Indonesia's financially battered airlines are taking extraordinary measures in their bids to turn around their performance, including the end to most domestic competition.

Privately owned Sempati Air, with debts of more than US$300 million, has given up competing with national flag carrier Garuda Indonesia Airways and entered an alliance with its erstwhile rival instead. The deal includes codesharing, route and schedule coordination and joint pricing and purchasing.

Sempati has also shaken up its international network, dropping routes to Taiwan and Malaysia, while reviewing the future of services to Singapore and Australia. The carrier also continues its search for an equity partner and has held 'preliminary' talks with Singapore Airlines. In turn Garuda is intensifying efforts to slash its workforce by 40 per cent and has approached three big European airlines - British Airways, KLM and Lufthansa - in an effort to convince one of them to take a 25 per cent stake in advance of a planned float in 1998.

Government-owned domestic Merpati, which has debts of $253 million, made a desperate bid to turn its finances round by trying to scrap 80 of its routes but the move was blocked by the minister of transport, Haryanto Dhanutirto, who ordered the carrier to continue serving all unprofitable destinations despite recording load factors of less than 30 per cent.

All three are seeking to restructure their management and operations. Sources in Jakarta say the task is made more difficult by a domestic ticket price war between themselves and three smaller scheduled domestics, Mandala Airlines, Bouraq Airlines and Dirgantara Air Services. Indeed, Sempati's pact with Garuda is aimed at trying to end that price war.

Garuda's airline operations lost $36.9 million in 1996 but the company posted a $52.3 million profit, mostly thanks to the sale of nearly $99 million in assets. It plans to auction hotel subsidiary Aerowisata as well as spare parts and unused aircraft to raise more capital. The state has injected $700 million.

Garuda's president, Mr Supandi, says the sale of Aerowisata should cut the carrier's workforce by 4,000, or 28 per cent, as those jobs will be transferred with the subsidiary to the buyer. Merpati's finance director Desmond Ismael is optimistic that the carrier's debt problems can be solved this year, despite being prevented from scrapping its unprofitable routes. The carrier lost $57.4 million last year.

Aside from the alliance deal with Garuda, Sempati is also planning to dispose of some of its business units, such as aircraft maintenance and catering. 'We need to go back to the basics, to our core business of being an air carrier,' new president Santun Nainggolan told the Southeast Asian Business Times.

Tom Ballantyne

Source: Airline Business