As government after government shuts down its borders and imposes strict travel restrictions, the global aviation industry is heading for a tailspin. The speed and depth of the nosedive is unprecedented with some estimates putting the cost of the global shutdown at well above US$200 billion.
The International Air Transport Association (IATA) ‘s latest analysis of predicted revenue loss for airlines from passenger business is at US$113 billion if the virus is not contained within the current markets. If the pandemic lasts beyond the first half of 2020, the future of air travel could be altereted forever.
This gloomy picture is reflected in the hammering that listed careers have suffered in their share price. From February 24th to March 24th, Garuda Indonesia’s share pricedropped 50 percent; Qantas 56 percent;Singapore Airlines 43.6 percent; Cathay Pacific 23.4 percent; and Thai Airways 36.3 percent.
Against this backdrop, most major airlines are cutting back flights and hunkering down for a long downturn. In the words of Garuda Indonesia President Director and CEO Irfan Setiaputra, the challege for the airline is to survive.
“Well at the present time our share price is falling. But I don’t think its fundamental and limited to aviation because investors are pulling out of the stock market,” Irfan told the Indonesia Economic Forum in an exclusive inteview.
For Garuda, doing business in a pandemic means rescheduling, rerouting and refunding flights. But the company is also trying it‘s best to minimize refunding as much as possible.
“We are sending a message to our customers that many things will change in this current situation and we need their understanding. People that have bought our tickets can still fly, even if it is promotion. But we might suggest re-routing or rescheding to another day that both of us believe we can fly on that day, rather than cancelling,” he said.
“Even though by law we can cancel without any refund, we are still flying. We are monitoring the dynamic of the domestic traffic and we will be very flexible to maybe increase frequency if it necessary,” he added.
Post COVID-19
Even as he battles to stay afloat and continue to serve his customers, Irfan has one eye on the future. He told IEF Garuda is already in discussionswith aviation authorities in India, Australia, Russia, New Zealand, Germany, and France about starting direct flights from Jakarta and Denpasar to several cities in those countries.
“We are talking with several authorities about the possibility of having direct flights to their countries. Some of them are like: ‘Are you crazy?’ I said yes, we are talking now, but we are going to execute it later once the pandemic is over,” he noted.
In the meantime, Garuda is carrying out its obligation to repatriate all Indonesian citizens from infected countries back home while also helping Australians and Dutch citizens to return to their countries.
“Are we going to lose money on these flights? For sure. Flying five to ten people per day doesn’t make any sense business-wise but we still lose money by not flying. So rather than that, let’s fly. In the current situation it is stated very clearly that the government is responsible to make sure Indonesians abroad are safe and if they want to come back, we will fly them back,” he added.
It’s a Bad Day, Not A Bad Life
Despite the gloomy outlook for the aviation sector, Irfan remains hopeful that the situation will turn for the better in the not too distant future. He believes that demand for air travel is still strong but sentiments such as fear are running high. People still want to travel and holiday. Perceptions must be well managed.
“Well, this business has been very challenging for years, the competition is tough and the margin is so low, but I do see there should be a huge opportunity on the revenue side not only from passenger business side and non-passenger business such as aircargo or advertisements, but from other non-traditional channels,” he said
One such idea is engaging with the younger generation” on how to leverage Garuda’s 26 million passengers a year.
“I think there should be meaningful ways to generate revenue and help us to improve ourmargins from this business while keeping the passenger happy. For a full services carrier like us, the key is to increase our service quality,” he added.
Tight Cashflow, Strong Domestic Market
Managing cash flow will be a major challenge in the coming months for the national carrier, Irfan admitted as revenue dries up while costs remain constant. The airline is already in talks with its major partners regarding its short term liabilities and asked for greater understanding.
“I always believe that we can talk. And I am much more ready to talk to discuss things that we can strengthen our partnership, but for sure first we need them to understand the situation. It isn’t like we aren’t committing to what we promise them, but the situation is difficult,” he noted.
“But if they have less concerned about the situation and push us into a corner, I will simply ask them to terminate our relationship because a partnership is about understanding each other,” he added.
There is a reason behind Garuda’s confidencein arriving at an amicable arrangement with its lessors. It has a strong domestic market and unlike other hub airlines that rely on international travellers, 80 percent of its passengers are domestic travellers. And as connectivity between the 17,000 islands that make up Indonesia improves, domestic travel is expected to boom.
“Wefly to 48 mayor cities in almost every provincial capital. Even if we don’t start to buy aircraft for the international market, our domestic business is very healthy. Now we also have 10 new destinations which is I believe fantastic places to visit,” he said.
To maintain investor trust and confidence, Irfan plans to continue to upgrade Garuda’s fleet as he expands the domestic network.
“And for sure there will be new investments in airplanes as I always mention that before Garuda will be here forever. That is our mandate as as State Owned Enterprise (SOE) and we can’t fly with outdated Boeing 737s only.”
Just two months into his new job, Irfan is facing strong headwinds but his focus is firmly fixed on the future which remains bright once the storm clouds lift. His message to his staff and to all Indonesians: stay positive and stay united.