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CEO Interview - Best Foot Forward

CEO Garuda

This year’s IPO signaled a milestone in Garuda Indonesia’s business transformation. Emirsyah Satar talks about the next steps forward

Can you explain the Garuda Quantum Leap program?

The airline only made a profit in three of the years between 1995 and 2005, so when I joined in 2005 it was essential to restructure and transform the company.

For the first two years, it was simply about surviving. After that we worked hard to turn things around. That’s what we called our first journey, which was basically moving Garuda from a loss‑making company into a restructured one that became listed early in 2011 with a market capitalization of $1.5 billion. We paid down the debt and in the past three years we have been profitable.

The aim now is to take Garuda to the next level–our second journey–and the Quantum Leap program is our strategy to ensure we reach our destination. There are seven elements to the program: domestic travel; international travel; addressing low-cost travel through a subsidiary, Citilink; expanding the fleet; rejuvenating the brand; improving our cost discipline; and getting greater productivity from our staff.

It’s about building competitiveness and making Garuda a respected airline in global terms. We have already achieved a four-star rating with Skytrax. We want to join the global airlines that have been awarded five stars. In any case, the Association of Southeast Asian Nations (ASEAN) countries will liberalize in 2015 and we have to be ready to compete for the new opportunities that will open up.

It is a very ambitious program. Will you be able to achieve all of your goals?

The seven drivers will get us to where we want to go. It is not just about being profitable. It is about being profitable, and having a good brand and good service. Our fleet will almost double in just six years and we expect the productivity of our employees to increase 39%. By 2015, we aim to carry 35.2 million passengers, a 182% increase on 2010 figures. Our capacity in terms of available seat kilometers (ASKs) will increase 171% to 69.7 billion.

But we’re not stopping there. We will bring the Garuda Indonesia experience to our customers. We are putting the best of Indonesia forward. That means a diverse culture and exceptional service—and cutting-edge technology will enable us to deliver on our promises.

How will you manage all seven drivers at once?

I meet regularly with the CEOs of the various subsidiaries as well as the relevant directors. We look at every aspect of the business, including all the key performance indicators. Every month we review the figures and the latest information. Have we achieved what we set out to do? If there is a shortfall somewhere, it is flagged up so it is very visible to everybody.

But the most important thing is that each member of the Garuda team is committed to the project. We will manage it because it is part of the company culture.

How do you decrease staff but increase quality?

Technology is part of the answer, as is redefining our business processes. We are also hiring new, highly qualified staff. Through the Quantum Leap program, we are targeting an increase in productivity of around 39% by 2015.

Technology will enable us to enhance the potential of our existing staff and better qualified recruits will boost our management level. We are also expanding our training program so that everybody will have at least a few days of high-quality training each year.

Can you really put all of this into place without improvement at your main hub, Jakarta’s Soekarno-Hatta airport?

We are working closely with the authorities and the government. We make ourselves available to advise on how we can improve together.

Being an international carrier we are aware of global standards and we try to instil that quality on a local level. We also get help from the various IATA programs, such as its Operational Safety Audit (IOSA).

Of course, talking doesn’t build runways or terminal buildings. Soekarno-Hatta urgently needs additional capacity. About 44 million people passed through the airport last year and we will only have an official capacity of 38 million when Terminal 3 is fully functional. Garuda needs to have a Plan B. Already, more tertiary hubs have been identified so we can base our aircraft at these outstations overnight and free up space at Jakarta and Bali. Now we need crew and pilots to be based at these other hubs and that is an ongoing project.

How will this strategy work with so many new aircraft on order?

We expect that by the end of 2012 we will have 110 aircraft in our fleet. We will add another 10 in 2013 and we will get up to 154 by 2015. But by the time we reach that figure we should have a new terminal building at Jakarta, dedicated to Garuda.

What is your view on plans for a new airport on the other side of Jakarta?

The viability of the plan depends on the size of the new airport and the connections between the two gateways. Of course we would prefer one big airport, which is far better for connectivity and customer service.

Large single hubs such as Singapore are usually very successful. We don’t want to end up with something like London Heathrow and London Gatwick. But if we get a new airport with far more potential, it could be that Garuda will eventually only use the new airport.

Will you be able to compete when the ASEAN market is liberalized in 2015?

As mentioned before, the Quantum Leap program is getting us ready to compete in a more liberalized environment. Competition is a good thing; it makes a company more agile and increases responsiveness to the market. It’s good for the staff, too. It makes them feel valued and keeps them interested.

Having said that, there must be a level playing field and truly reciprocal arrangements in place. That means Garuda needs the same rights as other airlines. Indonesia potentially has the biggest market in the ASEAN region. By 2030 we will be the fifth biggest economy in the world, larger than Brazil and Russia.

Is there a solution?

Each airline has to acknowledge the size of its market and any competitive advantage. What can each airline provide locally and to new markets? 

We should be open but it has to be good for the country. At the end of the day, however, I think it is inevitable there will be an open market. We will have to deal with that as best we can.

Can the Indonesian market really achieve the growth you expect?

Purchasing power is getting higher all the time because the economy is growing and the government has been decentralized. More of the money is remaining in the provinces and the provincial authorities are managing their own budgets. Regional economic growth means we have a more balanced market to supply, which is far better operationally.

What is the idea behind Citilink? A number of other carriers are looking at starting low-cost carrier subsidiaries but previous attempts at this strategy about 10 years ago ended in failure.

We want to keep the full-service market for Garuda and yet still compete in the LCC market through Citilink. This is part of the reason why we have those seven drivers on the Quantum Leap program—so we can also compete on the low-cost side. Of course, having low costs is still a good thing for a full service carrier, too.

We are coming into the LCC market later than other majors. I think that’s a good thing; we can see the dos and don’ts. Not only can we see what works, but we can see who are the best staff for this type of operation. It needs to be a different culture because it is operationally different. Therefore, generally, we won’t have Garuda staff transferred there.

Safety has been an issue. How have you managed to improve so markedly in a relatively short space of time?

I’m pleased that Garuda is no longer on the European banned list. We continue to work closely with our regulator and we have been IOSA registered since 2008. But we also have to work hard on Indonesian safety in general because that reflects on the Garuda global brand.

As head of the Indonesia National Air Carriers Association (INACA), my main emphasis is on safety. Safety starts with the company culture and we have to instil that safety culture in all Indonesian airlines. Indonesian carriers are getting better. I believe all the airlines are committed and the government is committed too. I expect big improvements in the years ahead.

Three of the past four CEOs of Garuda have been bankers. Do you bring specific qualities to the role?
Previously, the main problem for the airline was that its debts were very high. The financial side of business needed careful management and it was felt that a banker would be a good choice.

I don’t see why an airline has to have an aviation veteran as CEO. A different perspective can be very positive. Outsiders don’t look at things the same way, and aren’t afraid of starting afresh and asking questions. “Because it is always done this way” is not an answer. When I started, I rejected 10 aircraft we had on order. I reasoned, why be big and lose money when we can be small and profitable? Now that we have our house in order, we are going to be bigger and more profitable.

But the really big change I made was in procurement. When I joined, our revenue was about $800 million and we were almost at that figure in procurement costs. I knew a better system would save at least 5-6% and make procurement more transparent. It was the start of a more logical business strategy.

Finally, I understand you are a keen cyclist?

Yes, I am. It keeps me healthy and it does not cost much to participate. I cycle with my staff—we have a club at the airline. There is no hierarchy in sport so it helps me mingle. I know what’s happening at my airline at every level!

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