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Advances in Economics, Business and Management Research, volume 160Proceedings of the International Conference on Business and Management Research (ICBMR 2020)Strategies to Revitalize Garuda Indonesia RouteProfitability to Improve Financial PerformanceLidia Monika1,* Kinsenary Tjendrasa11*School of Business and Management, Institut Teknologi Bandung, IndonesiaCorresponding author. Email: lidia monika@sbm-itb.ac.idABSTRACTPT Garuda Indonesia (Persero) Tbk ("Garuda Indonesia") is the Indonesian flag carrier. In 2011, Garuda Indonesiaissued a long term plan: The Strategic Milestones Quantum Leap 2011-2015. The strategy map aims to expand thebusiness massively, including the number of aircrafts in service. However, the world economy slowed down, and theovercapacity market directly impacted the massive expansion of the airline. The company reported losses in 2014.Since then, the company is struggling with fluctuated operating income. This research conducted a Root CauseAnalysis for the business problems using 5 Whys. The first result of the analysis is the situation where the number ofpassengers is reaching saturation point while the regional airline fleet is still expanding, which has caused intenseprice competition among airlines. The situation forces Garuda Indonesia to keep offering low Passenger Yield inInternational routes. The second result is the oversupply condition where the available seat capacity is bigger than themarket size. These factors impact two out of three main aircraft types operating in the domestic area. The productionis declining, and aircraft utilization is low, resulting in negative performance. This research aims to find solutions tothese issues by proposing the most suitable alternative scenario to reduce the impact of overcapacity on the financialcondition using the Route Profitability (“RP”) Model. Calculation of the RP model has considered the effect of theCOVID 19 pandemic on the aviation industry.Keywords: Airline, Fleet Utilization, RP Model, COVID 19.1. INTRODUCTIONCommercial airlines provide air transport servicesto carry passengers, cargo, and mail to destinations.Commercial airlines usually provide scheduled and/ornon-scheduled commercial air transport services. Mostof the commercial airlines provide scheduled routeswith a regular route and scheduled time of departure.The non-scheduled flight offers air transport forpassengers, cargo, or other special purposes flight.The non-scheduled flight includes charter flight andhajj flight.Scheduled airlines develop routes to provide airtransport to its customers. It utilizes aircrafts, sets slottime, and service standards to meet its customer needs.A combination of those factors affects the airline'saircraft specification. The airline needs to assign theright type of aircraft to each route to optimize fleetoperational.The size of airline capacity is usually explainedwith Available Seat-Kilometer measurement. TheAvailable seat-kilometre ("ASK") is the number ofpassenger seats offered by the airlines multiplied bykilometres flown. Since not all of the seats offered arefilled with passengers, the airline industry measuresthe amount of capacity filled with Revenue PassengerThis research relies only on secondary data byapplying specific rates for each revenue and costcomponent in the RP Model based on an annualreport, published rate, published data, modification ofinternal data and other sources. This research wasprepared based on numerous assumptions that weredone before or during the COVID-19 pandemic. Thecalculations and recommendations are subject touncertainties, risks and other factors that can cause theactual results to differ materially from the expectedresults.Copyright 2020 The Authors. Published by Atlantis Press SARL.This is an open access article distributed under the CC BY-NC 4.0 license 4

Advances in Economics, Business and Management Research, volume 1602. LITERATURE REVIEWthe value of the future lease payments under the lease[2].Commercial airlines provide air transport servicesto carry passengers, cargo, and mail to destinations.Commercial airlines usually provide scheduled and/ornon-scheduled commercial air transport services. Mostof the commercial airlines provide scheduled routeswith a regular route and scheduled time of departure.The non-scheduled flights offer air transport forpassengers, cargo, or other special purposes flights.The non-scheduled flights include chartered flightsand hajj flights.2.1. Relation of Airlines Cost and AircraftUtilizationCost levels are directly related to the number andtype of aircraft in a given fleet. An airline with asmall fleet will proportionally incur higher costs incertain areas, in terms of spares and crew, than anairline with a larger fleet. Also, an airline’s abilityto maximize its fleet utilization is inhibited bycertain commercial factors [1].2.2. Operating LeaseThe most interesting feature of an operating leaseis the cancellation option. This option gives the lesseethe right to cancel the lease contract before theexpiration date. If the option to cancel is exercised, thelessee must return the equipment to the lessor. Thevalue of a cancellation clause depends on whetherfuture technological or economic conditions are likelyto make the value of the asset to the lessee less than3. RESEARCH METHODOLOGYThis research conducts external analysis usingPESTEL and Porter’s 5 Forces analysis, and it can beconcluded that the aviation market has become a verycompetitive industry in a price-sensitive market. Thegovernment’s program to attract 20 millioninternational tourists per year and build 5 SuperPriority Destinations gives an opportunity for GarudaIndonesia to grab new markets. It is importantconsidering the impact of Covid-19 pandemic on theairline industry. Airline production is estimated toreduce by 50% in 2020 and will not recover until2023.This research also conducts internal analysis ofGaruda Indonesia by comparing its revenue and costperformance to other airlines. In general, GarudaIndonesia’s Passenger Yield ratio is below otherairlines. Garuda Indonesia’s ratio of Revenue per ASKand Cost per ASK is also lower compared to otherairlines.This research determines the most suitable strategyby comparing future aircraft profitability from severalscenarios using the RP Model approach. The RPModel is one management approach that provides thefinancial position on a specific flight. It allocates costand revenues incurred on every flight and provides aprofitability position for a particular flight.Table 1 shows the comparison of the concept ofTable 1. Concept Comparison of the RP Model and profit Loss.RevenueCostResultAircraft Profitability – The RP modelAircraft RevenueConsist of all revenue generated from a scheduledflight may consist of revenue from the passenger,cargo, and ancillary.Aircraft CostConsist of all cost occurred in a flight, mayconsist of the cost related to the fleet, flight, crew,and overhead.Aircraft ProfitabilityThe result of Aircraft Revenue – Aircraft CostOperating Income – Financial StatementOperating RevenueConsists of revenue generated from the scheduledflight, non-scheduled flight, and other operating.Operating CostConsists of related and unrelated scheduled flight costs.May consist of cost to operate the airline's route orother unrelated costs such as charter cost, otheroperating costs such as loss exchange.Operating IncomeThe operating result from operating activities, from thescheduled and non-scheduled flight.Table 2. List of Revenue Component of The RP Model.Revenue ComponentPassenger (Pax) RevenueFreight RevenueMail RevenueOther RevenueAllocation BasedPax Yield x RPKCargo Yield x RPKbase on %-age of Net Pax, Freight & Mail Revenue185

Advances in Economics, Business and Management Research, volume 160Table 3. List of Cost Component of The RP ModelCost ComponentFix/VariableAdministration – HO & BO- FixedAir Traffic Control - Route ChargeAir Traffic ControlNavigation ChargeAircraft LeaseAircraft Maintenance*Cabin Crew PersonCabin Crew TravelCockpit Crew PersonCost PostingA/CNon-A/CtypetypeTerminalAllocation BasedNet Pax Revenue, Freight & MailVariable Flight DistanceVariable Number of LandingFixedFixedFixedVariableFixed Per AircraftFlight HoursNumber of PersonnelBlock HourNumber of Personnel Fixed - Variable Block Hour with minimumCredit Card CommissionVariable Net Pax Revenue, Freight & MailFreight CommissionVariable Aircraft TypeFuel AircraftHandlingInsuranceVariableVariableFixed Net Freight & MailBlock HourNumber Of LandingLandingVariable Per Aircraft TypeFixed Number of LandingParking FeeVariable MarketingOn-Board ServicePassenger CommissionFixedVariableVariableReservationSales OrganizationVariableFixedCockpit Crew TravelLoan PaymentStationParking hourNet Pax Revenue, Freight & MailNumber of Pax Carried Net Passenger RevenueNumber of Passenger Carried Net Pax Revenue, Freight & Mail FixedVariable Net Pax Revenue, Freight & MailFixed - Variable Aircraft TypeStoring FeeVariable MaintenancePer Aircraft Route Profitability and Operating income in FinancialStatement. Table 2 and 3 are the list of revenue andcost components in the RP Model that are directly/notdirectly related to certain aircraft types. The list alsoprovides the allocation method used in this research.4. RESULTS4.1 Operating Revenue ComparisonSince each airline has a different number ofproduction and capacity, the airline's industry usuallyuses "Passenger Yield" and Revenue Available SeatKilometer (“RASK”) to compare revenue performanceamong airlines.Figure 1 shows a comparison of Garuda Indonesiapassenger yield with other airlines. It is present inUSc. In general, Garuda Indonesia’s Passenger Yieldis still below the average data. The Passenger Yieldfor the domestic route is above other non-Japan homebased airlines but below airlines with a home base inJapan. This trend indicates good revenue managementFigure 2 shows a RASK comparison of GarudaIndonesia and other benchmarked airlines. From thisfigure, it can be seen that in general RASK of GarudaIndonesia is below other airlines. In 2019, the RASKof the domestic route increased significantly from theprevious year.4.2 Operating cost ComparisonIn line with operating revenue comparison, it isalso challenging to directly compare costs amongairlines. The airline industry usually uses cost ratiomeasurement known as Cost per Available SeatKilometre (CASK).Figure 3 shows comparison of Garuda Indonesia’sCASK and other airlines. It can be concluded that theCASK of Garuda Indonesia’s airlines is below otherairlines that indicates a good cost-efficiency.186