Story ID: 5JMgaruda09232014
Garuda’s ‘Quantum Leap’ Falls Flat 
By: Jennifer Meszaros
Caption: Big losses in first half and heightened competition prompt second look at growth strategy.
Word Count: 442
Despite ambitious plans to expand its international network and notwithstanding a high-profile launch of Jakarta-London services on September 8, Garuda Indonesia has decided to take a more conservative approach this year after posting a group operating loss of $234 million in the first half of the year, compared with a $10.92 million loss in the same period in 2013. Plans now call for Garuda to strengthen its domestic operations while relying on its membership with the Skyteam alliance to expand its international network.  The airline has also announced plans to defer aircraft delivery, cut out unprofitable routes and reduce capacity growth.

Garuda originally had planned to launch service to at least three key European countries – Germany, France and Italy – as well as to India and the Philippines using its flagship fleet of Boeing 777-300ERs. The airline now reports that its Jakarta to London service will account for its final international route launch this year. The Jakarta-London service is the second European destination on Garuda’s network after Amsterdam. In May, the airline launched the first-ever commercial non-stop flight between Indonesia and Europe, bypassing Garuda’s previous stop at Abu Dhabi thanks to the extended range of the 777-300ER compared with the Airbus A330, which originally served the route. Garuda has since declared Amsterdam its hub for “Europe and beyond,” and offers more than 60 connections throughout Europe on KLM, the national carrier of the Netherlands, and more than 20 connections to the U.S. on Delta Air Lines.

Garuda took possession of the first of an order for 10 Boeing 777-300ERs in mid-2013 in line with the airline’s Quantum Leap strategy – a business restructuring plan that includes fleet rejuvenation and network improvements. While Garuda harbored plans to launch service to London in November 2013, slot restrictions at Gatwick and runway pavement issues at Jakarta Soekarno-Hatta International Airport forced a delay.

Garuda had vied to expand its global footprint using its flagship fleet but opted to scale back its ambitions in light of “challenging” market conditions. It attributed its first-half $234 million net loss, which includes a loss of $16 million at budget subsidiary Citilink, to a weaker exchange rate on the rupiah along with an increase in fuel prices. Given the loss, the airline has abandoned plans to launch service to both India and the Philippines and now wants to defer aircraft deliveries, cut unprofitable routes and reduce capacity growth.

On the whole Southeast Asian airlines have struggled amid heightened competition while most markets continue to suffer from overcapacity. Some 80 percent of the nearly 50 airlines operating in the region posted losses in the first half of this year.