Emirsyah Satar, President & CEO, Garuda Indonesia: Interview

Interview: Emirsyah Satar

To what extent will increasing domestic and international passenger traffic offset rising fuel prices?

EMIRSYAH SATAR: Indonesia’s economic performance and the increasing contribution of the regions to GDP have had a positive impact on the number of passengers travelling by air in 2011. This has encouraged airlines to use larger aircrafts, which allows the industry to offer lower prices. Passenger traffic follows a 2:1 relationship with GDP growth in Indonesia, and since GDP remains at a 6-7% growth rate, we expect to see our industry expand at an average rate of 12-14% during each of the next few years. While fuel prices have increased rapidly in 2011, the current scenario of sustained growth and strong economic fundamentals should offset its impact on the industry’s overall performance.

Has infrastructure been able to keep pace with increases in the cargo industry, as well as domestic and international passenger traffic?

SATAR: This is one of our main challenges and a long-discussed topic at the Indonesia National Air Carriers Association. The future success of the sector does not only rely on airline performance and contribution, but is also very much dependent on supporting infrastructure, such as airports, roads, maintenance facilities and banking services. Having the right infrastructure to accommodate growth and handle passengers efficiently is critical. We know the government has an infrastructure development plan, and we are working together with them to execute it. Currently, infrastructure development is running behind growth in the sector and there is not much we as air operators can do to reverse this. Meanwhile, we have learned to manage the lack of infrastructure with creative solutions.

How are you collaborating with the government to improve airport facilities? What steps have been taken to increase services to your passengers?

SATAR: There is not much we can do to directly improve the current situation. However, we have engaged the state-owned enterprises (SOEs) responsible for airport development, Angkasa Pura I-II. We have signed a memorandum of understanding with Angkasa Pura I and Angkasa Pura II in an effort to develop synergies among SOEs and thereby increase services to our passengers. This cooperation covers accessibility, flight information, a variety of passenger amenities, and safety and comfort initiatives at the airport. We are particularly interested in working closely with Angkasa Pura I and Angkasa Pura II, as we want to bring Jakarta’s SoekarnoHatta airport and Bali’s Ngurah Rai airport to international standards. From the standpoint of low-cost carrier (LCC) Citilink, our strategic business unit and soon-to-be subsidiary, we think operational costs at the airport will be lowered. In the future there should be a special terminal at Soekarno-Hatta airport for LCCs, leaving no need for air bridges or buses to take passengers to the terminal building. If national airlines and especially the LCCs are efficient, then we will certainly be able to compete in the ASEAN open skies era.

What regulatory issues are you working to address as you move forward over the course of 2011?

SATAR: Our biggest regulatory concern is the ASEAN open skies policy, which will take effect in 2015. This policy is designed to stimulate competition and economic growth between ASEAN nations. For Indonesia it presents both challenges and opportunities. It will allow us more access to other markets but will also heighten the competitive nature of the industry. Leading up to 2015, we need to be prepared to compete with all ASEAN carriers. It is also important that the competitive environment during the policy’s implementation is a level playing field for all involved. We expect that whatever privileges a foreign airline receives in Indonesia, our carriers will get the same rights in their countries. Although the principle of reciprocal benefits and shared obligations between members is specifically detailed in the policy, our biggest concern is how this policy is actually going to be put into practice.