It would have seemed inconceivable, even five years ago, to think that Garuda would ever overcome all the hurdles lined up in front of it. Black listed from European airspace with an ageing fleet of aircraft, chequered safety record, a mountain of debt and counterproductive state interference all made the future appear very bleak for the once proud carrier.

But all that is water under the bridge a mere four and half years after the lifting of the EU ban against Garuda Indonesia and three other Indonesian carriers. Shortly after emerging from the shadow of the EU ban, the airline announced in July 2009 an aggressive five-year restructuring plan known as the ‘Quantum Leap’.

Among other things,the plan involved an image overhaul including branding, a doubling of its fleet to 116 aircraft over the five year period and corresponding plans to grow annual passenger numbers nearly three fold through increasing domestic and international destinations, including a return to Europe. The carrier also shed its state-ownership model, making its debut on the Jakarta Stock Exchange in February 2011 with the government retaining a 70 per cent share.

The process, as Rajendra Kartawiria vice president of SBU (Strategic Business Unit) Garuda Cargo notes, was step-bystep, based on the revenue side and the service side. The first priority was to get the domestic passenger business in order, followed by the international business, its low cost carrier Citilink and then cargo. With the first three taken care of, attention turned to the cargo business last year.

Although the cargo business has been running under the SBU for at least ten years, greater attention will now be placed on developing the cargo potential of Garuda. This attention is of course warranted, but is all the more crucial considering Garuda’s significant fleet expansion.

Last year saw a substantial number of aircraft added into the Garuda fleet, including B777-300ERs, A330-300s and B737-800s. As Kartawiria notes almost 20 aircraft were added to the fleet which grew Garuda Cargo’s available capacity by a whopping 16 per cent.

This in part accounts for the substantial growth in cargo volumes the carrier uplifted last year – growing a healthy 17 per cent over 2012 for total volume of 300,000 tonnes. The problem of course, as Kartawiria notes, is that “we’ve got the cargo, but not the yield.”

He also adds that the growth is from a low base and is primarily being driven by domestic cargo (which grew at 18 per cent last year) alongside healthy domestic economic growth, while international cargo, despite the global market malaise, grew at about 14 per cent.

This year another 24 aircraft will be taken in for both domestic and international services including another two B777-300ERs, which all told will boost capacity a further 27 per cent.

When asked how confident the SBU is at filling up this ample belly space, Kartawiria replies with a laugh: “Yes, it’s quite a challenge you know!” But it’s clear that the cargo division is ready for the challenge with a strategy in place. Key to this will be focus on products and service.

“Besides the network we will try to diversify our product and service because currently more than 90 per cent of our cargo is general cargo, so we will focus in 2014 to diversify our products and services,” says Maydeliana Ayub, senior manager of Strategy and Accounting of SBU Garuda Cargo, adding that these will be higher yield products.

“Currently we offer specialist products, but there has not been a lot of traction yet so we will relaunch the products in 2014.” Although the carrier has no pharma product currently, it is also in the cards. “We don’t do pharma because of the need for special handling and equipment, but because the yield is quite fantastic we will try to grab it this year,” Ayub says.

“That’s why we will diversify our products and improve our yield because of the competition the yield is going down, so we will try to maintain our yield by diversifying our products.”

Domestic focus first

Like the step-by-step process on the passenger side, Kartawiria and his team will start with the domestic market – which makes good sense considering that nearly 70 per cent of Garuda Cargo’s volumes are domestic. First order of business according to Kartawiria will be to “strengthen the domestic situation, create a better relationship with our agents domestically as well as develop the express product. Secondly, we should go to the global forwarders and integrators,” he says.

This domestic focus will start with the carrier’s express product. While currently offering a speed, priority and premium express products, the SBU for cargo wants to develop the domestic door-to-door courier business. “We want to develop the same-day service because courier companies very much depend on airlines for that and currently we have some domestic courier companies that use our products, especially the premium product.”

While developing the express product further to attract more courier companies which will help fill the bellies and provide better yield, Garuda Cargo is also working with a local partner to develop a doorto- door service. “We will relaunch our express product and will join with our current partner Pando Logistics to offer a door-to-door product, as well as an online product,” Kartawiria says.

But before the online product comes to fruition a network of ‘store fronts’ for customers to ship the parcels must be established across the far-flung archipelago. “We need many locations before we start the online part and we also will cooperate with some domestic online retailers,” adds Tahap Kuswanjaya senior manager of Marketing and Business Development of SBU Garuda Cargo. Again, another very big task ahead of the SBU Cargo team.

Growing domestic capacity

While cargo uplift on the domestic network is limited to narrowbody, smaller aircraft like B737 family aircraft alongside ATR72-600s (of which Garuda has two in the fleet and orders for 23 more) and Bombardier CRJ1000s (12 in the fleet and six more on order), demand in East Indonesia is the inspiration behind the plan to acquire narrowbody freighters.

“This year we plan to operate the domestic freighters in East Indonesia, probably a B737-400F or B737-500F,” says Ayub, adding that they will be leased with likely one this year and up to three in total going forward.

Because of the remoteness and ruggedness of much of East Indonesia there is a higher demand for air cargo and while Ayub notes there are two or three freighter operators already in that market, “we know there isn’t enough supply in Papua so the freighters operated by Trigana and Kartika cannot accommodate all the demand. So we think it’s a good opportunity to enjoy that market.” She adds that while its imbalanced traffic, “the rate can cover both ways so it’s not a problem for us.”

The first freighter will be based in Papua and will connect the secondary airports in the province. The second and third will likely be in South Sulawesi and Kalimantan, she added.

The other domestic aspect that will be looked at is cooperation with Garuda’s domestic low cost carrier Citilink. “We are not currently handling Citilink cargo, but as of this year we will be talking with Citilink on how to get synergy from Garuda Cargo and Citilink Cargo,” Kartawiria said.

International focus

Looking at the international market, aside from beefing up Garuda Cargo’s relationship with global forwarders and integrators, the SBU will also tap the product diversification and relaunch from the domestic side, excluding the door-todoor courier product of course, for the international market.

The backbone of its international cargo uplift is the belly capacity of the carrier’s current fleet of four B777-300ER (six more on order) which amounts to anywhere from 10-25 tonnes depending on the route and A330-200/300s (18 in the fleet with orders for 17 more A330- 300s) which can carry 12-13 tonnes. The carrier also operates B747-400 aircraft but this is used only on the Jeddah route carrying passengers making the annual haj pilgrimage. And because of the amount of baggage on this route only around 11 tonnes of cargo can be accommodated.

While it was announced nearly a year ago by Garuda Indonesia CEO Emirsyah Satar that the carrier would be taking on widebody freighters this year, the plan was quashed by the ongoing downturn in the global air cargo market.

“The freighter project is still on, but we are just looking for the right time because after we reviewed the current conditions we saw that we also have plans to phase in 10 B777-300ERs for the coming years and almost 20 A330-300s, so we will go to the cargo business with belly first,” says Kartawiria. He added that, “maybe in 2015 we will start with freighters,” and only for the Intra-Asia routes.

“I think we only need freighters for routes that are very huge for Indonesia, so only on the Asia Pacific we still see that Shanghai, Hong Kong and Tokyo are fit for freighters. It’s only on the routes that our belly is full that we will look at putting freighters on,” he adds.

As to what kind of freighter, Kartawiria says the choice was pretty much narrowed down out of commonality with Garuda’s fleet of B777s and A330s. “After we look at the market, we determined the A330-200F fits well in terms of capacity and range for the Intra-Asia.”

Overall Garuda Cargo plans to establish more offline GSAs in various countries and establish wider connectivity with other carriers while if focuses on scaling up its network to the US and Europe, according to Kuswanjaya. This will be done mostly through special prorate agreements (SPAs) and some block space agreements, he adds.

“Our coverage with interline agreements is pretty much everywhere – only Africa and Latin America we still do not cover, so maybe for this year we will take a look further at those markets,” says Ayub. “For the other markets we already have an interline partner so we just need to utilise the interline agreement and for the Latin America and Africa markets we will initiate the interline process this year,” she adds.

India is another blank spot for Garuda Cargo, although the passenger side recently announced a code share with India’s Jet Airways, but Ayub says an offline GSA will be appointed around the third quarter this year.

Another key development that will ripple over to the cargo side is Garuda’s joining the SkyTeam alliance in March this year, which will see the cargo division follow a year later, joining SkyTeam Cargo. “There will be more than 800 to 1,000 destinations available through the alliance,” Kartawiria notes.

Infrastructure woes

Also crucial for Garuda Cargo’s success going forward is infrastructure. In 2011 the carrier opened a third hub located at the Sultan Hasanuddin International Airport in Makassar, South Sulawesi, joining the carrier’s first two hubs – Soekarno-Hatta International Airport (Cengkareng, Jakarta) and Ngurah Rai International Airport (Denpasar, Bali).

But the burning issue is Soekarno-Hatta airport which is operating at maximum capacity and is in desperate need of an overhaul. So dire is the situation that Garuda had to postpone its long awaited return to London, Gatwick because of the poor condition of Soekarno-Hatta’s runway. Jakarta airport operator Angkasa Pura II is expected to complete the runway upgrading to support the take-off weight of a fully loaded B777-300ER by May 2014, allowing the carrier to finally launch nonstop services to Europe.

But the runway problem is indicative of overall infrastructure woes it is facing in Jakarta, with not just its passenger terminal running at maximum capacity, but the cargo terminal as well. “It’s a happy problem for Indonesia because passenger growth is very fast and unfortunately the airport facilities are a little bit late, but now in Jakarta the airport operator is starting to develop new facilities for both passenger and cargo but it will take maybe 2-3 years to complete,” Kartawiria says.