Garuda looks to scrap first class, axe most international routes

The troubled Indonesian airline plans a pivot into the local market.

By Bloomberg News, September 16 2022
Garuda looks to scrap first class, axe most international routes

Distressed airline Garuda Indonesia may stop selling first class and withdraw from most international routes as it focuses on local flying.

The state-owned carrier will concentrate on business, premium economy and economy seats because it is more suitable for the market, State Enterprises Minister Erick Thohir said in an interview on Thursday.

He reiterated that Garuda will stop most international routes to cut costs, except for a select few, including pilgrimage flights to Saudi Arabia.

“Garuda had the wrong business model in the past, with its leasing costs way above the industry average, so we need to fix that,” said Thohir. International flights can still be served via code-sharing arrangement with other airlines, he added.

The airline is revamping its operations to meet a goal of returning to operating profit in 2023 while restructuring about US$9.5 billion in debt.

Four first class suites crown Garuda's flagship Boeing 777-300ER.
Four first class suites crown Garuda's flagship Boeing 777-300ER.

Garuda, which narrowed its loss in the first quarter, plans to boost its fleet to 120 from 30, gradually returning to its pre-pandemic size.

Garuda will acquire the additional planes from one or two lessors assigned by Airbus or Boeing, said Thohir, adding that he is confident it will have no problem making deals due to the country’s huge air travel market. He predicted that as many as 1,800 planes in total will eventually be needed to serve the entire archipelago.

The SkyTeam member is also willing to renegotiate a deal for 49 Boeing 737 Max jets that haven’t yet been delivered, by either reducing the order size or pushing back deliveries, Deputy Minister for State-Owned Enterprises Kartika Wirjoatmodjo noted mid-year.

The decision to stop receiving the Max started in early 2019 after two crashes – the first of which occurred in Indonesia – that led to a global grounding of the model.

“Boeing wanted us to keep our commitment on the Max purchase,” said Wirjoatmodjo, who met with officials from the US manufacturer earlier this year.

“We want them to renegotiate, just like Airbus, by pushing back the deliveries or reducing the orders for 737 Max. They don’t want it. So like it or not, we might have to settle it in American court, we have to do Chapter 15.”

Garuda’s creditors, which included plane lessors, earlier this year approved a plan to restructure liabilities worth 142 trillion rupiah (US$9.5 billion). The agreement gave the company more financial headroom as it seeks to capitalize on a rebound in air travel.

Garuda last posted an operating profit in 2019, prior to the pandemic.

Additional reporting by David Flynn

This article is published under license from Bloomberg Media: the original article can be viewed here

Qantas - Qantas Frequent Flyer

25 Feb 2017

Total posts 9

Whilst this may be disappointing for some, it’s a good sign that the airline is now being run properly, setting themselves up for a better future.   International routes,  first class, and fleet decisions shouldn’t be based on prestige and ego & kept running at a loss.   Just ask the Thai govt. how that works out.

XWu
XWu

09 May 2020

Total posts 530

They must be confident that enough people are willing to pay J class for domestic flights, but considering there are a few 3-4 LCCs in domestic operation (but not sure how much their network is still intact, in current pandemic, UR-RU war inflation mode) there might still be some price drop in fares, resulting in slower return to profitability, unless they are able to command a premium to hard core pax like QF

Virgin Australia - Velocity Rewards

08 Jun 2014

Total posts 258

I really enjoyed the service of Garuda in F from London to Jakarta then onwards to J to Singapore. The seat, experience was phenomenal and will be missed on the 777.

Joe
Joe

03 May 2013

Total posts 655

I still worry  their safety protocols and pilot training are up not to standard.

Qantas - Qantas Frequent Flyer

01 Mar 2013

Total posts 178

Yes, I know the airline wasn't run properly. But, Garuda was my preference in getting from SYD/DPS.

I could get a decent BusClass seat, and take a board over 9' (you can't do that with anyone other than SQ now).


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