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Garuda must Restructure, Downsize and Streamline Now

Monday July 10, 2006

Minister for Transportation, Hatta Rajasa has instructed the management of Garuda to take immediate measures to rescue the airline, which are conditional to the government bailing out the ailing airline from its debts.  The government plans to take over Garuda debts through a debt-to-equity swap with other State-owned enterprises.



The four conditions are:(1) cut down on operational costs with 10%; (2) downsize and streamline management; (3) reorganize unprofitable subsidiaries; and (4) find another airline to become strategic partner. This Business Plan must be devised to avoid further losses, said Rajasa, since only 20 of Garuda’s total 65 domestic and international routes have registered profits. Garuda flies 24 domestic routes, 30 international routes, with 11 additional routes flown by sister company Garuda Citilink.



Garuda must also retrench 900 of its staff to reduce overheads, instructed Minister Rajasa.  Whereas, strategic partnership with a profitable airline will change Garuda’s corporate culture, so as to enable the Indonesian airline to compete in the today’s tight global competition.



Furthermore, in its Business Plan, Garuda must also acquire new aircraft to fly international routes, with as priority, potential routes to the Middle East , , and Europe .



Garuda’s losses are caused by company’s underutilization of seats and its high operational costs as compared to other airlines.  One of the worst performing routes with a financial loss of 31.7% are the Yogyakarta-Bali flights with only 68.4% load factor of a break even load factor of 92.4%. While, on the international routes, worst performer is the Bali-Osaka route with financial loss of 44.4%, at a load factor of 49.7% of a break even load factor of 76.1%.  



Whereas, best international performer is the Jakarta-Jeddah route, giving a profit margin of 7.2% at a load factor of 85.4% of a break-even load of 79%. And best domestic performer is the Jakarta-Balikpapan route with a profit margin of 14.3%, at a load factor of 73.5% of a break-even load factor of 65.1%.