The Big Challenge
Not many would label the urbane Emirsyah Satar a lunatic. Yet, some friends did in 2005, when he gave up a highly lucrative job as the deputy chairman of a local bank to become chief executive of beleaguered national carrier Garuda Indonesia.
Satar, a trained accountant, laughs about how Indonesia’s former state-owned enterprises minister Soegiarto tried to entice him back several times to the airline, where he was executive vice-president for finance from 1998 to 2003. Garuda, after all, was reportedly on the verge of bankruptcy after losing 811.3 billion rupiah ($92 million) in 2004 and seeking a 1 trillion rupiah government bail-out.
"I had stock options, a good salary and a great banking career, and I was giving it up to join an airline that was going south – its debt was overdue, cash flow was negative, and 85% of routes were losing money. My friends thought I was crazy,” says the 51-year-old son of a former diplomat, while flashing his trademark smile.
"Fortunately, while I’m not filthy rich, I have enough. And if Indonesians don’t help this country, who will? Garuda is an Indonesian icon. If it improves, the country’s image improves. And I am a proud Indonesian. And I like challenges. I joined as one of Garuda’s youngest CEOs and it was a great opportunity to do something."
Satar rolled up his sleeves and got his hands dirty – at one point, he and the Garuda senior management were cleaning aircraft, with the chief executive taking charge of toilets, just to show staff they should take pride in their job. He drastically reduced the level of interference from and dependence on the government, brokered deals with staff unions to link employee salaries and promotions to performance, and fixed the airline’s mind on joining a major alliance (it formally applied to join SkyTeam in November 2010) and a public listing (achieved in February this year).
Along the way, Satar has possibly provided a template for other state-owned carriers such as Air India. Whipping out his Apple iPad, he reels off the statistics. After several years of losses, Garuda returned to the black in 2007. Last year, it is projected to have made a profit of around 420 billion rupiah. It expects this to reach 1 trillion rupiah this year, and 3.7 trillion rupiah by 2014. Its debt has been restructured, and has come down from around $900 million in 2005 to about $400 million.
The airline is revamping its fleet, placing orders for several dozen aircraft last year when prices were relatively low due to the economic crisis. Garuda will have 153 aircraft by 2015, mainly comprising Boeing 737-800s, but also including 10 777s, 18-20 Airbus A330s and 18 regional jets (to be acquired). It will, in a few years, assess the Airbus A350 and Boeing 787 for the next phase of its expansion.
From his office in Garuda’s sparkling new headquarters near Jakarta’s Sukarno-Hatta International airport, where he can see a Garuda aircraft taking off every few minutes, Satar says that the journey has not been easy. But he got his way, using a combination of political nous, charm and cold logic.
Government interference in the management was a major issue, but that has been virtually eliminated. By way of explaining how he did it, he cites the example of the decision in 2010 to halt Garuda’s long-standing but loss-making Darwin-Jakarta flights. Australian politicians lobbied their Indonesian counterparts to reinstate it. Satar, however, distributed charts showing little growth potential for the route and how the airline would be better using its aircraft on more lucrative routes.
"When I finished, I politely asked the politicians if they would like to give Garuda a subsidy to keep operating the route. They politely declined. We left it at that. It is all about how you make the argument, isn’t it?” he grins.
That smile disappears, however, when bad publicity surrounding the initial public offering is brought up. Garuda’s management had always hoped to raise $300-400 million, but the government set a target of $1.1 billion in January – partly to fend off accusations that it was selling off a state enterprise at a discount. A weak market sentiment, however, dampened enthusiasm. Eventually, the listing raised $530 million from newly issued shares and the sale of state-owned Bank Mandiri’s stake.
"The timing, the percentage of shares to be floated, and the value are not determined by management but the shareholder,” he points out. “We wanted $350 million, Bank Mandiri sold its stake and that got another $150 million. We did not want $1.1 billion.”
He is happier talking about the non-financial impact of the IPO. “It will bring a higher level of scrutiny and corporate accountability as you have to follow rules and answer to shareholders. So whoever is in charge from now, they have to follow these rules. That is a big change for Garuda.
Changing the mind set
Another transformation has been the way Garuda was run. Satar has implemented a meritocratic system of management, with promotions based on ability rather than seniority. He also worked with the unions, ensuring that they came on board to participate in the airline’s survival and transformation.
“Previously, everyone got a month or two in bonus regardless of their performance. People moved up as a function of time, and not capability. That could not continue. We reduced the workforce by about 1,000, and gave a good package when they left. For those who remained, I told the supervisors to start banding them into the top 20%, the middle 60% and the bottom 20%. From the top 20%, we identify the crème de la crème, the top 2%, who would be the future senior management,” says Satar.
"There was resistance, there was blackmailing. The police and courts were involved. Ultimately we prevailed. Why? Because a majority agreed – they knew that this was good for them and the company. The government was on board – they knew that politics would not help Garuda.”
Changing the mindset of staff was also vital, hence the aircraft cleaning exercise. “I had to set an example. The message was that you have to care for your assets that generate revenue. So, if your CEO and management can do it, why can’t you. We have since transformed that culture. You see our staff smile every time they greet you in the aircraft and on the ground. They take pride in what they do.
Service standards are high on Satar’s list of priorities. The company has identified 28 “touch points” pre-journey, in-flight, post-flight and post-journey in which the airline will interact with passengers. A senior executive oversees every one, ensuring there is sufficient monitoring to keep to the standards.
"Indonesians are very hospitable. We try to get the best of the country and put that in our service. Are we there yet? No. You’re talking about culture, improvement, consistency – these are things we have to nourish and improve on a daily basis. But we are getting recognition in some international surveys – it shows that people appreciate what we are doing, and the negative view is slowly changing,” he says.
A new image
Tackling Garuda’s external image was another battle, and a large one given the poor maintenance and safety record of Indonesian carriers. In 2007, the European Union imposing a blanket ban on the country’s airlines after a series of fatal airline accidents. That was also the year a Garuda 737-400 crashed at Jogjakarta, killing 21 people. Both the ban and the accident were a major blow.
Europeans tourists are a major revenue source, and the bad publicity meant few international passengers trusted Indonesian carriers. Garuda officials acknowledged there had been lapses, but were also peeved they were tarred with the same brush as other smaller Indonesian carriers with dubious standards.
Satar and his team, however, used the opportunity to rebuild Garuda’s reputation and prove it had higher standards. They worked with IATA and the country’s DGCA to implement new safety best practices, implemented stricter reporting regimes, and ensured that maintenance arm GMF Aerospace built world-class standards. Just a year after the ban, Garuda received the IATA Operational Safety Audit certificate. In 2009, the EU lifted its ban on Garuda, but kept it on several other Indonesian carriers.
"The perception is still there, but it is getting better. When getting IOSA certification, in certain cases, we were even more stringent than the Indonesian regulations. We now fly to Europe, Japan, Australia and Singapore – all places with rigorous safety standards. We have built up a safety culture – we encourage our staff to report all incidents, and we look into them. There is progress, the incident rates are down and we are doing well,” he says.
There are other niggling issues. Last November, a day before a big function in Jakarta for the SkyTeam signing, the airline’s IT system broke down. It resulted in dozens of cancelled or delayed flights, thousands of frustrated passengers, and bad publicity at the worst possible time. Garuda officials, however, insist they are getting a handle on these.
The country’s air transport industry was liberalised in 2006 and several airlines, including low-cost carriers Lion Air and Indonesia AirAsia have expanded operations. But Satar remains unfazed, saying Garuda retains its niche in the full service market while subsidiary Citilink will take on the likes of Lion.
The size of the market, he adds, means it is big enough for everyone. IATA projects the compounded annual growth in international passenger traffic for 2010-14 will be 9.3%, and domestic growth in Indonesia will be 8.7%.
"The market is big enough for Citilink and Garuda to segment it. Citilink does not play a major role now as it has only six aircraft, but that will change,” he says, noting it plan to grow its fleet to 25 within a few years.
"Low-cost travel is good. Millions of Indonesians used to get from one place to another on ferries in journeys that took more than a day, and low-cost airlines are teaching these people how to fly,” he says, before adding with another laugh: “We then come in and teach them how to fly comfortably – you travel Garuda, you are served hot food, you can read newspapers, you sit comfortably in a seat with extra pitch, you watch movies. Indonesians want value for money, they will pay extra for a bit more.”
Garuda’s aim, says Satar, is not to become a hub carrier for international services operated by airlines such as Singapore Airlines or Cathay. But he is targeting the well-heeled Indonesians who travel premium on those airlines to their final destinations, and a growing middle class seeking long-haul holidays.
"I don’t blame Indonesians who travel on other airlines as Garuda was not in a position to give them a good product or service. But we are adding direct destinations – Melbourne, Sydney, Shanghai, for example – and becoming a proper point-to-point airline. SkyTeam will expand our network to the USA, Latin America and Africa. Indonesians will realise – they are already realising it – there is no reason to stop in another city when we serve their final destinations directly.
Garuda’s benchmark, says Satar, are the likes of Singapore Airlines, Cathay and Qantas. “We are in a region where the world’s best airlines are located, and I like competition – it makes you more creative, innovative and efficient. We know that these airlines are ahead of us, but we don’t need to reinvent the wheel – we’ll focus on what our passengers want.”
If he was not a lunatic for taking on the job, some might say he definitely is for the goal he has set for Garuda. “We can be one of the best airlines in the world. Given Indonesia’s economic potential and its market, that should not be a problem.” Then, he pauses for a smile, before saying: “People may think we are crazy, but I think that will happen.” With him at the reins, do not bet against that yet..