Garuda Indonesia To Merge With Eight Companies

With no end in sight for the pandemic, the Indonesian Government is planning to merge Garuda Indonesia, the national flag carrier, with another eight tourism companies, according to Nikkei.

After months of the pandemic, the government proposed the scheme among the state-owned enterprises. The plan is expected to integrate Garuda Indonesia; Citilink, Garuda’s no-frills carrier and seven state-owned enterprises, including airports, hotels, department stores and ancient Buddhist temple.

“The headwinds in the travel industry provide a good opportunity to start integrating and transforming the tourism and aviation sectors,” Indonesian President Joko Widodo, who supports the integration, said.

Irfan Setiaputra, the president and chief executive of the airline, also supports the proposal as effective. After the integration, Garuda is expected to benefit from the new company, which could more easily receive funding from the government. In addition, the new group could offer more competitive pricing to increase market share.

Last week, the struggling airline announced that it would slash 700 jobs. And earlier this year, its furloughed over 800 employees due to the pandemic. Garuda employed nearly 8,000 staff at the end of 2019. Earlier, the airline received a $583 million financial support from the government.

“We have to take this tough decision in the midst of a situation that is still full of uncertainty,” Setiaputra said of furloughs.

“Our flight occupancy rate currently stands at around 40%, which cannot even cover the operation cost,” Garuda Indonesia Service and Business Development Director Ade R. Susradi said.

Following a profit of $78.68 million at the same time last year, the airline recorded a net loss of $728 million in the first half of 2020.

The pandemic shows no sign of abating, and Garuda has been trying to cut costs wherever possible. It rolled out an early retirement to employees, and, according to the airline, over 500 staff have applied for the package. Also, the salaries of the employees have been cut by 10-50%, depending on their position; executives were among those who received a 50% cut.

In the meantime, the airline will stop expanding its fleet. Setiaputra believes “it doesn’t make any sense” to buy new aircraft while flights are being grounded, adding that Garuda’s fleet is still relatively new.

“However, nobody knows how things are going to develop next year,” Setiaputra added.

As a result of global travel restrictions, aircraft utilization was only four hours and 19 minutes each day in July, compared to eight hours and 14 minutes during the same time last year. The group recorded a 54% year-over-year drop in passenger numbers in the first seven months of this year.

Recently, Indonesia’s government announced that it would waive its passenger service charge and airport tax in the tariff on the ticket flights in response to the weak travel demand.

Setiaputra said, “During challenges situation that we are facing due to the COVID-19 pandemic, we considered that the provision of its stimulus as a significant strategy to support the recovery of airlines’ performance, especially to attract the public to use air transportation services again.”