CHAPTER V CONCLUSION & RECOMMENDATION 5.1 Conclusion In this case study can be concluded that Garuda Indonesia management team under command of CEO Emirsyah Satar has manage a successful turn-around of the national flag carrier and layout firm foundation to further expand the airline. The turn-around stages followed a pattern explained by John L. Thompson, retrenchment and turn-around strategy. The retrenchment, clearly shown in Survival Stage of Garuda Indonesia Strategic Path 2006-2007, in which the airline reduced negative cashflow, improved revenue and cost efficiency. Entering the turn-around, in 2008-2009, the airline launched a series of transformation including organization transformation, product & service improvement, as well as network expansion. The management also covered the three dimension of a turn-around, which is financial side, strategic side, as well as pride side. Successful debt restructuring and cash flow management has enabled the airline to build foundation to grow its business. On the strategic side, a comprehensive long term strategy has guide the airline to get away from difficult water and start to fly again. Last but certainly not least, the management also touched the pride side by leading the people in new corporate culture toward high performing organization, as well as conducted a series of transformation, breathing a new spirit into the company. Flying to Europe is not merely after a revenue, but in broader sense, energizing the people inside the
company and telling the world to see the new Garuda Indonesia is about to take off again. Analysis on the marketing strategy of Garuda Indonesia revealed that its turnaround has been made possible through appropriate marketing decision in term of Segmentation, Targeting, and Positioning, as well as a great combination of Product, Pricing, Place and Promotion. Having segmenting the air travel market, the airline made conscious decision to target customer in business and leisure segment, grabbing the middle upper section of the market. With a good understanding of its target market, Garuda Indonesia positioned itself as full service airline offering a unique concept of service, indulging its passengers senses with Indonesian best. With its differentiation strategy, the airline tailored a balance trade-off in term of product and pricing, resulting in unique service proposition at reasonable cost, generating optimum revenue. The airline also aware the importance of managing its distribution channel properly to sustain its business, as well as appropriate promotion and communication mix. All in all, Garuda Indonesia has greatly improved its overall performance. Its success is not an overnight one but a combination of well-thought strategy and careful yet consistent execution, supported by strong leadership. It s not a one man show, but as the CEO said, it s a team work efforts, it wouldn t be possible without
the help of every employee. Truly, it s the team work that allowed the pride of nation to once again, fly ever higher. 5.2 Recommendation In our opinion, Garuda Indonesia has laid out a very impressive turn-around grand strategy and actually performing its strategy very well also. However we have identified several issues to be highlighted in regards to the airline strategy. Reclaim Domestic Domination Revitalize Citilink LCC Indonesia s Air Travel domestic market is still considered price sensitive. This is evidenced through the rising popularity of low-cost travel enabled by Low- Cost Carriers (LCCs). The last couple years we have seen rapid growth of LCCs with aggresive marketing campaign. Although it s arguably that these LCCs expand the market by creating new demand and capturing new travellers, we believe that they shifted Garuda Indonesia market dominance in domestic flights. In 2008, Garuda Indonesia still holds 23% market share, but it is sliced to 19,28% in 2009. Unlike other national airlines, the full-frills Garuda Indonesia brand is still associated with high price. This association simply brought a deterrent factor for prospective customers with low budget/low income. And to simply follow price war is certainly not an option for the company since it operates with completely
different business model, catering a more premium segment that may be damaged by doing so. However, with analyst predicted that in years to come LCCs will continue their reigns especially in short-haul domestic flights; Garuda Indonesia certainly has to fight back and recaptured its market share. Still catering their premium segment of air travelers, Garuda Indonesia has to revitalize and seriously develops their LCC SBU Citilink, extending and leveraging its main-brand. Repositioning should be carefully done, with Garuda Indonesia giving up some less favorite time slot on certain route to be market as Citilink product, giving customers the option of low-cost travel using Garuda Indonesia-operated aircrafts. To fully revitalized SBU Citilink, a spin-off is debatable one of the option. But as we want to leverage the Garuda Indonesia brand, we suggest keeping the SBU intact under one roof. Assign a member of the board in charge of the SBU instead of currently a VP would give the SBU enough delegation of authority it needed to develop. As we will not extend the discussion in company reorganization, we only cite a good example of SBU organization in Banking institution, i.e. Bank Mandiri, where C-level executive is actually direct and supervise a SBU. Furthermore, the company needs to allocate at least 10 aircrafts to develop budget travel segment. The two aircrafts currently in Citilink s fleet assigned hardly give room for development of its customer base. Given the limited resources, Garuda
Indonesia may selectively utilize its classic Boeing 737 series which to be phased out from main-brand services. The SBU Citilink has to be consistent in term of low cost business model adopted. Being in the same roof with Garuda Indonesia does not mean its overhead cost should be same, especially in cockpit crew and cabin crew cost. The way out for this is having a different recruitment process, offering contractual base employment and benchmark for attractive compensation package among LCCs. Potential dense route to be served must be identified, i.e. CGK-JOG, CGK- SUB, CGK-DPS, as well as explore new potential route enabled by low-cost proposition. Keeping an eye on where the competitors fly is a good idea in this exploration. Strengthen Regional Presence Focus Business Travel Being followed closely by Indonesia AirAsia in number of international passenger carried, Garuda Indonesia should also give focus to strengthen regional presence. Indonesia AirAsia mostly carried the passenger to their homebase in Kuala Lumpur, feeding the passengers to their main carriers AirAsia to be travelled to more distant destination including Hong Kong, Korea, Japan, Australia and even London. Based in perceived less-preferable hub, Garuda Indonesia should join forces with Government and Airport Management to make Indonesian airports more
desirable hubs. Polonia Medan might be a potential airport to serve as hub for regional market in addition to Denpasar Bali, catering flights to Far East region as well as Australia region. Also as suggested by IATA, the company must follow the region economic growth and capture business travel potential in the area. The regional market in Far East Japan and South Korea, is also a common hub for connecting flights to America. By having an interline agreement, i.e. Korean Airlines, Garuda Indonesia can also offer its customers connection to North America destination while strengthening its presence in the regional market. Expand International Network Alliance Partnership Since termination Garuda Indonesia s route to Amsterdam in 2004, practically no non-stop flight available to Western Europe. KLM operates to Amsterdam via Kuala Lumpur while Lufthansa serves Frankfurt via Singapore. Both Singapore Airlines and Malaysian Airlines offered connecting flight to Europe and United States through their home base. The MEB3 airlines are currently serving international flight with Emirates and Etihad serving their home bases non-stop from Jakarta while Qatar Airways currently serves Doha from Jakarta via Singapore, connecting flight to Europe or United States also available from their home base as well as their focus city in Singapore.
Re-entering this long-haul international routes, Garuda Indonesia should carefully better positioned itself among established carriers serving the routes and offer better value proposition in this sectors. Taking example from Jakarta- Amsterdam routes served by Garuda Indonesia through Dubai with Airbus 330-200 aircrafts. Emirates Airlines, a 4-star airline rated by SkyTrax, also serve the same exact route with significantly cheaper airfare and more comfort enabled by larger aircraft, Boeing 777 series. With delivery of 10 Boeing 777-300ER, Garuda Indonesia will certainly have a better proposition to serve this sector, but positioning remains a vital part to market the product. Garuda Indonesia will need to review its product & pricing trade-off in comparison with other airlines competing in same sectors. With majority potential passengers fall into leisure travelers, in our opinion the airline may stand better chance positioning itself as affordable luxury to European market, focusing on leisure travelers while seducing business travelers. The first may also greatly appreciate packaged holiday, bundled with Aerowisata Hotel chain, while the latter certainly look for attractive frequent flyer program as long haul route will boost their mileage awards. We do however suggest Garuda not to expand exhaustively to these long-haul routes as it s also a potential bloodbath with existing carriers, having severed the airline s performance in the past. Instead Garuda Indonesia should put more effort in joining alliance, as it also will make its frequent flyer program more attractive, especially for business travelers. As of 2010, the company is still in progress to join
SkyTeam. The alliance consists of 13 members including Korean Airlines, KLM, and Delta Airlines. In our opinion, instead of expanding its international network and exhausting its limited resources, the company can operate code-shares with other airlines (and later alliance members, upon joining alliance). For example, instead of flying to 5 different cities in Europe, Garuda Indonesia can enter interline agreement with KLM to connect its passengers to extensive European network with more favorable prices, an agreement that at the moment is not being pursued. Another similar case is for North America destinations, instead of flying the ultra-long route to the continents, Garuda Indonesia can setup interline agreement with Korean Airlines (KAL) connecting its passenger to KAL s trans-pacific flights bound to west. By doing so, Garuda Indonesia will certainly brings greater value to its customers, and at the same time sealed their loyalty even further.