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Garuda Indonesia : Become Leading Airlines

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    INTRODUCTION PT. Garuda Indonesia (Garuda) is the oldest flight company in Indonesia and owned by the government. In 2010, in its 60th anniversary-an age that should enter or in mature position- it showed more losses than profit (like shown in the 5 consecutive years of financial statement). In 2006 under the new leader of Emirsyah Satar Garuda started to change its strategy to make profit. The new strategies include synergize all operation level and embedded one new value, which is team work, to achieve company’s targets. These changes resulted in profit amount to IDR 975 billion in 2008 and IDR 1. 18 trillion in 2009. In the end 2010 Garuda planning to be a public company through IPO (Initial Public Offering). In order to do that, Garuda has restructured its debt to ECA and Bank Mandiri. Repayment to Bank Mandiri will be done by exchange its debt with 10% of shares sold through IPO, while negotiation with ECA for debt restructuring has been affirmed and only wait for the final signature. Beside the big plan for IPO, Garuda faces a tight competition from the LCC flight company, because many passengers still prefer the LCC over the premium flight like Garuda.

    Other than premium market they serve, they also serve the LCC segment using Citilink brand, unfortunately Garuda still focus on its premium service over the LCC, which is why the number of fleet and the routes provided by Citilink is still limited. This has become the hindrance for Garuda to increase its market share as well as market leader, and this phenomenon applies for domestic and international routes. The market leader for domestic and international routes is Lion Air and Air Asia respectively.

    Looking at the Citilink’s performance and the trend towards LCC, Citilink is a promising business to Garuda since the increase passenger from 2008-2009 reached 277. 46%. Other than debt and competition issues, Garuda also faces trust issue comes from the labor union to the management due to financial statement transparency issue, criticism for selling assets, and demand of salary increase. PROBLEM IDENTIFICATIONS AND ISSUES BASIS Based on several issues mentioned above, problems and issues around Garuda are: 1.

    Places 2nd position in the Indonesian airlines in term of number of market shares (19% for domestic routes compare to 30% Lion Air’s market share, and 34% of international routes compare to 46. 9% Air Asia’s market share); 2. Lack of trust from labor to the management due to question of transparency in financial statement, criticism for selling assets, and demand of salary increase. ANALYSIS Frame of analysis used to solve the problem by using management concepts as shown in the following figure: Strategic Issue Analysis Stage Internal Analysis * External Analysis * Functional Analysis

    Finance Human Resources Marketing Operations Macro Analysis Politic Economic Social & Culture Technology Micro Analysis (Industrial) Porter’s 5 Forces of competition analysis market share Strength and Weakness Opportunities and Threats Alternatives Strategies * Recommended Strategy * A. External Analysis The external analysis is divided into two parts, the macro analysis and industry analysis. Macro analysis will address issues macro (state) that affect the airline industry, while the industry analysis will discuss industry issues that impact the profitability of the airline industry. . Macro Analysis using PEST Analysis 2. Industry Analysis using Porter 5’s Forces of Competition Analysis Market Share From industry analysis presented above can be concluded the profitability of the commercial flight industry is low thus it is necessary to enhance core competence and maintain efficient cost to reach competitiveness which will lead to sustainable growth. Results from PEST and Industry analysis are identification of opportunities and threats like described in External Factor Evaluation Matrix (EFE) below: B. Internal Factor Analysis

    Internal factor analysis conducted through functional analysis covering Finance, Human Resource, Marketing, and Operations functions. 1. Finance (Horizontal analysis) PT. Garuda Indonesia experienced losses on 2005-2006 and started to gain profit in 2007-2009. Significant profit increase occurred in 2008 which was 538% compared to 2007 and profit growth declined to only 4. 47% in 2009 due to increased fuel price, which increased operating expenses, and decreased revenue. 2. Human Resource There are three issues in human resources that need to be noticed.

    First is the increasing number of commercial flight company causes demand of aircrews (pilots, stewards, technicians) increases as well. For the time being, to fulfill the needs of the air crew Garuda recruits pilots from the existing flying school, and other air crews through its training centers. Second, the regeneration process for stewardess and leaders is considered slow. This can be seen from the age of stewardess serving the passengers (above 30 years old), while competitors hire stewardess whose age around 20-30 years old.

    The extension of Emirsyah Satar’s tenure has become an early clue that leaders regeneration in Garuda is going slow. Third, lack of trust to Garuda’s management comes from its employees is caused by asset sale (www. detiknews. com, Thursday, 10th May 2007), salary increase request, not transparent about salary proportion (www. kontan. co. id, Wednesday, 7th July 2010) and calculation of net income in 2008. 3. Marketing (7Ps) 4. Operations Garuda has 70 aircrafts (67 aircrafts which are operated by Garuda and 3 are operated by Citilink).

    Garuda consisted of five phases of service touch point; pre journey; preflight; in-flight; post-flight and post journey which include; ticket ordering, check-in, lounge facilities, boarding, comfortness during flight and baggage claim. These phases of services honor for 4 star by Skytrax and also get “World Most Improved Airlines” by Skytrax for achieving business transformation program. For loyal passengers to enjoy all services and facilities mentioned above, they can join the membership program called Garuda Frequent Flyer. Garuda also provides rewards for loyal customers who already join in Garuda Frequent Flyer (GFF) program.

    From functional analysis above, address strengths and weaknesses of Garuda which are presented in Internal Factor Evaluation Matrix (IFE) below: IE MATRIX Figures from EFE and IFE matrix are plotted in IE matrix to result in alternative of grand strategy. EFE with 2. 65 score and IFE with 3. 1 score results Garuda in column I,II,IV. Based on IE theory, whenever the organization lies in column I,II,IV means the suitable strategy is growth and build. Several alternative strategies especially for growth are market penetration, market development, product development.

    Through further analysis using TOWS and QSPM tools, it is best suited using product development for Garuda. Thus, product development will cover 2 major points, which are: a. Develop routes for Citilink for domestic flights, because in the future LCC will be the leader in the flight industry. b. Expand international routes serves by Garuda because for long flights people tend to look for comfortable seats and nice flight services. SUGGESTIONS Based on analysis above, to win competition in domestic and international route, Garuda must have road map strategy to envision their annual strategies in five years time.

    Road map strategy for 2010-2015 is like follow: In order to achieve road map strategy, Garuda needs to do three things: 1. Develop Citilink Citilink plays important part to contribute in Garuda’s future sustainable growth, due to LCC concept it uses to compete with other LCC flights. It’s important to develop Citilink since it had a good performance in 2008-2009 by growing passenger of 277. 46%. It creates opportunity for Garuda to increase its market share especially in LCC segment in domestic routes. At present, Citilink has three fleets only and served limited routes.

    To develop Citilink, Garuda should add more fleets for Citilink (same type of fleet to reduce the maintenance cost) and develop domestic routes. The recommended fleet is Airbus because Airbus has large fuel tank enable direct flights to distant destinations especially. The recommended routes to develop are East Indonesia (Sulawesi, Maluku/Halmahera, Papua), all over Kalimantan, Nusa Tenggara, Bali, Lombok. The routes are potential to be developed since around East Indonesia, Nusa Tenggara, Bali, and Lombok there are many tourism destinations ready to be introduced worldwide.

    Destinations to Kalimantan are also potential because many companies have subsidiaries or branches there that make travel frequencies quite high each month. Citilink development will be done based on below strategy map: Several things should be developed in learning & growing, internal business process and customer service to achieve financial growth are described as follows: a. Learning dan Growing As a service company, the most important thing is excellent service to attract many passengers. To provide service excellent to passengers, Garuda needs increase its employees’ satisfaction.

    One thing that can be done to increase employee satisfaction is by providing attractive benefits and Holiday Program. Through Holiday Program, employees motivated to be the best employees in their division/group. When they motivated to get the bonus, certainly they are more care with company’s condition and as the result they will work to its maximum to give the excellent service to the passengers. To enhance their service ability and skill, Garuda needs to provide and improve trainings for the employees covering the hard and soft skills. b. Internal business process

    Punctuality (on time) is the internal business process that should be emphasized because Citilink will create value added through punctuality. For the time being, punctuality in this segment from all players are considered very low compare to premium segment, that is why Citilink will market itself as punctual LCC. To be punctual, Citilink needs to trains all of its aircrew to work in such a short time. They can invite F1 crew trainer to train how to do the 1 cycle activites from landing to take off in such a quick way to achieve short lead time. . Customer To increase services to passengers, Citilink needs to identify the need and wants from the passengers. In current condition, customers need and wants are low price and punctuality. These are the things that will be provided by Citilink, thus Citilink should be marketed as punctual LCC. To achieve the target as punctual LCC, the internal business process and learning & growing stages should be done first because it’s impossible to get the punctual LCC without fixing and improving the internal condition first.

    Moreover, Citilink needs to add more (should be 7 more at least) and same kind of fleet. More fleets are necessary to serves additional routes as mentioned above, while the same fleet will reduce the maintenance cost. d. Financial By answering the need and want from passengers, certainly Citilink are able to keep their existing customer and at the same time can attract competitors’ passengers. By having more passengers means more revenue and market share. Increase market share can lead to increase profit, and if the condition is being maintain in the long run, it can achieved sustainable growth. . Implementation of Dual Strategy for Garuda Based on above strategic map, Garuda should implement dual strategy, which are differentiation and cost leadership. Further explanation presented below: A. Differentiation strategy: Differentiation is an important strategy to win domestic and international competition since differentiation creates valued added for customers. For this strategy, there are few things need to be done, which are: * Implement holistic marketing in every aspect as a marketing strategy.

    Garuda should pay attention to internal marketing and interactive marketing besides external marketing such as service, price, promotion and distribution. The example of internal marketing are training employee to improve hard and soft skill, motivated employee so they can give a service excellent to customer through regular and continuous training program. Interactive marketing is an employee competence not only technical quality but also functional quality. By interactive marketing, employee can maximize technology to serve and make customer comfortable.

    This strategy is to improve, strengthen and show changes of Garuda’s positioning from good to great in terms of service excellent and superior quality so that Garuda can increase its brand equity. * Provide shuttle bus with e-check in. Bus services are available in Garuda’s offices in Jakarta. Whenever passengers enter this bus, they can immediately check in and their baggage will be immediately taken care of. On their arrival in the airport, passengers can go directly to waiting room or lounge and wait for the boarding. Passengers can take their baggage back on the airport of their destination city.

    Passengers arrive in airport are also can travel using this bus to be transported to appointed Garuda’s offices. For the first stage, the pilot project routes are from Medan Merdeka to Soekarno Hatta Airport. If this success, then the bus will be available in all Garuda’s offices in all over Jakarta. In 2014 will be available through all Garuda’s sales offices in all over Indonesia. The bus services will be outsourced to the third parties to maintenance cost and make Garuda focus on its core business. * Create interesting programs to provide loyal passengers with special service called Priority Passenger Program.

    For example they can file their complaints through text messages (SMS) and will be responded in 15-30 minutes time by phone service. * Cooperation with Indonesia’s tourism board in all over foreign countries. Whenever foreigners want to visit Indonesia and they seek information from the tourism boards, they will be provided with all tourist information and being helped to arrange their vacation from their origin country to their destinations in all over Indonesia using Garuda’s flight (including connecting flights if necessary).

    Other than that, Garuda can show Indonesian cultures in International routes (flights from Europe, Asian, US which are going to Indonesia) through TV showing, provide small souvenirs showing Indonesia’s culture (like small fan using Batik motives) on foreign tourists arrival in Indonesia, and provide booklet contains interesting places, Indonesia’s food and beverage specialties, and emergency phone numbers (like police, hospitals, embassies). B.

    Cost Leadership Strategy: This strategy is dedicated to minimize cost to maximize profit. For this strategy, there are two things need to be done, which are: * Start using new or young planes (age maximum 5-7 years) since new planes will reduce the maintenance cost effectively. Moreover, the new/young planes also more comfortable and safer for the passengers, thus * Using the right IT system, because IT system can help to reduce cost by eliminating redundant obs, simplify processes and can help to integrate functions to faster decision making process. 3. Implement business ethics and improve communication between employees and management To overcome the lack of trust from employee to the management, there are several things need to be done: a. Implement business ethics principle through implementation of Good Corporate Governance (GCG), because the GCG emphasize 5 good principles (Transparency, Accountability, Responsibility, Independent, and Fair) to run organizations.

    When GCG is implemented, certainly any suspicions and doubts can be eliminated since GCG encourages organization to make decisions that are best for both, stakeholders and shareholders and at the same time protect stakeholders from suffer due to mismanagement. Thus, when the stakeholders are protected and get benefit from the organizations, then it can create stakeholders’ loyalty. In Garuda’s case, it’s the employees’ loyalty that needs to be rebuilt. Employee Commitment & Trust Profit Investor loyalty & Trust Ethics (GCG) Customer Satisfaction & Trust b.

    After implement the GCG, it’s important to improve communication between employees and management to prevent the occurrence for lack of trust. For example, for every implementation of big strategy that will affect employees, management should communicate it with the employees’ representative before make formal announcement throughout organizations and public. CONCLUSION Garuda Indonesia as the oldest flight company and owned by the government should have number 1 position in the flight industry, rather it occupy 2nd position behind Lion Air for domestic routes and Air Asia for international routes.

    Thorough analysis from macro and micro analysis, address Garuda’s SWOT (Strengths, weaknesses, opportunities, and threats), and it is used to be matched with Garuda’s goals. As the result, there is some gap need to be bridged by some strategies such as develop Citilink, implement dual strategy for Garuda’s premium segment, and implement GCG to reduce its employees’ lack of trust. To make Garuda Indonesia as leading airlines certainly cannot be done instantly, thus it is necessary to follow recommended road map strategies which is breakdown to annual target.

    REFERENCE LIST David, Fred R (2009), Stratgic Management Concepts and Cases 12th edition, New Jersey:Pearson International Edition Ferrel, Fraedrich, Ferrel (2008), Business Ethics Ethical Decision Making and Cases7th edition, Ohio: South-Western Cengage Learning Kotler & Keller (2009), Marketing Management 13th edition, New Jersey:Pearson International Edition Prasetyo AH, Munir N, Kurnia PR, Garuda Indonesia To Becoming a Distinguished Airline, Jakarta:PPM School of Management Snell & Bohlander (2007), Human Resource Management, Ohio : Thomson South-Western

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