job to airline novice and banker, Phahala Nugraha Mansury, because of mounting losses at the carrier. Net profit for the flag carrier declined by 89%, to $9.36 million, in the latest fiscal year. |
