Co-operation deal with Garuda may help Merpati cope with competition

Garuda Indonesia and Merpati Nusantara Airlines are working on a co-operation deal that appears likely to rebuild some of the links between them when Merpati was a Garuda subsidiary.

A deal intended to improve passenger convenience and offer more choices could be signed this month, Garuda says.

At the very least an agreement on "technical co-operation" is likely, but it could extend to tighter interline links that will reduce competition and smooth transfers between hundreds of Merpati routes and Garuda's international network.

For 19 years, until 1997, Merpati was a Garuda subsidiary. Since regaining its independence the state-owned carrier has struggled to cut costs and deliver profits. Its position seems to have worsened since 2000, when Indonesia embarked on an aggressive programme to liberalise domestic air transport.

Since then more than a dozen new domestic carriers have sprung up, engendering vicious competition with low fares. Merpati is stuck with many unprofitable routes the government deems socially necessary. Its costs are also higher than those of the private carriers.

Efforts to bring investors on board or sell the airline outright appear to have failed. An apparent bid by a group of Indonesian and foreign investors in May has collapsed.

This latest move suggests the government now sees little chance of disposing of the airline for the foreseeable future.

Source: Flight International