Case study garuda indonesia

Mr. Mohammad Soeparno, President Director of Garuda Indonesia Airways III. Major Policy Statement Garuda Indonesia Airways, the largest airline in the Southern Hemisphere, is a provider of air transportation and a guarantor of quality service that supports the success of the development of transportation and tourism, aiming to be one of the world’s top airlines in the year 2000. IV. Current Operational Plans Management 1. The management made an assessment of the company’s strengths and weaknesses relative to the environmental opportunities and threats. In order to respond to the increasing uncertainty in the environment in which Garuda operates, the management found it necessary to adopt a â€Å"strategic thinking† in making plans to reach the following goals: 1. To be one of the world’s top 10; 2. to give excellent service; to be more professional in commercial air transportation; and 4. To increase finance condition by reaching 5% profit before tax. 2. Panca Program – five point programs in order to reach their objectives. Panca Program contained the following elements: 1. To increase fleet utilization; 2. To improve employees’ welfare; 3. To improve service; 4. To implement the national civil aviation policy as decreed by the Minister of Communication; and 5. To boost tourism. 3. In 1985, Garuda introduced service to the U. S. under an interchange agreement with Continental Airlines of the U. S but Garuda’s interchange agreement with Continental also came to an end in 1986. This gave rise to the involvement of two or more airlines in the same flight serving a particular route. The airlines involved share of the revenues, the costs, or the profit generated by the joint service. 4. Garuda’s â€Å"strife doctrine† which means consistent in reaching â€Å"national objectives. † 5. Garuda Indonesia was classified as a PT (PERSERO) issued by the government of Indonesia, Garuda assumed a dual role as â€Å"agent of development† and as a â€Å"profit-seeking† enterprise. Marketing 1. To promote Garuda’s â€Å"Executive Class,† Garuda ran full-page color advertisements in overseas business newspapers and magazine featuring photography of different but equally satisfied-looking business passengers (all Caucasians), complete with their identification and testimonials. 2. Garuda’s advertising looked much more aggressive than ever before. Garuda also ran a series of advertisements capitalizing the new livery. The introduction of the new convenience in purchasing Garuda tickets using American Express cards in November 1986 was also widely advertised. When a passenger subsequently wished to pay with an American Express card, however, the girl at Garuda sales counter at Soekarno-Hatta airport in Jakarta succeeded to discourage the use of the credit card. Another series of advertisement appeared to promote international cargo service, apparently to show the company’s support to the government’s campaign to boost Indonesia’s non-oil exports. 3. The logo of Garuda Indonesia Airways was changed. The new logo used â€Å"Garuda Indonesia† instead of â€Å"Garuda Indonesia Airways† and the whole livery from red-and-white dominated colors to different shades of blue. Garuda, the bird carrying the God Vishnu in the Hindu mythology, was made to look more like the exotic bird of paradise in the new logo. The passengers were pleasantly surprised by the cleaner appearance of the aircraft’s exterior interior which came about from the re-painting and from changing the upholstery. 4. Garuda’s souvenirs for first class and business class were better designed and there was already and expanded wine list on Garuda’s international flights. 5. To help promote tourism, Garuda introduced â€Å"Visit Indonesia Air Pass† under 3 different packages. The 5-city package cost 300 US Dollars, the 10-city package cost 400 US Dollars, and 35-city package cost 500 US Dollars. Eligibility was restricted to foreign nationals and the purchase must be made outside of Asia with the exception of Japan. Holiday packages inclusive of accommodation, transfers, tours, or meals were also available. 6. Garuda has sales channels distributed to big and potential cities. Finance 1. Mr. Wiweko Supono’s (former President Director of Garuda before Mr. Lumenta) management reported a net loss of 46 million US Dollars for the year ended December 1983, and when replaced by Mr. Lumenta, it’s management inherited foreign debts amounting close to 1.3 billion US Dollars at 12% interest per annum and in the words of then Commercial Director of that time, Mr. Soeparno, â€Å"a weak system in every aspect. † 2. The construction cost of the training center for Garuda’s Human Resource Development reported by the company was 31 billion rupiah. Twelve months later, Garuda signed a purchase contract for a DC-19 simulator costing 11. 5 million US Dollars finance d through an EXIM Bank soft loan. Operations 1. Garuda’s business class was given a new emphasis to attract more passengers paying the full fare. It has been promoted as â€Å"Executive Class† and it has become the premiere class on flights aboard the Airbus A-300 and the DC-9. Garuda has even relocated the business-class section on its Boeing-747 flights from the small upper deck to the more spacious main deck in front normally reserved for first-class passengers. The first-class section has since occupied the upper deck. 2. There was a resumption of serving snacks and soft drinks on Garuda’s short domestic flights to give the passengers a bit of refreshment and because of this, instead of 30 more passengers, Garuda managed to attract about 200, luring them from its domestic competitors. 3. To further improve Garuda’s service to its passengers flying from overseas on the big Boeing 747 bound for Bali, Garuda introduced in-flight immigration inspection on its Tokyo-Jakarta-Bali flights. The priority was given to Bali-bound flights because the terminal building at the airport in Denpasar, Bali was too small to give shelter to the hundreds of arriving passengers queuing for immigration clearance. 4. For Garuda’s improvement of their fleet deployment, Garuda added new routes and increased frequently on the existing ones. In 1985, Garuda introduced service to the U. S.under an interchange agreement with Continental Airlines of the U. S. A Garuda DC-10 was used for the operation and Garuda’s crew flew the plane between Jakarta and Guam via Bali and Biak in Irian Jaya. Then, in Guam Continental’s crew took over the plane for the continuation of the journey to Los Angeles via Honolulu. Aircraft deployment was further increased by leasing another o f Garuda’s DC-19 to Continental. Garuda’s interchange agreement with Continental came to an end in 1986 and instead, Garuda began serving Guam from Jakarta via Bali and Manado once a week flying a DC-10. Joint operations with other airlines were subsequently introduced to include Singapore-Bali with Singapore Airlines (twice weekly), Kuala Lumpur-Bali with Malaysian Airlines (twice weekly), Hong Kong-Bali with Cathay Pacific (twice weekly), and Manila-Jakarta with Philippines Airlines (twice weekly). 5. Garuda added a new service from Jakarta to Frankfurt, giving the airline 8 flights a week from Jakarta. Two years later the number increased to 10. In addition, Garuda introduced once a week service from Bali to Amsterdam as a joint operation with K. L. M.and from Bali to Frankfurt, giving the airline a total of 12 Boeing-747 flights a week from Indonesia to Europe by the end of 1987. Although the past management under Mr. Lumenta hardly added new destinations in the Middle East, Asia and Australia, they did add capacity to the existing routes by either increasing frequency or using a larger aircraft, or a combination thereof. Garuda did not add capacity significantly in its domestic operation linking 35 cities. Mr. Soeparno explained that such policy decision was intentional in view of the limited growth opportunities in the domestic market since the crash of oil boom. Human Resources 1. The salaries of Garuda’s flight personnel were increased by 60% to 70%, the purpose of this decision was to give moral support to the troops. The staffs were changed, with high spirit. Morale was improved and with it so as service. 2. Garuda has brought on their flights Indonesian immigration officers and Japanese stewardess in addition to their regular cabin crew on their introduction of in-flight immigration inspection on its Tokyo-Jakarta-Bali flights. 3. Human resource development received new emphasis. A state-of-the-art training center on 64 hectares of land near the international airport of Jakarta was opened in November 1986. Among the facilities available were a B-747 simulator, and 2 mock-up cabins. Garuda had on its payroll 600 pilots, 1,500 cabin attendants, and 700 maintenance mechanics. V. Statement of the Problem How will Mr Mohammad Soeparno implement a better system improvement and enhance Garuda Indonesia Airways’ ability to deal with the challenges it may face and during his term and beyond? VI. Statement of Objectives Short term 1. To give excellent air transportation service and increase fleet utilization. 2. To continue its international flights as long as it does not interfere with the efforts to increase domestic schedules. 3. To increase finance condition by reaching 5% profit before tax. Long term 1. To make Garuda Indonesian Airways be one of the world’s top 10 airlines. 2. To be able to recover all the net losses and debts inherited from the past administrations. 3. To be more competitive internationally. VII. SWOT Analysis Strengths 1. Garuda Indonesia monopolizes the use of jets. 2. Garuda has many kinds of aircrafts to be used according demand, landing trip condition, distance and flight operation. 3. Garuda has an Indonesian graphic situation which needs air transportation. 4. It has product line: First Executive or Business, Economy Classes; so that customers are given alternatives to choose their class flights. 5. It has product diversifications: caterings, hotels. These products support the main product, that is, the airline service. 6. It has sales channels distributed to big and potential cities. 7. Indonesia’s â€Å"National Resources† which support business/non-business activities in Indonesia. 8. Strife doctrine which means consistent in reaching â€Å"National Objectives. † Weaknesses 1. Systems in all aspects: sales preparation, flight, supervisory. 2. The quality of pre-flight, in-flight and post-flight services which are still low. 3. The biggest international segment is low yield. 4. Spare parts and other aircraft equipment are still imported; this needs longer time. 5. The company’s organization is still unsteady. This situation makes organizational behaviour incompetent in supporting the company. Opportunities 1. Political will of the government in tourism. 2. The still-abundant-available seat capacity. 3. Government Regulation on Tariff. 4. The strengthening currency of the countries from where tourists come to Indonesia. 5. The better condition of the world’s economy. 6. The progress in business climate in Indonesia. Threats 1. Protectionism from certain countries, especially in traffic rights. 2. The development of other means of transportation, especially for near-distance transportation. 3. The uncertain economic situation. 4. Technology development in aircraft manufacture. As the result of this development, the old aircrafts are no longer economical enough to be marketed. 5. The bureaucracy which still caused problems in managing company professionalism. VIII. Alternative Courses of Action 1. Mr Mohammad Soeparno could continue the successful policies of Mr. Lumenta, the former President Director of Garuda Indonesia Airways. 2. Mr Mohammad Soeparno could make his own set of policies based on his abilities and what he thinks is the better way, with the help of his own management team. 3. Mr. Mohammad Soeparno could IX. Analysis of Alternatives 1. Mr Mohammad Soeparno could enhance Garuda Indonesia Airways’ ability to deal with the challenges it may face during his term and beyond by continuing the successful policies of Mr. Lumenta, the former President Director of Garuda Indonesia. Airways. Advantage: Under Mr. Lumenta’s management, Mr. Soeparno was thereof very pleased to see the company making a profit for the first time in more than a decade, to the tune of a modest rupiah 300 million. This result confirmed Mr. Soeparno’s confidence in the effectiveness of the policies adopted by Mr. Lumenta upon the latter’s appointment as President Director of Garuda in 1984. Mr. Soeparno as the President Director of Garuda could continue all of these and at the same time set all of his new policies that could go into the current policies. It would be safe if Mr. Lumenta use all the current policies that made Garuda successful. It doesn’t mean that if the leader has changed, the policies will also follow especially if the policies of the last leadership were good enough or the best way the company had to be successful. He may just continue some, change some and add some. Disadvantage: The disadvantage of this alternative is that all the board of directors, shareholders. Stockholders, employees and everyone under his management may think that Mr. Soeparno cannot manage the airlines in his own way because he would just be doing what Mr. Lumenta have done in his administration. They may lose confidence in him and might pressure Mr. Lumenta to do new set of policies, which may be not good enough for the company. 2. Mr Mohammad Soeparno could make his own set of policies based on his abilities and what he thinks is the better way, with the help of his own management team. Advantage: Mr. Soeparno who is a part of Garuda for a long time already knows the company well. He can see what to do and what not to do so he will be able to set new and better policies for the company. In fact, he was the Commercial Vice President before he was inaugurated as the new President Director. He will not be trusted to be the new President Director if he doesn’t have the ability to make it a better one. Disadvantage: It could be very risky to set new policies again after all of those net losses in the past and it may extinguish the success Garuda is currently experiencing. Setting new policies may involve different kinds of spending Garuda’s money depending on what policy Mr. Soeparno is going to implement. And spending may lead again to net losses especially if this change of policy will not be effective. It is always safe to spend less that spend more if you are still not sure of the outcome a certain action may give. 3. Advantage: Disadvantage: X. Decision Statement Mr Mohammad Soeparno could enhance Garuda Indonesia Airways’ ability to deal with the challenges it may face during his term and beyond by continuing the successful policies of Mr. Lumenta, the former President Director of Garuda Indonesia. This alternative was chosen because Mr. Soeparno being a memberof Mr. Lumenta’s management team for a long time, had the opportunity to involve himself with the management in its efforts to develop and implement new strategies to turn around the airline, which posted a net loss of 7 million US Dollars into profitability. He was thereof very pleased to see the company making a profit for the first time in more than a decade, to the tune of a modest rupiah 300 million. This result confirmed Mr. Soeparno’s confidence in the effectiveness of the policies adopted by Mr. Lumenta upon the latter’s appointment as President Director of Garuda in 1984. Mr. Soeparno as the President Director of Garuda could continue all of these and at the same time set all of his new strategies that could go into the current policies. It could be very risky to set new policies again after all of those successes but of course; Mr. Soeparno can always adjust and change all of these when the situation tells it to do so. Alternatives 2 and 3 were not chosen because XI. Implementation Program Short range 1. Review the policies under Mr. Lumenta’s term and determine which of these would still be fitting and useful under the administration of the new President Director Mr. Soeparno. The policies under Mr. Lumenta’s management may serve as a guide in the present administration to continuously ensure the success of Garuda. 2. Mr. Lumenta should form a reliable and trustworthy management team that will help him execute and monitor the implementation of all the policies in the most effective way. 3. Status quo – Mr. Soeparno could simply do nothing with the existing policies and just let the existing policies be as it is since it has helped a lot in the success of Garuda. Long range 1. If there are policies that should be replaced because it is not fitting and useful in the present time, this is the time that Mr. Soeparno could set his new policies that would be suitable for the current situation. 2. 3. XII. Proposed Operational Plans Management 1. The Panca Program of the past administration was satisfied and it would be better of Mr. Soeparno could make another program that could guide him and Garuda to aim for the best after its recovery. It could be called as, â€Å"A Better Panca Program† or he could change its name. This program may include goals more advanced than the previous Panca Program, example: â€Å"to give a high quality service† or may continue some of its goals like to increase fleet utilization and to help boost tourism. 2. It can also be helpful if they will have more partnerships with different bodies of companies for them to have a lot of associates that may help them in their fleet utilization, publicity, better technology and etc. , it can be like what they have done with having an agreement with Continental Airlines of the U. S. Marketing 1. Garuda was said to have a lack in visibility and it would be better if they will add their publicity through promoting Garuda by having more advertisements, not just in print but it can be in television and radio. They would just have to allot a budget for this and they can do it now especially that they are already recovering. 2. Garuda could add some more promos because most of the tourists and travellers of today are already looking after this. There can be holiday promos, like for Christmas, summer, Valentines and many others. Finance 1. Garuda can have loans with a certain bank, or it is better if they will have a partnership with this bank to help them fund their different activities regarding their system improvement and fleet utilization. But Garuda should always be careful about this because they already have losses and debts in the past year. They can hire better people that would handle their finance department and Mr. Soeparno as well should be very vigilant and watchful in this case so Garuda can be safe and be out of all the losses and debts it may procure if any unfavourable situation happens. Operations 1. Garuda should also concentrate on having a technology enhancement. It is important that they resolve their computerized reservation system because this system is very helpful for passengers because they would not have to go to Garuda personally and they can just do it into their homes and offices. It will be a big help especially now that travellers are always looking after comfort and having transactions at a very low cost. 2. Garuda should also have their aircrafts be at their best condition, always. So they should really allocate money for its maintenance and if possible have their own maintenance for their wide-bodied aircrafts to lessen the cost it procures when it has to be done overseas. Their aircrafts are really important so they should give number 1 priority to this. Human Resources 1. One of Garuda’s goals to improve their employee’s welfare, and as now it is just safe to still continue giving the salary that they are currently having because the past administration just increased it 60% to 70%. Garuda should just concentrate in their human resource development by having continuous trainings for all their employees especially the pilots. XIII. Other Problems and Recommendations Other Problems Recommendations 1. The need for a more thorough maintenance due to the lack of cleanliness habits on the part of the most Indonesian passengers and crews. 1. Garuda should hire a better maintenance service provider that will make sure that Garuda will have better cleanliness habits. 2. Garuda’s competitors were modernizing their fleets at faster rates. 2. Garuda should be able to 3. Failure of Garuda’s computerized reservation system due to frequent electrical power stoppages and poor ground telecommunication lines within Indonesia. 3. Garuda should try to seek help from an expert on this technology and as well from the government regarding the poor ground telecommunication lines. Garuda should also 5. Garuda’s inability to put its hard-fought traffic rights to full utilization. 5. Garuda should stop fighting for its right to have a 6. Overseas maintenance of wide-bodied aircraft poses a high cost at 40 to 50%. 6. XIV. Management Lessons Learned 1. There should be a strong management team that handles the company because this is a 2.