Optimizing Quantum Leap Program in Garuda Indonesia’S Strategy to Implement the Asean Open Sky Policy

OPTIMIZING QUANTUM LEAP PROGRAM IN GARUDA INDONESIA’S STRATEGY TO IMPLEMENT THE ASEAN OPEN SKY POLICY

By Andhita Zerlina ID No. 016201100045

A Thesis Presented to the School of Humanities In partial fulfillment of the requirements of Bachelor Degree in International Relations Major

January 2015 THESIS ADVISER RECOMMENDATION LETTER

This thesis entitled “OPTIMIZING QUANTUM LEAP PROGRAM IN GARUDA INDONESIA’S STRATEGY TO IMPLEMENT THE ASEAN OPEN SKY POLICY” prepared and submitted by Andhita Zerlina in partial fulfillment of the requirements for the degree of Bachelor in the Faculty of International Relations, Communication and Law has been reviewed and found to have satisfied the requirements for a thesis fit to be examined. I therefore recommend this thesis for Oral Defense.

Cikarang, Indonesia, January 21st, 2015

(Dr. Endi Haryono, M.Si.)

DECLARATION OF ORIGINALITY

I declare that this thesis, entitled “OPTIMIZING QUANTUM LEAP PROGRAM IN GARUDA INDONESIA’S STRATEGY TO IMPLEMENT THE ASEAN OPEN SKY POLICY” is, to the best of my knowledge and belief, an original piece of work that has not been submitted, either in whole or in part, to another university to obtain a degree.

Cikarang, Indonesia, January 21st, 2015

(Andhita Zerlina)

PANEL OF EXAMINER APPROVAL SHEET

The Panel of Examiners declare that the thesis entitled “OPTIMIZING QUANTUM LEAP PROGRAM IN GARUDA INDONESIA’S STRATEGY TO IMPLEMENT THE ASEAN OPEN SKY POLICY” that was submitted by Nerizza Arviana Darmayo majoring in International Relations from the Faculty of International Relations, Communication and Law was assessed and approved to have passed the Oral Examinations on February 2nd, 2015

Teuku Rezasyah, Ph.D. Chair – Panel of Examiner

Witri Elvianti Examiner

Dr. Endi Haryono Thesis Adviser

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ABSTRAK

Judul: Mengoptimalkan Strategi Quantum Leap Program Garuda Indonesia untuk Pelaksanaan ASEAN Open Sky Policy

Dengan diberlakukannya Masyarakat Ekonomi ASEAN tahun 2015 mendatang, seluruh negara anggota ASEAN turut mempersiapkan diri untuk menghadapi dan bertahan dalam persaingan ekonomi termasuk sector penerbangan dengan diberlakukannya ASEAN Open Sky Policy 2015 begitu juga penerbangan Indonesia. Sebagai maskapai nasional Indonesia, Garuda Indonesia memiliki signifikan upaya di berbagai sektor untuk mendukung Indonesia dalam kebijakan ASEAN Open Sky Policy 2015. penelitian ini memfokuskan pada optimalisasi Garuda Indonesia Quantum Leap Program dalam mendukung Indonesia dalam pelaksanaan kebijakan Open Sky ASEAN pada tahun 2015. Menggunakan konsep regionalisme dalam menganalisis integrasi regional di masyarakat Ekonomi ASEAN termasuk ASEAN Open Skies Policy pada tahun 2015 dan konsep diplomasi budaya sebagai dasar untuk menganalisis peran Garuda Indonesia dalam mempromosikan Indonesia terhadap masyarakat asing.

Kata Kunci: ASEAN Open Sky, Diplomasi Kebudayaan, Garuda Indonesia, Indonesia, Penerbangan, Quantum Leap, Regionalisme.

ABSTRACT

Title: Optimizing Quantum Leap Program in Garuda Indonesia’s Strategy to Implement the ASEAN Open Sky Policy

By the implementation of ASEAN Economic Community in 2015, all ASEAN member countries, as well as Indonesia, are preparing themselves to survive in the economic competition including the aviation sector through ASEAN Open Skies Policy 2015. As the Indonesian national carrier, Garuda Indonesia has significant efforts in various sectors to support Indonesian in ASEAN Open Skies Policy 2015. This research is focusing on optimizing Garuda Indonesia‟s Quantum Leap Program in supporting Indonesia in the implementation of ASEAN Open Sky Policy in 2015. Using the concept of regionalism in analyzing the regional integration in ASEAN Economic Community including ASEAN Open Skies Policy in 2015 and the concept of culture diplomacy as the foundation to analyze the role of Garuda Indonesia in promoting Indonesia towards the foreign public.

Keywords: ASEAN Open Sky Policy, Aviation, Culture Diplomacy, Garuda Indonesia, Indonesia, Quantum Leap, Regionalism.

ACKNOWLEDGEMENT

Good things might come to those who wait, finally the final piece of mine has been accomplished, my bachelor thesis has fully completed. Can‟t thank Allah enough for the abundant support, faith, and blessings. Without Allah and his grace I cannot finalize this thesis perfectly. In addition, I would like to give my biggest thanks to: 1. My parents, my best friends, and my shelter Iwan Setyawan Diyatputra and Itta Duhita Widhiyati, my brother Irfan Rafie and sister Safira Aprillia, thank you for the non-stop encouragement while I was being lazy, I love you all so much. 2. To my one and only grandmother, Retno Setyowati, for her non-stop prayers to me, all of those wise advices and support. I love you. 3. My best two cousins Kitas Dewi Anjani and Indra Kitas Ramadhani for their loving care and patience who give me abundant support in lifting my consciousness in finishing this thesis. 4. All of my aunts and uncles, Rudi Adhitya, Septiawati Azmarina, Lukitasari, Agus Suprayogi, Wieke, Tata Tiara Madha, Eri Kadarusman, and Yogi Sapta Prakoso, thank you for the encouragement and all of those constructive advices. 5. Mr. Endi Haryono and Ms. Witri Elvianti as my advisors, thank you for the patience in guiding me with this thesis and thank you for the valuable advice to develop my thesis. 6. The corporate communication unit of PT Garuda Indonesia (Persero) Tbk. Bu Diah, Mas Dicky, Mas Deden, Mba Yuni, Mba Risna, Mba Ambar, Mba Mawar for their kind support during my internship period, helped me to understand Garuda Indonesia more than I have understand, helped me in choosing the topic related IR using Garuda Indonesia as its case study 7. Special thanks to Mas Adi Pribadi, thank you for your valuable advice and your kindness in giving me all of the primary data needed for this thesis with all of the fast response and his patience in answering all of my questions related to this thesis. I really appreciate that.

8. Isa Andria for his abundant support, encouragement, care and patience for me to finish this thesis. I can‟t thank you enough; no words can express how grateful I am to have you. 9. My loving friends, Yune, Icha, Opi, Astri, Sarah, Debbie, Junko, Lady, Laras, Rajiv, Pandu, Yudha, Tari, Dwi, Mirah, Karin, Lira, Dendi, Dio, Rendy, Agish and Dony thank you for the laugh, kindness, shelter, critics, advices, and support.

THANK YOU SO MUCH, GOD BLESS YOU ALL

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TABLE OF CONTENTS

RECOMMENDATION LETTER ...... I DECLARATION OF ORIGINALITY ...... II APPROVAL SHEET ...... III ABSTRAK ...... IV ABSTRACT ...... V ACKNOWLEDGEMENT ...... VI TABLE OF CONTENTS ...... VIII LIST OF TABLE ...... X LIST OF FIGURES ...... X LIST OF ABBREVIATIONS ...... XI CHAPTER I ...... 1 INTRODUCTION ...... 1 1.1 Background of Study ...... 1 1.2 Problem Identification ...... 4 1.3 Statement of the Problem ...... 5 1.4 Research Objectives ...... 5 1.5 Significance of the Study ...... 6 1.6 Theoretical Framework ...... 6 1.7 Research Methodology ...... 8 1.8 Scope and Limitations of Study ...... 9 1.9 Definition of Terms ...... 9 1.10 Thesis Outline ...... 10 CHAPTER II:ASEAN ECONOMIC COMMUNITY (AEC) 2015 ...... 12 2.1 ASEAN Economic Community (AEC) ...... 13 2.2 AEC Challenges on ASEAN Countries ...... 23 CHAPTER III:ASEAN OPEN SKY POLICY 2015: CHALLENGES AND IMPACT TO INDONESIA ...... 26 3.1 Defining ASEAN Open Sky ...... 26 3.2 Indonesia‟s stance towards ASEAN Open Sky 2015 ...... 29 3.2.1 Challenges for Indonesia ...... 31 3.2.2 Indonesia‟s Action towards ASEAN Open Sky 2015 ...... 33 CHAPTER IV:GARUDA INDONESIA’S STRATEGIES IN SUPPORTING INDONESIA REGARDING ASEAN OPEN SKY 2015 ...... 37

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4.1 Company Profile ...... 37 4.2 Garuda Indonesia Quantum Leap Strategies ...... 38 4.3 Strategy Implementation ...... 46 4.3.1 Domestic Routes ...... 47 4.3.2 International Network ...... 49 4.3.3 Low Cost Carrier ...... 54 4.3.4 Fleet...... 58 4.3.5 Brand Awareness ...... 60 4.3.6 Cost Discipline ...... 67 4.3.7 Human Capital ...... 70 CHAPTER V:CONCLUSION ...... 72 BIBLIOGRAPHY APPENDIX

LIST OF TABLE

Table 2.1 – AEC Blueprints……………………………………….……..14 Table 3.1 – Growth Projection (Roadmap of Kadin 2009-2030)………...34 Table 4.1 – Garuda Indonesia Quantum Leap Matrix Relations with 7 Strategies to Drive Growth…………………………...... 44 Table 4.2 – Fleet Matrix…………………….....…...... 58 Table 4.3 – UKM Partners of Garuda Indonesia……………...... …...... 64

LIST OF FIGURES

Figure 1 – Garuda Indonesia “Quantum Leap” Milestone …………………..…..40 Figure 2 – 7 Strategies to Drive Growth…………………………………...... 42 Figure 3 – Garuda Indonesia‟s Domestic Routes…………………………...... 47 Figure 4 – International Routes Garuda Indonesia………..……………...... 49 Figure 5 – Citilink Annual Passenger Traffic: 2010 to 2013...... 57

LIST OF ABBREVIATIONS

ACCCP = ASEAN Coordinating Committee on Consumer Protection ACIA = ASEAN Comprehensive Investment Agreement AEC = ASEAN Economic Community AFAS = ASEAN Framework Agreement on Services AFAFIST = ASEAN Framework Agreement on Facilitation of Inter-State Transport AFAFGIT = ASEAN Framework Agreement on the Facilitation of Foods in Transit AFAMT = ASEAN Framework Agreement on Multimodal Transport AFTA = ASEAN Free Trade Area AIA = ASEAN Investment Area ASAM = ASEAN Single Aviation Market ATIGA = ASEAN Trade in Goods Agreement CPL = Competition Policy and Law CSR = Corporate Social Responsibility EU = European Union FLEG = Forest Law Enforcement and Governance FTAs = Free Trade Areas HLS = Highly Sensitive List IAI = Initiative for ASEAN Integration IGA = Investment Guarantee Agreement IPR = Intellectual Property Rights LCCs = Low Cost Carriers LED = Light Emitting Diode MP3EI = Master Plan for the Acceleration and Expansion for Indonesian Economic Development 2011-2015 NSW = National Single Window PIS = Priority Integration Sectors REDD = Reducing Emissions from Deforestation and Forest Degradation SFM = Sustainable Forest Management SL = Sensitive List SMEs = Small Medium Enterprises WTO = World Trade Organization

CHAPTER I

INTRODUCTION

1.1 Background of Study

Connectivity is one of the key successes of global trade and regional development. With the development of the Asian region now, inter-state connectivity is very essential for development to support the economic growth of the region. The Asian region now made up for lost time with the Europe and North America. By continuing to increase the inter-state connectivity, the Asia-Pacific may overshadow Europe and North America with enhancing the Asia-Pacific economic potentials. As part of Asia-Pacific region, ASEAN countries should also contribute themselves in developing the economy and inter-state connectivity among region. Therefore, to increase the regional competition, in 2003 during the 13th ASEAN Summit in Singapore, the member countries of ASEAN have declared to create the ASEAN Economic Community (AEC) by 2015 and established the ASEAN Economic Community Blueprints.1

Inside the ASEAN Economic Community Blueprint, there is also the principles and framework of ASEAN Single Aviation Market or the “Open Sky Policies”; it is one of the 12 designated priority sectors for economic integration, all of which are the key components for the proposed AEC. This infrastructure development is aimed to create such an efficient, secure and integrated transport network in ASEAN in order to maximizing the potential

1 The ASEAN Economic Community Blueprint Declaration was signed by all leaders of ASEAN member Countries: Sultan Haji Hassanal Balkiah of Brunei Darussalam, Prime Minister Samdech Hun Sen of Kingdom of Cambodia, President DR. Susilo Bambang Yudhoyono of Indonesia, Prime Minister Bouasone Bouphavanh of Lao PDR, Prime Minister Dato Sri Abdullah Ahmad Badawi of Malaysia, President Gloria Macapagal-Arroyo of Philippines, Prime Minister General Surayud Chulanont of Kingdom of Thailand, Prime Minister Nguyen Tan Dung of Socialist Republic of Vietnam, and Prime Minister Lee Hsien Loong of Singapore. (ASEAN Economic Community 2015 Blueprint)

1 of ASEAN Free Trade Area (AFTA), to increase the conspicuousness of the region as a single production, tourism and investment destination and narrowing development gaps, and to create links within the neighboring region in Asia (South Asia, East Asia and Northeast Asia) (Peter Forsyth, 2004).

ASEAN Open Sky policy is an agreement on the liberalization of the aviation sector which includes open market, level playing field (an arrangement or agreement to compete in a fair basis), pricing flexibility, cooperative marketing agreement, dispute resolution, charter market, safety and security, and freedom cargo rights where the cargo services may not insisted to stop in a home country (Peter Forsyth, 2004, pp. 10-11). Specifically, ASEAN Open Sky Policy is trying to develop the competition intensity between airlines by providing routes flexibility for the airlines in ASEAN (Peter Forsyth, 2004, pp. 10-11). The ASEAN Open Sky Policy is expected to strengthen the competition among Asian giants (like China and India) and help the ASEAN countries to survive and compete inside the competition.

As mentioned in Bali Concord II conference, integrating the air transportation in ASEAN region has become parts of the 12 sectors that will be integrated in ASEAN Economic Community. The strength of these ASEAN countries should be united like Europe with its European Union to face the challenges and competition from major Asian countries, such as China and India (ASEAN Open Sky, Siapkah Indonesia?, 2010). With the ASEAN Open Sky Policy next year, the commercial scope among airlines will be higher and more profitable to both consumers and airlines in the case of operational flexibility and flight routing, choosing codeshare partnership, alliances, and the tariff arrangement that may enhance the airline productivity.

As the part of ASEAN member country, Indonesia is preparing them to face the liberalization. The Indonesian aviation industry had also take a big step forwards from the professional human resources qualifications, the flight

safety standards, and the proper service quality. This breakthrough has become a big leap to Indonesia from both the government and private sector that have to be done for the 2 years period to meet the 2015 ASEAN Open Sky. Indonesia should take a big step in preparing for ASEAN Open Sky Policy next year, with good planning system, given Indonesia's geographic advantage2 over other member states, should be able to compete with other foreign airline industry.

Based on the Master Plan for the Acceleration and Expansion for Indonesian Economic Development 2011-2015 (MP3EI), the demand for air transportation becomes increasingly strategic. Indonesia been divided into six economic corridors: East Sumatra, North Coast of Java, Kalimantan, West Sulawesi, East Java, Bali and Nusa Tenggara, and Papua. The government of Indonesia intends to flatten the entire development and economic growth through the six corridors with its hope to increase the needs for communication and transportation among corridors.

ASEAN Open Sky Policy for Indonesia is a major leap forward and very challenging, Indonesian aviation industry and the Indonesian government is also being challenged in the competition against foreign airlines. The increasing quality of airlines these days tightens the competition among airlines. The competition is getting more intense seen from the massive promotion that airlines give to their customers with various kinds of price and services, from the free seats promotion by AirAsia (AirAsia, 2014) until the Garuda Indonesia Travel Fair that was held twice this year (Sofia, 2014). The airline competition has not only been felt in Indonesia, but also in the ASEAN region itself. The airlines nowadays have such an intense competition between the low-cost carrier with the full-service airlines or even among full service airlines.

2 Geographic advantage of Indonesia: (1) strategic location along the major sea lines from Indian Ocean to Pacific Ocean makes Indonesia become world-wide trade routes, (2) abundant natural resources enables Indonesia to produce their own resources. (http://www.asianinfo.org/asianinfo/indonesia/pro-geography.htm)

However, Indonesia with its 26 international airports scattered across the country feel bothered by this liberalization. If it is compared with Singapore that only has one International Airport and Malaysia which has 6 airports. Director General of the Department of Air Transportation, Herry Bakti, said that the possibility of only 3 to 5 International airport (including Soekarno-Hatta International Airport and Ngurah Rai) which is ready to be liberalized open sky policy. To protect and maintain competition, Indonesia is now established themselves as one of the countries of ASEAN-X. This policy is considered as appropriate to protect the economy and improve the readiness of the national carrier to enhance the competitiveness between airlines (ASEAN Open Sky, Siapkah Indonesia?, 2010). Therefore, the stakeholders like the airlines in Indonesia, like Garuda Indonesia, supposed to help promoting this soft power. Specifically, Garuda Indonesia is a flag carrier airline. Means that, it flies with the name of Indonesia, it flies with the values of Indonesia which supposed to have the specific mandate to support Indonesia in the upcoming ASEAN Open Sky Policy.

Garuda Indonesia as the national carrier airline is also respectively preparing them in the next year‟s air liberalization agreement. Garuda Indonesia has to survive and keep on competing with numbers of airlines in ASEAN region. Thus, Garuda Indonesia in 2009 articulated the Quantum Leap Program. It‟s the massive revitalization of Garuda Indonesia which includes massive fleet rejuvenation and enhancement program, from 61 aircraft to 116 aircraft, an increase in frequencies from 1,700 to 3,000 per week on an enhanced route network (CAPA, Garuda Indonesia plots a “Quantum Leap” into the future, 2009). This Quantum Leap program aimed to reach the airline‟s sustainable growth and helps them to survive the competition during the implementation of ASEAN Open Sky Policy.

1.2 Problem Identification

In its effort to reach the airline‟s sustainable growth and surviving the competition towards the upcoming ASEAN Open Sky Policy in 2015, Garuda Indonesia formulated Quantum Leap Milestone each year from 2011 to 2015

as its barometer to reach their goals; launch Initial Public Offering (IPO) to their shares, fulfill their requirements to join SkyTeam Global Alliance, expanding their networks, increase their service qualities and achieve the Quantum Leap in 2015.

As Indonesian national airline, it is part of its duty to play a role in supporting Indonesia in the implementation of ASEAN Open Sky Policy; this research is analyzing the Quantum Leap program of Garuda Indonesia with its 7 strategies to drive growth. This research also describing how those business strategic plans can play its role in supporting Indonesia in facing the upcoming ASEAN Open Sky Policy.

1.3 Statement of the Problem

A series of programs done by Garuda Indonesia help Indonesia to survive the competition among ASEAN countries in the upcoming ASEAN Open Sky Policy. Therefore, the authors conducted in-depth research about Garuda Indonesia‟s Quantum Leap program with two research question:

1. What has Garuda Indonesia done to help Indonesia for the success of ASEAN Open Sky Policy? 2. What roles played by Garuda Indonesia to have Indonesia preparing the ASEAN Open Sky Policy?

1.4 Research Objectives

a. To identify the strategic business plan of Garuda Indonesia, Quantum Leap Program, within the period of 2011-2014 related to the implementation of ASEAN Open Sky Policy next year.

b. Analyzing the role of Quantum Leap Program Garuda Indonesia in supporting Indonesia in the implementation of ASEAN Open Sky Policy in 2015.

1.5 Significance of the Study

ASEAN Open Sky Policy was the air liberalization agreement between ASEAN countries which will begin in 2015. This agreement is a milestone and also a challenge for Indonesia, which is currently still developing in compare to Singapore and Malaysia. Also with Garuda Indonesia, their massive revitalization program (Quantum Leap Program) in order to compete and survive in the ASEAN Open Sky next year. Therefore, the presence of this research may make both Indonesian government and Garuda Indonesia can support each other to succeed the ASEAN Open Sky next year. For Garuda Indonesia, hopefully this research could be a point of reflection for the airline to expand again into the airline that always promotes the culture and beauty of Indonesia.

1.6 Theoretical Framework

1.6.1 Cultural Diplomacy

In this globalization era, culture is not subordinate to politics but instead it provides the operating context for politics (Kirsten Bound R. B., 2007, p. 20). Nowadays, many countries use culture as the tool to win the hearts and mind of foreign public, as the tool to promote their national values towards the public. Culture is now become major determinant on people‟s perception on others and how they negotiate the differences, it enable mass populations to develop the vital skills of cultural literacy – where people are able to understand themselves, and others, and the dynamic relationship between the two (Kirsten Bound R. B., 2007, p. 19).

Cultural diplomacy has become the linchpin of public diplomacy in the sense of creating connectivity in economic and cultural life across the world (Hwajung, 2011, p. 5). Milton Cummings defined cultural diplomacy as “the exchange of ideas, information, art, and other aspects of culture among nations and their people in order to foster mutual understanding” (Cummings, 2003, pp. 1-3). Cultural diplomacy is a domain of diplomacy concerned with establishing, developing and sustaining relations with foreign

states by way of culture, art and education. It is also a proactive process of external projection in which a nation‟s institutions, value system and unique cultural personality are promoted at a bilateral and multilateral level (Bill Ivey, p. 1).

In the case of Indonesia, which already been known with its diverse culture is supposed to be a golden opportunity for Indonesia to promote their culture and may attract more tourist to enjoy the nature and culture abundance of Indonesia. This research is using the concept of cultural diplomacy as the foundation for the author to analyze the role of Garuda Indonesia in promoting Indonesia towards the foreign public. As part of the soft power and diplomacy, Indonesian tourism may increase the public awareness of the nature and cultural beauty of Indonesia, with the existence of ASEAN Open Sky Policy, the gates become wider for foreign tourists to visit Indonesia. Therefore, the stakeholders like the airlines in Indonesia, like Garuda Indonesia, supposed to help promoting this soft power.

1.6.2 Regionalism

Regionalism happens when states and non-state actors cooperate and coordinate strategy within a region. (Fawcett, Exploring regional domains: comparative history of regionalism, 2004) In the international order, regionalism can consolidate state-building and democratization, promoting economic, political and security cooperation and community, create and lock in norms and values, increase transparency, make states and international institutions more accountable, and help to manage the negative effects of globalization (Fawcett, Exploring regional domains: comparative history of regionalism, 2004). According to the Penguin Dictionary of International Relations (Graham Evans, 1998):

Regionalism exists both within states and between states. Within states it can be one manifestation of ethnic nationalism and the political goal of separatism and .independence. On the other hand, regionalism may simply reflect an organizational desire to increase efficiencies and make administration more accountable to the population. Regionalism within states is thus a very broad-based

set of ideas and aspirations which may see much or little conflict between the concept of region and the concept of center. Between states regionalism is positively correlated with the idea of region. It has to be said that, in the conduct of their foreign policy, leaders of states frequently approach their external environment wearing 'regional' lenses. – (Graham Andersen and Jeffrey Newnham) ASEAN is now focusing on their vision in creating ASEAN Economic Community (AEC), entangling all of the economic elements in the region to be integrated with each other including the aviation sector by forming ASEAN Single Aviation Market (ASEAN Open Sky Policy) as part of the economic integration. This research is using the concept of regionalism as the fundamental foundation for the regional integration reminiscing that both AEC and ASEAN Open Sky are cooperates with all of the ASEAN member countries with coordinating their political values to cooperate in creating one vision, integrated economy.

1.7 Research Methodology

Qualitative method seems to be suitable for this research, it relates to understand the social life aspects, and the method is generally generated words rather than numbers as data for analysis. This method is aimed to understand how a community, company, states or individuals within it perceive a particular issue (Bricki, 2007). The qualitative method of analysis lies on the processes in describing phenomena, classifying it and seeing how it connected with the concepts (Dey, 1993, pp. 31-56).

In qualitative research methodology, describing the basis topic for analysis may obtain a fresh view of the research data. Then, the research can progress from initial description into breaking down the data and see how the data interconnected with the concepts, then break down the data again to classify it and the concepts employed in classifying the data, and the connections made between these concepts, provide the basis of a fresh description.

Based on the paragraph above, lies three main process in designing qualitative research methodology, there are describing, classifying and then

connecting. In this research, the author gives a complete and thorough description on the actions of Garuda Indonesia to support Indonesia regarding ASEAN Open Sky 2015 by optimizing Garuda Indonesia‟s quantum leap program. This research classifies each of the data obtained like theories, quotes, and even data inquiries and connecting those data obtained into the whole picture of descriptive analysis.

1.8 Scope and Limitations of Study

This research is focusing on optimizing Garuda Indonesia‟s Quantum Leap Program in supporting Indonesia in the implementation of ASEAN Open Sky Policy.

1.9 Definition of Terms

1.9.1 Open Sky

A package of policy to opens up aviation markets. Can be pursued through bilateral, regional or multilateral basis, it gives more opportunities to airlines who involved in this open sky to compete among airlines involved in, to open more flight route and more route and networks flexibility (Peter Forsyth, 2004, p. 3).

1.9.2 ASEAN minus – X

ASEAN – (Minus) X is the regional cooperation formula where the country where countries that are ready to liberalize can proceed first and be joined by others later (AEC Blueprints, p. 12)

1.9.3 Garuda Indonesia Quantum Leap Program

Quantum Leap Program is five-year (2011-2015) expansion plan of Garuda Indonesia to enhance to ensure the achievement of sustainable growth of Garuda Indonesia, so that the company can achieve sustainable profitability conditions (sustainable profitable growth), which targeted to be done in 2015 (Garuda Indonesia, Annual Report, 2013).

1.9.4 Codeshare Agreement

An interline partnership where one airline places its code on another airline which resulted in providing service to destinations that‟s not on their route structure, the other way to expand their market through this agreement (ABC News, 2005)

1.10 Thesis Outline

1.10.1 Chapter I: Introduction

This chapter contains the background of this research, complete overview about what will be discussed in this research from its background of the study, the research statement, its significance, importance of study, scope and limitations, theoretical framework defining the theories that will support the research, research methodology and ends up with the definition of terms and the last research outline.

1.10.2 Chapter II: ASEAN Economic Community 2015

A literature review about ASEAN Economic Community in 2015, the pillars and element from ASEAN Economic Community Blueprint, how the economic liberalization work. This chapter also describes presumed implications of the ASEAN Economic Community 2015 to the ASEAN member countries in their economic sectors.

1.10.3 Chapter III: ASEAN Open Sky Policy 2015: Challenges and Impact to Indonesia

Defining and describing the conduct of ASEAN Open Sky Policy, what measures that will be removed, the mechanism of how this policy will work, how it challenges Indonesia, how Indonesia will react to those challenges with providing the related policies from Indonesian government especially from the Directorate General of Civil Aviation and other legally binding regulations related to the implementation of ASEAN Open Sky Policy.

1.10.4 Chapter IV: Garuda Indonesia’s Strategies in Supporting Indonesia Regarding ASEAN Open Sky 2015

As the chapter title has written, the author put the complete data collection and in-depth analysis about Garuda Indonesia Quantum Leap Program that may be beneficial to support Indonesia in the implementation of ASEAN Open Sky Policy and explaining the role of Garuda Indonesia Quantum Leap Program in supporting Indonesia in the implementation of ASEAN Open Sky Policy.

1.10.5 Chapter V: Conclusion and Recommendation

The last chapter of this research will give the conclusion of this research with its recommendation. Giving the some tips and trick for the future author who will be taking this topic would be necessary for this chapter. The author will also give her own point of view about this topic so this research will be beneficial for the reader and for the as a mirror for Garuda Indonesia so they can spread their wings again and was able to become global airlines and for Indonesian government to do better in the future in order to survive in ASEAN Open Sky Policy 2015.

CHAPTER II

ASEAN ECONOMIC COMMUNITY (AEC) 2015

The phenomenon of globalization has tighten the world since the development of technology, connection and networks can be easily reached in such a way that the world becomes smaller and economically, politically, culturally integrated. Since the end of Cold War, regionalism has grown and develops throughout the world, many countries suffered from economic crisis, especially in Asia. Therefore, to cope with the economic crisis after the end of Cold War, many countries (especially in Asia) desired to create an international cooperation and regionalism can become a tool to increase the economic cooperation or other type of cooperation among region (Chen).

After the Cold War, ASEAN had started to develop by developing their regional arrangements like ASEAN Free Trade Area that is being adopted to attract the foreign direct investment (Akkerman, 2007). The Asian financial crisis during 1997-1998 has made ASEAN realize the importance of the regional cooperation even with non-member states. Therefore, ASEAN has formed Asian monetary policy that was enforcing their own financial framework for future crises and trying not to depend on the US which then makes them creating bilateral agreements with non-member states in Asian region like China, Japan, and South Korea (ASEAN+3) that may develop a deeper economic cooperation in the region (Akkerman, 2007).

ASEAN has concentrated more on their economic issues as listed in Bangkok declaration that ASEAN is committed to accelerate economic growth, social progress and cultural development in the region (The Asean Declaration (Bangkok Declaration) Bangkok, 8 August 1967, 1967). They had focused on creating economic integration to boost the region‟s economy which now ASEAN has attracted foreign direct investment and increasing competitive production base. This has been proven that in 2010 (Santikajaya,

2011), the development of foreign direct investment in ASEAN had reached total until US$75.8 billion. Since then, the economy had becomes more integrated, and the economies of scales had also increasing.

Before the American and European crises, ASEAN has been underestimated because of its ineffectiveness, lack of commitment to become a supranational body, but now ASEAN has been praised as a comfort vehicle for regionalism. The developed countries like China, United States, and Russia had been committed to the ASEAN-led East Asia Summit (EAS)3 as a major diplomatic arena in the Pacific (http://www.aseanindia.com/about/eas/)

In ASEAN, where most countries are either undemocratic or semi-democratic, the continuation of regime is sacred and more important than just regional solidarity. ASEAN is likely to continue to develop and play a pivotal role in the Pacific, but it is vulnerably affected by the global situation because of the continuing tug-of- war between regional common goals and the strong presence of nation-states. As a strong proponent of regionalism, Indonesia has to be concerned with this development. In the coming days, Indonesia will host the ASEAN Summit that will crucially map out the future of ASEAN‟s regionalism. - (Santikajaya, 2011) 2.1 ASEAN Economic Community (AEC)

As the economic development in Southeast Asia grows rapidly, the member states of ASEAN has also increase the regional competition, in order to create a stable, prosperous and competitive ASEAN. ASEAN has progressively developing their economy, reducing poverty and socio- economic disparities among member countries. As ASEAN‟s rapid economic development goes, it become the market for products of European, American and even East Asian countries and expectably become the production means provider in the world. In 2003 during the 13th ASEAN Summit in Singapore, the member countries of ASEAN have declared to create the ASEAN Economic Community (AEC) by 2015 and established the ASEAN Economic

3 East Asia Summit is a unique Leaders-led forum of 18 countries of the Asia-Pacific region to further the objectives of regional peace, security and prosperity. It has evolved as a forum for strategic dialogue and cooperation on political, security and economic issues of common regional concern and plays an important role in the regional architecture. (Cited from: http://www.aseanindia.com/about/eas/)

Community Blueprints. AEC will transform ASEAN into a region with free movement of goods, services, investment, skilled labor, and freer flow of capital (ASEAN Economic Community, 2014).

Table 2.1 AEC Blueprints

Pillars Core Elements A. Single Market and Production Base Free flow of goods Free flow of services Free flow of investment Free flow of capital

Free flow of skilled labor Priority integration sectors Food, Agriculture, and Forestry B. Competitive Economic Region Competition policy Consumer protection Intellectual property rights Infrastructure development Taxation E-commerce C. Equitable Economic Development SME development Initiative for ASEAN Integration Coherent approach toward external D. Integration into Global Economy economic relations Enhanced participation in global supply

networks

Source: (ASEAN Economic Community Blueprint, 2008)

As the table above concise, AEC have four key pillars: a single market production base, a highly competitive economy in the region, a region with equal economic development, and an integrated region into the global economy (Association of Southeast Asian Nations, 2008). The AEC will make ASEAN become a single market and production base economy, it will trigger a more dynamic and competitive economy in the region with new mechanisms and measures to strengthen the implementation of its existing economic initiatives; accelerating regional integration in the priority sectors; facilitating movement of business persons, skilled labor and talents; and strengthening the institutional mechanisms of ASEAN (ASEAN Economic

Community Blueprint, 2008, p. 5). The first pillar, AEC will have six core elements to be implemented to for them to reach single market area:

1. Free Flow of Goods

AEC is facilitating the development of production networks in the region and enhance ASEAN‟s capacity to serve as a global production center or as a part of the global supply chain. Therefore, AEC will implement zero tariffs barriers and removing non-tariff barriers as well. In implementing this, ASEAN members has agreed upon ASEAN Trade in Goods Agreement (ATIGA), a codification of all ASEAN liberalization of trade in goods agreement (ASEAN Economic Community Blueprint, 2008, p. 6). Covering all international trade principles, the ASEAN member states has agreed to minimized the barriers and strengthening the cooperation between ASEAN member countries, lowering the trading cost, and tightens the trade competition among member countries. Based on the AEC Blueprints, the AEC will eliminate all tariffs barriers to all products on all intra-ASEAN except the Sensitive List (SL)4 and Highly Sensitive List (HSL)5 products which later will be inputted to the Inclusion List.

Several measures have been made by ASEAN in facilitating free flow of Goods. First, enhancing their transparency in eliminating Non-Tariffs barriers by abiding the Protocol on Notification Procedure and creating an effective surveillance mechanism. Second, provide Rules of Origins facility on trade to the all member states by increasing anti-dumping measures and safeguard measures (ASEAN Economic Community Blueprint, 2008, p. 7). The third measures is trade facilitation, a consistent and transparent trade and custom mechanism procedures are expected to reduce transaction costs in ASEAN which will enhance export competitiveness and facilitate the integration of ASEAN into a single market for goods, services and

4 Sensitive list products are lists of products of special interest to individual member countries (Cited from: http://moci.gov.af/en/page/8615) 5 Highly sensitive list products are unprocessed agricultural products and will be exempt from tariff reductions (Cited from: http://www.fta.gov.sg/ftas_afta_goods.asp)

investments and a single production base (ASEAN Economic Community Blueprint, 2008, p. 8).

The fourth implementation measure is through customs integration and modernized customs techniques by establishing ASEAN Customs systems, implementing ASEAN e-Customs and promoting mutual assistance for better customs efficiencies (ASEAN Economic Community Blueprint, 2008, pp. 8-9). The fifth implementation measure is ASEAN Single Window, where National Single Window (NSW)6 from 10 member states operated and integrated so that the government information and data flow related to import and export process in ASEAN regional can be done effectively (ASEAN Economic Community Blueprint, 2008, p. 9). Besides, ASEAN Single Window may also accommodate the non-ASEAN member who works with international trade, they can input their request to do the goods delivery electronically through ASEAN Single Window network (Departemen Perdagangan Republik Indonesia, pp. 27-28).

Standards and technical barriers to trade as the sixth implementation measure, harmonizing standard, technical regulation, and conformity assessment are the right measures to improve efficiency and Enhance greater cost effectiveness of production of intra-regional imports or exports (ASEAN Economic Community Blueprint, 2008, p. 9). As the ASEAN Policy Guideline on Standards and Conformance has issued, AEC will promote the transparency developing those standards, regulations, and conformity assessment in line with the standards from World Trade Organization (WTO) on Technical Barriers to Trade, strengthening the post market surveillance system, and developing capacity building programs (ASEAN Economic Community Blueprint, 2008, p. 10).

2. Free Flow of Services

6 National Single Window is an electronic system that handles customs related matters so that the procedures of import, export and customs can take place more efficiently in one system (Departemen Perdagangan Republik Indonesia, p. 26)

The liberalization of services aimed at removing obstacles to the provision of services between ASEAN member countries through the mechanism set out in the ASEAN Framework Agreement on Services (AFAS), the agreement between the ASEAN countries in the field of services (Departemen Perdagangan Republik Indonesia, pp. 29-30). In implementing free flow of services, ASEAN remove the barriers on four mode of supply: mode 1 for cross-border supply, mode 2 for consumption abroad, mode 3 for commercial presence, and mode 4 for movement of individual service providers. Another implementation, strengthening human resource development and capacity building in the region and removing the barriers of service on four priority service sectors, namely air transportation, e-ASEAN, health and tourism (ASEAN Economic Community Blueprint, 2008, p. 11). For the financial services sector, all measures for the financial services sector will be subject to prudential measures and balance of payment safeguards as provided under the WTO General Agreement on Trade in Services (ASEAN Economic Community Blueprint, 2008, p. 11).

3. Free Flow of Investments

AEC open investment flows freely and openly in order to increase foreign investment originating from the intra-ASEAN and non-ASEAN countries. Previous ASEAN already have the .NET Framework on the ASEAN Investment Area (AIA) for the investment cooperation agreement in 1998 where all industries shall open and national treatment granted to investors and the ASEAN Investment Guarantee Agreement (IGA) for the investment protection agreement in 1987. In its effort to maintain a competitive investment area and creating a more comprehensively and forwards-looking investment agreements, both the framework agreement on AIA and ASEAN IGA then merged into the ASEAN Comprehensive Investment Agreement (ACIA) to form the four important pillars in the investment agreement (the Association of Southeast Asian Nations, 2008, p. 12). The first pillar is investment protection, providing protection to all investors with investment. Then, there is the facilitation and cooperation as

17 the second pillar; aims to provide regulations, policies and procedures are transparent investment. The third pillar is promotion and awareness; promote ASEAN as an integrated investment and regional production networks. The last pillar is liberalization, aims to encourage the progressive liberalization of investment by applying the treatment of non-discrimination and remove all policies that are inhibiting this liberalization procession.

With the liberalization of investment in the AEC next year, investors from ASEAN member countries will go to Indonesia because Indonesia is a potential market and can indirectly control the economy in Indonesia when they invest in Indonesia. Therefore, the readiness of human resources and capital must be pursued so that the free flow of investment can be balanced by investment in the country (Ministry of Commerce of the Republic of Indonesia, p. 37).

AEC creates the free flow of investment to increase foreign investment originating from the intra-ASEAN and non-ASEAN countries. Previously, ASEAN already have the Framework on the ASEAN Investment Area (AIA) for the investment cooperation agreement in 1998 and the ASEAN Investment Guarantee Agreement (IGA) for the investment protection agreement in 1987. In its effort to maintain a competitive investment area and creating a more comprehensively and forwards-looking investment agreements, both the framework agreement on AIA and ASEAN IGA then merged into the ASEAN Comprehensive Investment Agreement (ACIA) to form the four important pillars in the investment agreement (the Association of Southeast Asian Nations, 2008, p. 12). The first pillar is investment protection, providing protection to all investors with investment. Then, facilitation and cooperation, aims to provide regulations, policies and procedures of transparent investment. The third pillar is promotion and awareness; promoting ASEAN as an integrated investment and regional production networks. The last pillar is liberalization, to encourage the progressive liberalization of investment with no-discrimination and remove all inhibiting policies regarding the liberalization process.

With the liberalization of investment next year, investors from ASEAN member countries will go to Indonesia because Indonesia is a potential market and can indirectly control the economy in Indonesia when they invest in Indonesia. Therefore, the readiness of human resources and capital must be pursued so that the free flow of investment can be balanced by investment in the country (Ministry of Commerce of the Republic of Indonesia, p. 37).

4. Free Flow of Capital

Capital flows between countries is one indicator of asset trading transactions conducted between the state populations. Free flow of capital is the process of eliminating regulations that are inhibiting the flow of capital in various forms to support more efficient financial transactions, as one of the financing for development, facilitating international trade, supporting the development of the financial sector and boost economic growth (Departemen Perdagangan Republik Indonesia, p. 46). Free flow of capital must pay attention to the balance between capital flows and safeguard measures to avoid traffic turmoil capital (Departement Perdagangan Republik of Indonesia, p. 46). AEC take some action in order to realize capital liberalization as strengthening the ASEAN capital market development and integration and increase the flow of capital in the region through the liberalization process that is guided by Several principles like ensuring a consistent capital account liberalization with national preparedness agenda in each member state, allowing ASEAN members to use security measures to protect the potential risk towards instability in internal Reviews their economy, and ensuring the member countries to feel the benefit from capital liberalization (Association of Southeast Asian Nations, 2008, pp. 14-15).

5. Free Flow of Skilled Labor

AEC is ensuring the people in ASEAN region to have a wide job opportunity, the citizens of member states can get out and get into all ASEAN countries to get a job without obstacles in the destination country. Some of

ASEAN‟s conduct to create a free flow of skilled labor are facilitate the issuance of visas and employment passes for ASEAN professionals and skilled labor who are engaged in cross-border trade and investment related activities, enhancing cooperation among ASEAN University Network members to increase the mobility for both students and staff within the region, and strengthening the research capabilities of each ASEAN member countries related to employments and developing labor market information networks among ASEAN member countries (ASEAN Economic Community Blueprint, 2008, pp. 15-16).

6. Priority Integration Sectors (PIS)

Priority Integration Sectors (PIS) are strategic sectors to be liberalized for a single market and production based. There are 11 sectors that have been agreed upon by the ASEAN economic ministers; agro-based products, air travel (air transport), automotive, e-ASEAN, electronics, fisheries, healthcare, rubber based products, textiles and apparel, tourism, wood based products, and logistics (Departemen Perdagangan Republik Indonesia, p. 51). According to AEC Blueprint (ASEAN Economic Community Blueprint, 2008, p. 16), ASEAN focused on comprehensively integrating those 11 sectors being served as a catalyst for the overall ASEAN economic integration by raising the efficiency of these sectors will help ASEAN to compete for capital, and retain value-added economic activity and employment in the region.

7. Food, Agriculture and Forestry.

The enhancement of competitiveness of food, agricultural and forestry products has emerging several issues such as food security, mitigation of and adaptation to climate change, and sanitary and phytosanitary. Therefore, the seventh core element of creating single market base product is harmonizing the standard quality of food, agriculture and forestry, guiding ASEAN to compete in the global market by offering safe and healthy food with good quality. ASEAN is also actively involved in the promotion of Sustainable Forest Management (SFM), Forest Law Enforcement and Governance

(FLEG), and Climate Change and Reducing Emissions from Deforestation and Forest Degradation (REDD).

The AEC desired to create ASEAN as the competitive economic region that are beneficial to all actors from member countries, the respective foreign investors and domestic investors, the businessmen, and even the ASEAN people itself. Therefore, ASEAN will enhance their cooperation in six sectors: first is establishing a network of authorities responsible for competition policy to foster a culture of fair competition by forming a Competition Policy and Law (CPL) as the relevant bodies to exchange policy; second is strengthening consumer protection in by establishing ASEAN Coordinating Committee on Consumer Protection (ACCCP) and creating network of costumer protection agencies as the place for the customers to share and exchange experiences; Intellectual Property Rights (IPR) to seek for a better public awareness, coordination and networking to the competitiveness and development in industries by fully implementing ASEAN IPR Action Plan 2004-2010, the Work Plan for ASEAN Cooperation on Copyrights, and doing accession on the Madrid Protocol; infrastructure development; taxation by completing the network of bilateral agreement on all member countries to avoid double taxation among them; and e-commerce by creating a legal policies and infrastructure to foster online trade in goods like the e-ASEAN Framework Agreement (ASEAN Economic Community Blueprint, 2008, pp. 18-23).

On the infrastructure development, ASEAN member states have concluded three transport facilitation agreements to create an efficient, secure and integrated transport network in ASEAN, namely, the ASEAN Framework Agreement on the Facilitation of Foods in Transit (AFAFGIT), ASEAN Framework Agreement on Multimodal Transport (AFAMT), and ASEAN Framework Agreement on Facilitation of Inter-State Transport (AFAFIST) (ASEAN Economic Community Blueprint, 2008, p. 20). These measures then may simplify and harmonizing transport procedures and documentation, uniform guidelines and requirements for registration of transit transportation,

21 and ICT-driven applications for cargo transfer (Competitive Economic Region, ASEAN Economic Community).

For maritime and air transport development, AEC will adopt a general principles and framework for an ASEAN Shipping Market and implementing ASEAN Single Aviation Market. Some actions that ASEAN done to develop the air transport and maritime sectors, they implementing the roadmaps to the integrated and competitive maritime transport in ASEAN, implementing a roadmap for integrating air transport sectors through ASEAN Open Sky Policy and implementing ASEAN Single Aviation Market (ASEAN Economic Community Blueprint, 2008, p. 21)

The third pillar of this AEC Blueprint is creating the equitable economic development. Shaping economic integration in a region must be balanced with domestic development of each country member. Economic liberalization in ASEAN has open wider opportunity for foreign businessmen to develop its business in the region without realizing its impact to the domestic entrepreneur (ASEAN Economic Community Factbook, 2011, p. 35). Therefore, this third pillar is focusing on creating equitable economic development where the Small Medium Enterprises (SMEs) can cope with the foreign investors through strengthening and increasing the contribution of SMEs to the economic growth and development of ASEAN and facilitating the SME‟s access to information, market, human resource development and skills, finance and technology (ASEAN Economic Community Blueprint, 2008, p. 24). The next core element in this pillar is Initiative for ASEAN Integration (IAI). The diversity of economic backgrounds of each member country is enough to make economic development in the ASEAN biased. Therefore, in its blueprints, the AEC narrows the development gap between ASEAN member countries and enhance ASEAN‟s competitiveness. The IAI‟s job is basically assisting ASEAN countries to meet ASEAN wide targets and commitments, but this AEC has pressured some of the ASEAN countries. So IAI here will help to develop policy to enhance economic growth, strengthening economic competitiveness, increase domestic and

foreign direct investments, expand private sector enterprises while meeting its public goals (ASEAN Economic Community Blueprint, 2008, p. 25).

The last pillar in creating AEC is integration into the global economy. In making a more dynamic and competitive region, ASEAN must cope with external rules and regulations. By that, ASEAN countries must make a coherent approach towards external economic relations by maintaining “ASEAN Centrality” in its negotiations for the Free Trade Areas (FTAs) with several non-ASEAN countries and comprehensive economic partnership agreement (ASEAN Economic Community Blueprint, 2008, p. 25). Besides, ASEAN must enhance its participation in global supply networks by continuing the adoption of international best practices and standards in productions and developing comprehensive package assistance for the less developed ASEAN countries to help them enhance the participation in regional and global integration initiatives (ASEAN Economic Community Blueprint, 2008, p. 26).

2.2 AEC Challenges on ASEAN Countries

As the previous section explains briefly about ASEAN Regionalism and its prospects on ASEAN Economic Community in 2015, it is clearly that ASEAN has their own obsession in transforming ASEAN into a single market and production base like European Union (EU) and increasing ASEAN‟s economic competitiveness. The AEC will then become an integrated competitive economy in the region, creating ASEAN into one single market by removing some preclusion policies and make ASEAN becomes more accessible to foreign investors. ASEAN investors will be free to invest in all economic sectors in ASEAN region which then may boost the development of production networks and foster the regional integration of priority sectors and allow the free movement of business persons, professionals, and skilled labors (T.H.Tambunan, 2014).

The AEC is a great opportunity to ASEAN countries to foster a better regional integration and economic development, it is a beneficial program for ASEAN member countries to improve resource allocation, foster a better

23 technological development, good economies of scale, greater domestic competition and creating the availability of favorable growth externalities (T.H.Tambunan, 2014). It is not an easy task for ASEAN member countries who has different economic background even contrast economic difference among each countries they rather skeptical to the succession of this AEC remembering some of ASEAN member countries considered as a less developed countries like Cambodia, Lao PDR, Vietnam, Myanmar, Timor Leste or even Indonesia who still lacks on several resources (T.H.Tambunan, 2014) and still need the trade barriers and non-trade barriers measures and some supporting policies that may help them to protect their country‟s economy, less skills and advancement on technology and not being as competitive as Singapore, Brunei Darussalam and Malaysia who considered as the developed countries of ASEAN.

The economic disparities among member states has become the dominant key challenge to ASEAN, more than half of ASEAN member countries still struggle with their own economy. Based on a research of ERIA, there were at least 100 million people in ASEAN who were poor and about 121 million people who were marginally non-poor with their per capita income is below $2 in the late 2000s (Intal, et al., 2014, p. 40). Those poor and marginally poor people are more vulnerable towards the effects of price upsurge, disaster and even energy shortages that substantially reducing their welfare has makes this as the key challenge to ASEAN countries in facing AEC in 2015. Most of the poor tend to live in rural areas and susceptible areas of disaster which makes them more vulnerable to natural disasters with its negative effects after the disaster. Sharp price hikes and shortfall of energy sources, including diesel, had substantially compromise the viability of operations of small firms, farms and fisheries on which their employment and livelihood rests. Inside the blueprint, AEC removes all barriers on services and products that either decreasing the poverty rate or instead increasing the poverty rate within ASEAN people. Therefore, equal with its effort towards higher economic growth, ASEAN need to give more concern and importance to regional cooperation especially those regarding food security

24 improvements and energy security as well as greater readiness to address disasters within the region (Intal, et al., 2014, p. 41)

ASEAN member states still having problems on development were also very influential on the level of poverty in the ASEAN region. Up until now, the development gap among ASEAN countries widened not only between Cambodia, Myanmar, Laos, and Vietnam, but also widened among other ASEAN member countries (Chin, 2013). Low wages can be a goal of multinational investors to gain competitiveness in a globalized world, but on the other hand also describe the low welfare of workers. Protracted disagreements between employers, workers and governments also become a hindrance in narrowing the development gap that may impact the productivity and disrupt national security (Makarim Wibisono, 2013, p. 59). The AEC blueprint clearly stated that ASEAN envisioned a single market and production base and a Southeast Asian region that would be highly competitive, characterized by equitable economic development and fully integrated into the global economy which supposedly provides more equal access to public services like education, water, electricity and sanitation (Chin, 2013). Through this economic integration it supposed give ASEAN a chance to have a maintainable development gap among member states, therefore ASEAN member countries should focus on strengthening their domestic capacity to reach a sustainable growth and development.

Those are the key challenges of ASEAN countries for the next year‟s AEC, creating economic liberalization would not be success if those two challenges are not yet resolved. The elimination of measures that previously reputed as the supporting measures to secure the ASEAN member states‟ economy that may be impacted to the economic descent of a country and as its domino effect, affecting the economic development of other ASEAN countries.

CHAPTER III

ASEAN OPEN SKY POLICY 2015: CHALLENGES AND IMPACT TO INDONESIA

Air transport is one of the sectors that AEC will work on to liberalize and integrate economic integration plan in the region. The current objective related to air transport sector is to establish an ASEAN Single Aviation Market (ASAM) by 2015 (Batari Saraswati, 2013). It is considered as an important milestone to increase connectivity, economic growth, and social welfare in the region. As the aviation business in Southeast Asia grows, ASEAN will help to facilitate the development through this ASEAN Single Aviation Market or Open Sky Policy to liberalize the aviation market in mutual accord with the infrastructure development program of AEC (ASEAN Economic Community Blueprint, 2008). This chapter provides an explanation of ASEAN Open Sky Policy, how it conduct and analyzing the challenges for Indonesia in the upcoming open sky policy and what are the actions of Indonesian government to prepare that.

3.1 Defining ASEAN Open Sky

ASEAN Open Sky Policy is a liberalization regarding eight provision in the aviation sector like open market, which characterized by removing either all barriers or partially regarding routes, total airlines permitted, capacity, frequency and type of the operating aircraft; level playing field (an arrangement or agreement to compete in a fair basis); pricing flexibility; cooperative marketing agreement; dispute resolution; charter market; safety and security; and 7th freedom cargo rights where the cargo services may not insisted to stop in a home country or third country. (Peter Forsyth, 2004, pp. 3-4). Open sky policy is one of the essential aspects in the region‟s economic development because air transportation still becomes the crucial issues in ASEAN trade. Besides, open sky may

26 encourage member countries to increase the tourism service quality that may increasing the exchange gain as its domino effect. In terms of airline industry, open sky may increase the airline quality and become one of the potential export sector for ASEAN countries (Laurang, 2012).

ASEAN Single Aviation Market or ASEAN Open Sky Policy is specifically trying to develop the competition intensity between airlines by providing routes flexibility for the airlines in ASEAN. The ASEAN Open Sky Policy is expected to strengthen the competition among Asian giants (like China and India) and help the ASEAN countries to survive the competition. Since air transportation is one of the essential elements in integrating the region, it‟s a means of communication and connectivity that will connect people of ASEAN easily that may help tourism and economic sector within the region. It is clearly that ASEAN Open Sky Policy head for increasing connectivity, economic growth and the social welfare of the region (Batari Saraswati, 2013).

Based on the implementation framework of ASEAN Single Aviation Market (ASAM), as one of the key elements in building AEC is through ASEAN Open Sky Policy by facilitating the free, efficient, safe and secure movement of people and goods within and potentially beyond ASEAN. Here, the implementation framework of ASAM named several aspires of ASAM (The Implementation Framework of the ASEAN Single Aviation Market, 2013):

a) Take necessary measures towards creating an efficient and competitive air transport market characterized by open market access, thereby contributing to the economic growth, competitiveness and shared prosperity of ASEAN; b) Move decisively towards a flexible business operating environment for the ASEAN air transport industry to foster its growth and facilitate its timely response to challenges and opportunities;

c) Formulate consistent principles, guidelines and regulations related to activities in the ASEAN air transport sector to foster fair competition and a level playing field; d) Enhance aviation safety, aviation security and air traffic management through the harmonization and convergence of standards and procedures regionally; and e) Further strengthen engagement with Dialogue Partners in the development of the ASEAN air transport sector, while maintaining ASEAN‟s centrality as the primary driving force.

The term “Open Sky” is rather open internally within ASEAN with several package of policies occurs within the member states. It refers to measures that differs from each case occurs, it incorporate liberal operating environment for airlines and useful to identify range of distinct policy options or building blocks within the internal air services (Peter Forsyth, 2004, pp. 56-80). In terms of fare restrictions, as before the Open Sky, ASEAN countries imposing price controls on air services, but through this Open Sky package, countries imposed may choose to disallow the fare and airlines will be allowed to determine its own tariffs based on commercial considerations in return (Peter Forsyth, 2004, pp. 56-80). Here, the government task will be maintaining the tariffs so that it stays in its competitive fares.

In terms of investment and ownership controls where many countries still imposed binding regulation of ownership, the open sky policy will loosen up those controls. Countries might agree to accept the designation of an airline for the use of the agreed market access if the airline has its principal place of business in a designating country and with substantial ASEAN ownership or its own nationals, and there is effective regulatory control by the designating party (Peter Forsyth, 2004, pp. 56-80). In terms of route and restrictions, airlines inside the region may take multiple designations towards routes and dropping restrictions. In terms of market access, the open sky policy might as well loosen up the rules of capacity controls among airlines by increasing capacity by a certain percentage per year or to completely remove the controls in order to gain effective competition between airlines

(Peter Forsyth, 2004, pp. 56-80). Granting 5th and 7th freedom rights of ASEAN is likely one of the agendas of ASEAN Open Sky Policy, in the 5th freedom rights disposed that airlines are allowed to fly to routes with third countries and might as well fly from the third countries to countries beyond ASEAN region (for example, SIA will be able to fly from Thailand to Vietnam and then continue their flights to China), the 7th freedom rights might allow airlines to fly between two foreign countries on a service without connection to the home country (for example, MAS would be able to fly between Indonesia and Thailand without transit in Malaysia) (Peter Forsyth, 2004, pp. 56-80).

The other air transport regulation that might as well being loosen up through implementing ASEAN Open Skies are the removing ground handling services operator by airlines might choose to use ASEAN‟s ground handling services operators, liberalizing restrictions on gateways for foreign airlines to land in the host countries, through this liberalization the airlines might liberated to choose which gateways they may entrance and landed countries may impose several gateway restriction just for environmental or capacity inadequacy concern (Peter Forsyth, 2004, p. 61). Open Sky also liberalize charters, cargo, and removing “doing business” restriction.7 Those packages of policies are not being implemented until 2015 where the open skies effectively work. During this preparation period, implementation schedules have been made due to the success of this liberalization.

3.2 Indonesia’s stance towards ASEAN Open Sky 2015

Indonesia, the largest country in the Southeast Asia with 18.000 islands spreads through Asia and Australia makes Indonesia becomes the largest archipelagic country and the largest economy in ASEAN. With its population exceeds more than 253 million makes Indonesia becomes the fifth

7 “Doing Business” is the way that member economies choose to regulate ground handling arrangements, currency conversion and remittance of earnings, employment of non- national personnel, the sale and marketing of air services products and access to computer reservation systems, and payment of expenses in local currency. (Cited from: Peter Forsyth, J. K. (2004). PREPARING ASEAN FOR OPEN SKY. AADCP Regional Economic Policy Support Facility Research Project 02/008, 61)

29 most populated country in the world, roughly half of the airspace of ASEAN is located within Indonesia. The aviation business in Indonesia has growing rapidly during the decade and appreciable profitable by International Air Transport Association (IATA). In fact, Indonesia holds the world‟s highest airline seat capacity and the world‟s busiest air routes with 780 flights per week (Bachtiar, 2013).

As the economy expands, Indonesia‟s air travel and airline business grows. After the Minister Decree No. 11/2001 about air carriers implementation, by written notice on article 15 subsections 1B stated (Keputusan Menteri Perhubungan No. 11 Tahun 2001 Tentang Penyelenggaraan Angkutan Udara), for those air carriers who wants to get air transportation business license need at least two aircraft with Indonesian registration who can support each other in their operations. This decree resulted to the increasing numbers of airline companies. Now Indonesia has total 29 international airports spread from Sabang to Merauke makes Indonesia rank sixth of the world fastest growth in terms of international travel with 9.3% as its annual growth and 22.7 millions of people who flew through international routes this year. Based on the data from ministry of transportation, there are 22 active commercial airlines (without cargo and charter airlines) that are actively competing with other airlines (Batari Saraswati, 2013, p. 5). Lion Air, Indonesia AirAsia, and Garuda Indonesia are having the fiercest competition. In 2012, the Ministry of Transportation estimates that the total passengers carried national airline scheduled as much as 72,472,054. Of these, 63,625,129 are domestic passengers and 8,846,925 international passengers (Nur, 2013). Lion Air has been recorded as the highest number of passengers, which is 23.93 million, followed by Garuda Indonesia 14.07 million passengers. Aviation business is such a promising business since its demand growth rapidly and attracting both domestic and foreign airlines to compete gaining more profit in this market (Nur, 2013).

3.2.1 Challenges for Indonesia

As the largest economy in ASEAN, one of the successors of ASEAN, and the most rapid aviation business in the region, Indonesia is very influential to the formation of ASEAN Open Sky. However, with the widespread of its international airports along the archipelago makes it difficult for Indonesia to manage it since the liberalization also means selling the nations up while advantaging the nations by the increasing market demand. It‟s getting close to the implementation, but Indonesia still resistant about this liberalization. Stakeholders rather vague about their position inside the competition, since Indonesia has the largest market in ASEAN, they questioning whether they might survive in the future liberalization and the government of Indonesia are rather optimistic that this is a golden opportunity for them to expand the market.

In comparison with the other member countries, it is natural for Indonesia to feel threatened by this open sky agreement; the relaxation of sixth air transport freedom8 into its cities, raising opportunities for Singapore, Malaysian and Thailand carriers (including the LCCs of each countries) to fly across Indonesia without having to terminate the flights (ASEAN‟s Single Aviation Market: Many Miles To Go, 2013). By this air transport freedom relaxation, Indonesian carriers argues that for Indonesia, it is better to gain liberalization through bilateral and selective agreements based on the market needs because only this kind of agreement is enough for them to meet their needs rather than implementing ASEAN Open Sky agreements which may hamper their company (Batari Saraswati, 2013, p. 9).

Considering Indonesia‟s strategic geographical location, Indonesia is located in the middle lane of world trade which the whole world will be flying through the air region of Indonesia. This could be a threat to Indonesia

8 Sixth air transport freedom: freedom rights for airlines to fly between two foreign countries via its own flag state of registry. For example, SIA has the right to fly to China and go across Thailand and Vietnam without having to terminate or transit the flight first. (Cited from: Dempsey, P. D. (2008). Air Traffic Rights. Retrieved November 2, 2014, from Institute of Air & Space Law McGill University: http://www.mcgill.ca/iasl/files/iasl/ASPL633-Air-Traffic-Rights.pdf.)

31 when the relaxation of sixth air transport freedom will be implemented. However, seeing from different perspective, the government of Indonesia should realize that they have their rights to control the liberalization regulation so that it would balance the competition in domestic aviation business and increasing the safety quality. So then Indonesian government should prepare and make some changes to their regulations and increasing the supporting infrastructures to survive the regional competition.

The other challenge for national carriers in facing open sky is the difference of fuel in Indonesia and in other member countries. CEO of Citilink (Arief Wibowo) argues that regarding import duties, aviation fuel reach 13 percent difference. The difference of jet fuel in Singapore average to 71 cents per liter, in Jakarta 78 cents per liter, and in Papua 103 cents per liter. It was something that burdened for the implementation of open sky; airline industry is facing a dilemma in terms of fuel differentiation. (Sukmana, 2014) The market is demanding national airlines to compete freely with international airlines, but exposed to the monopolistic price of aviation fuel problem (Sukmana, 2014).

National airline officials tend to worry about the survival of the airline after the entry into force of the open sky. Seen from the movements of the airline from Malaysia and Singapore to welcome the era of liberalization of air transport, AirAsia has acquired Batavia Air that will increase its fleet since Batavia has 41 domestic routes and 6 international routes (Hatta, 2012). Elisa Lumbantoruan, sales and marketing director of PT Garuda Indonesia (Persero) Tbk., suggested that Indonesia should only open five international airports just so foreign airlines do not take the domestic aviation market. In fact, for the ASEAN Open Sky Policy program in 2015, Elisa suggests to open only two airports like Soekarno-Hatta Jakarta and Ngurah Rai. Indonesia, which currently has 27 international airports feared to be harmed when the imposition of the era of aviation liberalization in ASEAN through the ASEAN Open Sky Policy in 2015 (Hatta, 2012).

Indonesian government is supposedly doing some action like cooperation or commitments for the success of Indonesian business aviation sectors in ASEAN Single Aviation Market 2015. Indonesian aviation would not be succeed if the government do nothing to support them, fuel price differences, airport infrastructure development, and regulations related to the flight operational, standard quality, air traffic, the flight liberalization itself considering the whole world may fly passing Indonesia. Indonesia should be more cautious with this flight liberalization since it could resulted to success or loss for Indonesian economy and indeed, Indonesian aviation sector.

3.2.2 Indonesia’s Action towards ASEAN Open Sky 2015

ASEAN open sky demand for increasing quality of the airline operator due to fulfilling the world-class professionalism. To the airline operators, open sky means preparing themselves to increase their management qualities from their operational work, marketing, quality services, financial, human resources, technology, safety quality, security and compliance. Indonesian ministry of transportation has uttered the need for national airlines to tidy up their service quality, increasing their technology, brand awareness, safety, security and compliance as the international standard occurs (INACA Annual Report, 2012, p. 16). For the regulator, the government utter to benchmark the regulations at hand, to support the airlines in giving important information about the regulations, and then implementing the level playing field for Indonesian national carriers to become the host of their own country (INACA Annual Report, 2012, p. 16). The government then should maintain balance between regulations and its operations to maintaining the power of the national carriers in the middle of Indonesian economic development and economic power generally (INACA Annual Report, 2012, p. 16).

For the ASEAN open sky implementation, Indonesia periodically giving flight liberalization to the ASEAN member countries, the certain permission is capital-to-capital flight permission like Jakarta-Bangkok, Jakarta-Singapore, Jakarta-Kuala Lumpur, and others, this regulation will

100% liberalize the flight. For its airport facility, Indonesian airport qualities are below average in compare to the other member countries (INACA Annual Report, 2012, p. 17). Therefore, the government prioritized the airport infrastructure development and encouraging airlines and airport operators to develop their respective roadmaps. Based on the Annual Report of INACA in 2012, the National Chamber of Commerce has made roadmap in the aviation field:

Table 3.1 Growth Projection (Roadmap of KADIN 2009-2030) Key Indicator 2008 2009-2014 2015-2020 2021-2030 Total Aircraft 561 589-715 751-913 959-1487 AOC121&135 (5%) (5%) (5%) (yearly) Average Aircraft Age: 14% 20% 30% 30% 0-5 years 9% 25% 30% 35% 6-10 years 33% 25% 20% 25% 11-20 years 32% 30% 20% 10% 21-30 years 12% 0% 0% 0% >30 years Number of Cockpit 6500 6825-8295 8710-10587 11116-17445 Crew (Yearly) (5%) (5%) (5%) Number of Flight 6808 7149-8690 9124-11090 11644-18064 Attendant (Yearly) (5%) (5%) (5%) Number of 11633 12214-14846 15588-18947 19894-30862 Technician (Yearly) (5%) (5%) (5%)

Source: INACA Annual Report 2012 page 17

Indonesian government would severely limit the number of airports that will be allowed by foreign airlines. Based on Ministerial Decree 11 of 2010 on the Order of National Airport, the government has set five airports in Indonesia, namely, Kualanamu (Medan), Soekarno-Hatta Airport (Jakarta), Ngurah Rai (Bali), Juanda (Surabaya) and Sultan Hassanudin (Makassar) (Laurang, 2012, pp. 8-9). Those five airports are located in relatively high economic growth rate area and considered to be the greatest in quantity of passengers and cargo, both in the domestic air transport and abroad, and have coverage of the majority of domestic and foreign flights, including equipped

34 with complete facilities and flight safety (Laurang, 2012, pp. 8-9). The determination of the five airports will divide the entrance to enter Indonesia via the western, central and eastern gateway.

Head of Sub Directorate of Air Transport Cooperation, Directorate General of Civil Aviation, Sri Widiasri explained that the government of Indonesia has developed a number of regulations in facing ASEAN open sky policy next year, among others: Determination of minimum service standards as set out in the Ministerial Regulation No. 49 of 2012 on the Ministry of Economy Class Passenger Air Transportation Scheduled Commercial Interior and Decree No. 77 jo. No. 92 of 2012 on Liability of Air Transport Carrier; Revised Minister Decree No. 25 of 2008 on the Implementation of Air Transport to be more accommodating in supporting the preparation for the ASEAN Open Sky; Preparation of professional competency standards in the context of aviation support services to the MRA (Mutual Recognition Agreement) ASEAN (Diskusi Litbang : Sektor Transportasi Udara Perlu Bersiap Diri Hadapi ASEAN Open Sky 2015, 2013). On the higher authorities, president of Republic Indonesia had also sign or validate several ASEAN protocols to implement package of commitments under the ASEAN Framework Agreement on Services respectively on Presidential Decree No. 60 of 2010 about validation of protocol to implement the 5th package of commitments on Air Transport Services under ASEAN Framework Agreements, Presidential Decree No. 66 of 2010 about validation of protocol to implement the 6th package of commitments on Air Transport Services under ASEAN Framework Agreements, and Presidential Decree No. 37 of 2014 about validation of protocol to implement the 7th package of commitments on Air Transport Services under ASEAN Framework Agreements (Perundangan Kementrian Perhubungan RI).

It turns out that the government is putting their concern to the aviation sector by creating some legally binding regulations and even presidential decree. Anticipating the liberalization by take the use of ASEAN (minus) X formula, preparing Indonesian aviation sector and also other supporting sectors by opening up five market entrance for the foreign airlines to enter

Indonesia. In addition, the Directorate General of Civil Aviation of Indonesia had also issued some ministerial regulations to support the success of the aviation sector and the Indonesian airlines in the ASEAN Open Sky by increasing the competency standards, liability of air transport carrier, and the implementation of air transport. These progressive actions that Indonesian government does could not be achieved without the Indonesian airline‟s efforts to develop their airline to create a breakthrough to survive the open sky. Therefore, it needs everyone‟s help to get success in ASEAN Open Sky 2015.

CHAPTER IV

GARUDA INDONESIA’S STRATEGIES IN SUPPORTING INDONESIA REGARDING ASEAN OPEN SKY 2015

It always needs everyone‟s help to gain success, so does Indonesia. To gain success in the 2015 ASEAN Open Sky, Indonesia need supports from all parties, indeed from the government of Indonesia, ASEAN, the public, and off course airlines. Garuda Indonesia, as the Indonesian flag carrier must have given their supports to Indonesian government. Therefore, how Indonesia in ASEAN Open Sky 2015 lies on Garuda Indonesia‟s activity in terms of their operational and managerial conduct related to ASEAN Open Sky 2015. This chapter describes and analyze those conducts, whether it is significant or not to support Indonesia to win ASEAN Open Sky 2015.

4.1 Company Profile

Garuda Indonesia is the Indonesian 4 star airline (based on Skytrax) that provides premium standard of products across all travel categories. Operationally, Garuda Indonesia has been known for its safety, they held and recieved IATA Operational Safety Audit in 2008, 2010, and April 2014 to maintain their safety quality (Laporan Tahunan, 2013). Garuda Indonesia has subsidiaries that support its performance: PT. Aerowisata develop services related to the tourism industry that is engaged in the hospitality, catering, ground transportation and travel agent, PT. Abacus Distribution Systems Indonesia as a ticket booking system provider (Global Distribution Systems/GDS) as well as communications and information technology services in Indonesia, PT. Garuda Maintenance Facility Aero Asia which built to support the Indonesian economic policy, particularly in the field of aircraft maintenance and repair, as well as repair services and machine components and PT. Aero Systems Indonesia (ASYST) that is engage in consulting services and information technology systems engineering and

maintenance services aviation and other industries. Garuda Indonesia also has Citilink as their low-cost carrier subsidiary to help them compete with the other airlines like AirAsia, Lion Group, Singapore Airlines, and others (Anak Perusahaan, 2014).

In terms of their fleets, Garuda Indonesia has operated 140 fleets and opened 64 flight destinations which consist of 44 domestic destinations and 20 international destinations. Besides that, Garuda Indonesia had also done 14 codeshare agreement9 with international airlines and has officially became the member of SKYTEAM Global Alliances in March 5, 2014. By having alliances with SKYTEAM, the customers of Garuda Indonesia may connected with 1.064 destinations in 178 countries that served by the whole members of SKYTEAM (Laporan Tahunan, 2013).

On December 31 2013, Garuda Indonesia Group had operated 140 fleets flying domestically and internationally. Those fleets consist of 2 Boeing 747-400, 7 Airbus A330-300, 11 Airbus A330-200, 7 Boeing 737 classic (300 and 500 series), 65 Boeing 737-800NG, 12 CRJ1000 NextGen, 2 ATR72-600, and 4 Boeing 777-300ER. For Citilink, Garuda Indonesia Group provides 24 Airbus A320-200, 5 Boeing 737-300, and 1 Boeing 737-400 which makes Garuda Indonesia has new service quality standard in terms of air travel for the sake of its goal to meet market needs and be able to win the international market, especially Southeast Asia (Laporan Tahunan, 2013).

4.2 Garuda Indonesia Quantum Leap Strategies

It has been 5 years since Garuda Indonesia had announced an aggressive expansion plan called “Quantum Leap”. Quantum Leap Program is five-year (2011-2015) expansion plan of Garuda Indonesia‟s business strategy program, which includes the transformation of the company in all aspects of business; from finance, management, operations, quality of service,

9 Codeshare agreement: Interline partnership where one airline places its code on another airline which resulted in providing service to destinations that‟s not on their route structure, the other way to expand their market through this agreement (Cited from: ABC News. (2005, June 21). What the Heck is Codeshare Anyway? Retrieved November 2014, from ABC News: http://abcnews.go.com/Business/FlyingHigh/story?id=865304&)

38 to human resources which targeted to be done in 2015. This quantum leap strategy had been arranged to ensure and maintain the sustainable profitable growth of Garuda Indonesia by focusing network development strategy since Garuda Indonesia currently has transformed into one of the airline that counts in the world, especially in the current era of ASEAN Open Sky enforced. After the implementation of the Civil Aviation Ministry regarding regulations pertaining to the development of quality standards, liability of water transport carrier, and the implementation of air transport. The principle of reciprocity should also be carried by Garuda Indonesia since the ministry has been providing the regulatory infrastructure; quantum leap strategy should be able to support these regulations in winning the ASEAN Open Sky 2015. Therefore, the quantum leap program may help Garuda Indonesia to win the tight competition between airlines in Southeast Asia in 2015th ASEAN Open Sky through their various business expansion programs (Laporan Tahunan, 2013, p. 35).

Garuda Indonesia has been losing money and heavily indebted. The deterioration occurred in the 90s where the Asian Financial Crisis facing Indonesia, Garuda Indonesia also slumped to numbers of red ink flight route. Therefore, at the end of 2001, Garuda concluded negotiations to restructure US $ 2,406 billion and Rp543 billions of its US dollar and the rupiah currency debt, the Largest ever workout in Indonesia, and one of the biggest in Southeast Asia. Since then, Garuda concluded negotiations to restructure US $ 2.406 billion and Rp543billion of its US dollar and the rupiah currency debt, the Largest ever workout in Indonesia, and one of the biggest in Southeast Asia (Soejatman, 2003). In 2005, a transformation in which the newly formed management and proven to save Garuda Indonesia from adversity with a profit of US $ 17 million net income in 2007 (Soejatman, 2003). In 2009, Garuda also introduces a great strategy that is packaged in a Quantum Leap program are expected to be realized in years 2014-2015. With such a large leap program which is a long-term plan for 5 years, Garuda wants to be a five-star airline with a predicate that is parallel to the airline competitors (Garuda Indonesia Restructuring, Performance & Strategy - UBS

Global Transport Conference, 2011). In order to facilitate the understanding as well achievements, has been set the milestones target for Quantum Leap program that shows growth every year continuously and completely can be seen in the image below:

Figure 1

GARUDA INDONESIA “QUANTUM LEAP” MILESTONE

Source: Garuda Indonesia Restructuring, Performance & Strategy - UBS Global Transport Conference, 2011

The above illustration depicts Garuda Indonesia‟s targets from year to year to achieve “Quantum Leap” in maintaining sustainable growth in terms of management and operational conduct and to reach the company‟s sustainable growth at once surviving the competition in the 2015th air transport liberalization. As the first milestone targets, PT Garuda Indonesia (Persero) Tbk on February 11, 2011 had done the Initial Public Offering (IPO) to Indonesia Stock Exchange (IDX) under the ticker code "GIAA", the airline had released 27.98% of their shares offered at Rp. 750 per share. The invested funds from the IPO proceeds will be used towards the development of the company quantum leap in 2015 (Annual Report Garuda Indonesia, 2011, p. 16).

Strengthening the momentum after Garuda Indonesia undertook an Initial Public Offering (IPO) at Indonesia Stock Exchange, Garuda Indonesia keep developing the company. In 2012, Garuda Indonesia planned to be focused on efforts to improve quality consistent with the membership requirement of Global Alliance SkyTeam member for them to increase the market and intensify the competition in the airline industry (Annual Report, 2012, p. 50). Another target in 2012 are, Garuda Indonesia also developing on creating a dedicated terminal in Cengkareng and Denpasar in supporting Garuda Indonesia‟s growing number of fleets and traffic, developing its Cargo subsidiary through the operation of freighter aircraft, and the operation of Sub-100 Seater to be able in reaching the low density and high yield market (Annual Report, 2012, p. 51).

In 2013, Garuda Indonesia is targeted to expand their network, increasing productivity (ASK / Employee) amounted to 5.52 million, re- implementation of service First Class, Rights Issue, and a new type of aircraft operation ATR 72-600 in supporting their network expansion (Laporan Tahunan, 2013, p. 35). Continue to the target in 2014, Garuda Indonesia is targeted to increase their service quality, making Garuda Indonesia‟s cabin crew as the Best Cabin Crew and the effort to make Garuda Indonesia as five star airlines (Annual Report Garuda Indonesia, 2011, p. 30).

By those targets from 2011 until 2014, Garuda Indonesia expected to reach its Quantum Leap in 2015 with total fleet reach 154 aircraft with its average age below six years (Garuda Indonesia Restructuring, Performance & Strategy - UBS Global Transport Conference, 2011). All of those targets were made to dominate the airline industry in Indonesia and increasing the competitiveness among foreign airlines, it is expected that the company can reach its sustainable profitable growth (Annual Report, 2012, p. 51).

Strategies must be set for Garuda Indonesia to reach its target milestone. To reach its quantum leap, Garuda Indonesia have supporting initiatives that are determined and prepared by considering 7 main drivers of the Quantum Leap accomplishment.

Figure 2

7 STRATEGIES TO DRIVE GROWTH

Source: Garuda Indonesia Restructuring, Performance & Strategy - UBS Global Transport Conference, 2011

Based on the illustration above, Garuda Indonesia has 7 strategies to drive growth where the management will be focused on selective sectors on implementing the “Quantum Leap” to expand and dominate the Indonesian aviation market (Garuda Indonesia Restructuring, Performance & Strategy - UBS Global Transport Conference, 2011).

The first strategy is dominating the domestic market. Garuda Indonesia continues to improve their quality of service as its efforts to achieve 5 star airline rating by Skytrax and preparing the ASEAN Open Sky in 2015. The other strategy is strengthening the position of the premium class in the domestic market, considering the LCC is now rampant in the domestic market made consumers have more interest in economy class and low budget airlines in compare to the premium class. Furthermore, Indonesia has many remote areas with smaller runway capacity than in big cities, Garuda Indonesia also open pioneer routes to reach the remote province in Indonesia with using ATR 72-600 aircraft that capable of reaching remote areas comparing with Boeing or Airbus. Through opening new pioneer routes, Garuda Indonesia might also help Indonesian tourism opens up new tourist

42 destination in Indonesia, as well as job opportunities for local residents‟ even investors of hotels and tourism sector (Laporan Tahunan, 2013).

The second strategy is the international market. Garuda Indonesia must continue to open up opportunities for cooperation in order to improve their sense of competitiveness, especially with airlines in Southeast Asia regarding ASEAN Open Sky 2015. One of their strategies is to have codeshare agreement between airlines that potentially bring benefit to both parties. In addition, in the pursuit of success in the international market, Garuda Indonesia also join SkyTeam global alliance to have broader network and able to attract foreign tourists to Indonesia with a myriad of privilege facilitate by SkyTeam global alliance. (SkyTeam)

The third strategy is to dominate the market through the help of its LCC subsidiary, Citilink. The hype of LCC may destabilize full-service airlines. Therefore, Garuda Indonesia is strengthening its LCC subsidiary, Citilink, in order to strengthen its position as a premium airline. This is done by separating the management of Garuda Indonesia and Citilink so that the development of Citilink can be more focused only on one management (Laporan Tahunan, 2013, p. 36).

Fourth, Garuda Indonesia to develop its fleet by balancing the number of fleets with a diverse fleet needs to support the growth of the company. Garuda Indonesia operates its fleet as efficient as possible with the flexibility to meet the network needs Garuda Indonesia‟s diverse routes around the world (Laporan Tahunan, 2013, p. 37). The fleet revitalization is the act of anticipation to the increased competition and rising currents of air passenger transportation services. Through a fleet of new aircraft development is also intended to improve fuel efficiency and lower costs for aircraft maintenance considering new aircraft more efficient than older aircraft (Laporan Tahunan, 2013).

The fifth strategy, Garuda Indonesia is increasingly developing a new service concept, titled “Garuda Indonesia Experience” which seeks to provide a premium for a product proposition Garuda Indonesia achieved by

developing Indonesian hospitality, quality customer service excellence, modern interior cabin design representing Indonesian character, as well as the procurement of a new fleet as a form of fleet which is in line with the company‟s program to anticipate the air transport market in Indonesia and the region continues to increase and maintain business continuity and market share in the market Garuda full service carrier (Laporan Tahunan, 2013, p. 37).

The sixth strategy is for Garuda Indonesia Cost Discipline management, management is now focused on cost reduction efforts without neglecting the improvement of quality of service by applying the transitional indirect sales direct sales model into a model. Then, the revitalization of the fleet which carried Garuda Indonesia also aims to save maintenance costs and fuel costs. The latter strategy, is developing a corporate culture of the company, FLY-HI, which is implemented through various strategic initiatives such as organization development, improving performance management system, build leadership capabilities, improve the quality of human resources in line with the strategy of Garuda Indonesia to achieve the “Quantum Leap”. (Laporan Tahunan, 2013, p. 37)

Table 4.1 Garuda Indonesia Quantum Leap Matrix Relations with 7 Strategies to Drive Growth

7 Strategies to Drive Growth Year Milestones Domestic International LCC Fleet Brand Cost Discipline Human Capital 2011 IPO √ √ 2012 Global Alliance √ √ √ √ 2013 Network Expansion √ √ √ √ √ 2014 Service Excellence √ 2015 Quantum Leap √ √ Source: Personal Interview with Garuda Indonesia Communication Analyst

The above matrix explains the correlation between Quantum Leap Milestone where the management will be focused on selective sectors on implementing the “Quantum Leap” to expand and dominate the Indonesian aviation market with Garuda Indonesia‟s 7 strategies to drive growth as its supporting strategies. As the first milestone targets to launched IPO that

44 become the main driver for better performance, by becoming the public company, then everything can be accountable, especially in terms of its human capital and cost discipline (Pribadi, 2015).

For the second milestone, joining SkyTeam provides an opportunity for Garuda Indonesia to expand its international network and gaining more passengers. However, the company also needs to strengthen its domestic network by opening new pioneer routes, introducing “Garuda Indonesia Explore” and “Garuda Indonesia Explore-Jet", strengthening their brand awareness, and adding new fleets and also rejuvenating fleets to facilitate the all passengers inbound (Pribadi, 2015).

In expanding their network internationally and domestically, Garuda Indonesia needs to develop their service quality and creating such a stronger brand to compete and winning the competition with other airlines (Pribadi, 2015). The outbreak of low-cost carriers (LCC) trends has tightens the competition among airlines especially for full-service air carriers who actually tries to survive in competing with the LCCs (Boeing: Southeast Asia, 1995-2014). Therefore, Garuda Indonesia‟s LCC subsidiary contributes to help strengthening the bottom-line. In reaching the network expansion, Garuda Indonesia use 5 strategies out of 7 strategies to drive growth; domestic, international, fleet, brand, and LCC (Pribadi, 2015).

Developing service excellence as the fourth milestone dilakukan melalui perbaikan di aspek layanan sehingga mampu mendukung penguatan brand Garuda. Oleh karena itu, untuk mencapai service excellence milestone, Garuda Indonesia uses Brand strategies from the 7 strategies to drive growth (Pribadi, 2015).

By the well set up foundation in its previous year, then the Quantum Leap can be reach in 2015 and may support the airline to compete in the aviation business competition. Hence, using 2 strategies of brand and fleet from 7 strategies to drive growth, may lead Garuda Indonesia to a stronger brand with its sufficient fleet capacity that may lead them to the Quantum Leap in 2015 (Pribadi, 2015).

In addition to achieve the Quantum Leap, those seven drivers strategy are also expected to support Indonesia in facing the competition in the fields of air transportation, surviving the ASEAN Open Sky Policy in 2015. The aviation industry must be able to map the benefits and advantages of the liberalization of air transport. To that end, presumably reciprocity principle can be considered in order to have a healthy competition among all the players in Southeast Asia. Reflecting the various milestones that have been achieved targets Garuda Indonesia within the past five years, Garuda Indonesia seems optimistic in the face of challenges aviation liberalization in the region with the maximum. Especially since 2015 is the culmination of a series of long-term business strategy of the company‟s “Quantum Leap”.

4.3 Strategy Implementation

Achieving Quantum Leap in conjunction with facing competition among airlines in ASEAN Open Sky requires actions that adept in the implementation strategy. Garuda Indonesia has been doing various actions in order to provide them and will be able to compete with other airlines. Garuda Indonesia has various strategies to promote Indonesian tourism industry in order to the success ASEAN Open Sky in 2015, one of which was signed a memorandum of understanding with Tourism and Creative economy Ministry to have active role in promoting Indonesia‟s tourism industry.

Garuda Indonesia in 2012 has signed MoU with the Ministry of Tourism and Creative Economy (Kemenparekraf dan PT Garuda Indonesia Tandatangani MoU Promosi Pariwisata, 2012). Garuda Indonesia as the national carrier and a world class airline fully recognize its role in promoting Indonesia to the foreign public; bring the beauty of Indonesia and its richness culture to the world (Satar, 2014).

In a broad outline, the MoU was made to enhance the cooperation between the ministry and Garuda Indonesia to increase the number of foreign tourist visiting Indonesia as well as the domestic tourists exploring the beauty of their own nations and increasing the image of “Wonderful Indonesia” in the international world with using three values: collaborating both parties in

creating tourism events and tour package, connecting places that is never been visited, and cooperation of both parties in developing their tourism (Kemenparekraf dan PT Garuda Indonesia Tandatangani MoU Promosi Pariwisata, 2012).

4.3.1 Domestic Routes Figure 3 Garuda Indonesia‟s Domestic Routes

Source: Garuda Indonesia Investor Newsletter 2013

One of Garuda Indonesia‟s strategies to survive the ASEAN Open Sky is strengthening domestic flights and routes debt so that it will not inferior with foreign airlines. With ASEAN Open Sky coming in 2015, foreign airlines will be free to fly in Indonesian air space. The foreign airlines will have the authority to open domestic flights in Indonesia; what foreign airlines been longing. In line with Garuda Indonesia‟s attempt to keep their domestic market developed and strong along with the Indonesian economic growth, since the end of 2013 Garuda Indonesia has opening pioneer routes, introducing their new sub-brand Garuda Indonesia Explore and Garuda Indonesia Explore Jet to extending their access to the untouched areas and for Garuda Indonesia to provide more connecting routes so that the passengers get easier access to their destination. (Pujobroto, Garuda Indonesia Perkenalkan Sub-Brand "Explore" ATR72-600 untuk Melayani Rute-rute Penerbangan di Remote Area, 2013)

It is one of the strategies in preparation of ASEAN Open Sky in 2015. Act upon the Quantum Leap drivers strategy, Garuda Indonesia has expanding their domestic network by adding flight routes to remote areas and creating more connecting routes with buying single class cabin aircraft like ATR72-600 and CRJ1000 Bombardier. By buying those aircrafts, Garuda Indonesia may be able to serve new routes from Denpasar to Labuan Bajo, Tambolaka, Ende, and Bima and further from Makassar and Ambon to serve small routes and connecting routes to nearby destinations. (Pujobroto, Garuda Indonesia Perkenalkan Sub-Brand "Explore" ATR72-600 untuk Melayani Rute-rute Penerbangan di Remote Area, 2013)

Garuda Indonesia continues its expansion to Eastern Indonesia through ATR 72-600 “Explore” and opens direct flights in the four cities in Central Kalimantan namely Balikpapan- Palangkaraya- Pontianak and Putusibau return. Previously, a number of cities in Central Kalimantan can only be reached only from Jakarta. But after Balikpapan becomes the hub of Garuda Indonesia in Kalimantan, the flights within Kalimantan, Sulawesi, Papua and other cities in the Eastern Indonesia becomes more efficient. Those new routes also became a part of the company‟s commitment to increase its network domestically and increase connectivity inter-city in the region. In addition, this effort is also expected to increase trade and economy in the region through easier air transportation access. (Susilawati, 2014)

Sales Service Manager of Garuda Indonesia, Ubay Ihsandi, mentioned during the socialization of Garuda Indonesia Travel Fair 2014 that Garuda Indonesia has conducted various preparation for ASEAN Open Sky 2015, one of which to strengthen domestic routes more to remote areas and connecting routes, such as Jambi-Labuan Bajo, Medan-Batam, Jakarta-Sibolga, and Medan-Sibolga. (Wijaya, 2014) In his interview with vivanews, President Director of Garuda Indonesia, Emirsyah Satar explained that Garuda Indonesia will continue to add more domestic routes. According to him, there are still many areas in the archipelago that have bright prospect in the commercial flights market. (Antique R. B., 2014)

As Garuda Indonesia has committed to promote Indonesian tourism, Garuda Indonesia Explore is the valid implementation of what they did in promoting Indonesian tourism and economy. By adding small routes and connecting routes to Indonesia‟s domestic network, it gives easier access for both foreign and local tourists to go to their desired destination, especially in developing tourism in the eastern Indonesia. The Indonesian Ministry of Tourism and Creative Economy is very supportive towards Garuda Indonesia‟s market expansion, since Garuda Indonesia has supporting the ministry‟s programs in developing beyond Bali tourism, promoting the beauty of Indonesia not only from Bali. This Garuda Indonesia Explore has been answering the needs of the ministry of tourism and creative economy of Indonesia in providing air transportation services to those small areas. (Menparekraf: Wilayah Indonesia Membutuhkan Ketersediaan Konektivitas Memadai, 2013)

4.3.2 International Network

Figure 4 International Routes Garuda Indonesia

Source: Garuda Indonesia Investor Newsletter 2013

ASEAN Open Sky 2015 has indirectly made Garuda Indonesia to build its international profile ahead since the regional market will be liberalized. In order to survive the competition regarding the implementation of Open Sky, Garuda Indonesia is supposedly spreading its wings regionally and even internationally. Therefore, in 2013 Garuda Indonesia had launched 10 new routes including the European destination in addition to their new short-haul international routes within Southeast Asia and three new medium- haul routes to Australia and Japan (CAPA Analysis, 2013) makes its international flights increasing 26% from 65 into 82 international flights a day (Djawahir, 2014). For its long-haul flights, the Indonesian carriers had made it‟s delivery of 777-300ER as their new flagship with three class cabin – economy, business, and first class. For its Asia-Pacific routes, Garuda Indonesia continues to expand its a330 fleets. This expansion will then allow Garuda to gain growing demand for services to and from Indonesia and allow them to pursue more on their sixth freedom of air transportation (CAPA Analysis, 2013).

Garuda Indonesia‟s CEO, Emirsyah Satar, stated that Garuda Indonesia‟s plan to expand its international market will be continued in 2015, continuing its expansion international markets in Japan by launching new destination from Jakarta to Nagoya 5 times a week. Nagoya will become the fourth Garuda Indonesia‟s destination in Japan after Tokyo Narita, Tokyo Haneda, and Osaka Kansai. Before then, Garuda Indonesia has been increasing their flight capacity to Japan until 50% since the first half of 2013 by launching two new routes and replacing several flights which initially using Airbus A330 replaced into Boeing 777-30ER (Indo Aviation, 2014).

The China trends had also spread in aviation market; China‟s growing economy and stable currency have encouraged Garuda Indonesia to expand their market in China. According to Wayan Subagia, the Vice President of Garuda Indonesia Region China, Hongkong and Taiwan, since the passenger growth in China keeps increasing 15%-20% annually, Garuda Indonesia has made separated region for their market in China so that they can focus on the

50 market. Garuda Indonesia even held Agent Appreciation Trip as their expression to all Chinese agents‟ front liners for their excellent cooperation in promoting Indonesia in China. Besides spoiling the front liner agents, this program also aimed to increase the Chinese tourists that come to Indonesia. In addition, Garuda Indonesia also had several codeshare agreements with Chinese airlines namely China Airlines, China Southern, Xiamen Airlines, and China Eastern (Antique B. A., 2014).

For its European market, Garuda Indonesia is doing their best to fulfill the European market demand. In March 30th 2014, Garuda Indonesia has officially launched the first-ever commercial non-stop flight between Indonesia and The Netherlands, a nonstop flight from Jakarta to Amsterdam. Emirsyah Satar, in his written interview had stated that this direct flight routes is a part of Garuda Indonesia‟s effort in presenting seamless connectivity on either end to over 65 destinations in Indonesia and Australasia as well as all major destinations is Europe and beyond through the combined extensive networks of Garuda Indonesia and the SKYTEAM Global Alliance member airlines (Pujobroto, Garuda Indonesia to Launch The First-Ever Non-Stop Flight Between Jakarta and Amsterdam, 2014). Besides, the passengers will get more benefits by the availability of connecting routes to other destinations from Amsterdam that served by the other SKYTEAM airline members. Retno Lestari Priansari Marsudi, hoped that this direct flight may bring Indonesia and The Netherland nearer in terms of their bilateral relations through this Jakarta-Amsterdam direct flight route (Wuragil, Garuda Indonesia Resmi Terbang Nonstop ke Eropa , 2014).

Not only Amsterdam, as the market demanding Garuda Indonesia to have flight route to London, Garuda Indonesia this September fulfills their customers need by officially launched new service to London even though it is a connecting flight continuing Jakarta-Amsterdam routes, Garuda Indonesia had changing its flight route from Jakarta-Amsterdam-Jakarta into Jakarta – Amsterdam – London – Amsterdam – Jakarta as the demand for having multiple cities in one routes keep increasing (Pujobroto, Garuda Indonesia

Extends Presence in Europe with the New Service to London, 2014). Garuda Indonesia passengers will also be able to purchase tickets for all major destinations in Europe as well as the America‟s on a single Garuda ticket combining flight itineraries with connecting flights from Garuda‟s SKYTEAM partner airlines, like KLM, AirFrance, Delta Airlines, Air Europa, and others (Pujobroto, Garuda Indonesia to Launch The First-Ever Non-Stop Flight Between Jakarta and Amsterdam, 2014).

Indonesia is the growing important market for the UK, both Indonesia and UK has committed to increase their partnership by doubling their market share into £4.4 billion until 2015. This new flight route will increase the bilateral relations between Indonesia and England as the Prime Minister of UK, David Cameron, stated that this new route of Garuda Indonesia may not be good only for UK‟s business growth but it also helps UK to compete in the global competition through connecting England to the growing economy countries in the world (British Embassy Indonesia and UK Trade & Investment Indonesia, 2013). The Executive Director Gatwick Stewart Wingate also stated, although the market has become a very important business for the UK, Indonesia had neglected in the absence of a direct route from the region to the British-until now. Jakarta has also become one of the main hubs for flights to Southeast Asia region and it is easy for Britons to get access and a diverse selection to visit Jakarta. Britain has one of the best networks in the world and we need more direct flight network to major destinations such as Indonesia (British Embassy Indonesia and UK Trade & Investment Indonesia, 2013).

SKYTEAM Alliance

ASEAN Open Sky 2015 has indirectly demand Garuda Indonesia to enhance its market, they aggressively expanding their network internationally by joining SKYTEAM alliance as one of their ways in expanding their network. SKYTEAM is the global alliance that provides wider global network and services to the airline members customers with more choices of destinations, frequency, and connectivity. Service users can acquire and

52 redeem Frequent Flyer Miles throughout the SKYTEAM network. Flights served by all members of the SKYTEAM enables service users to be able to access as many as 525 lounges worldwide. (Pujobroto, Garuda Indonesia Becomes 20th Member of SkyTeam Alliance, 2014) All 19 members of the alliance are Aeroflot, Aerolíneas Argentinas, Aeroméxico, Air Europa, Air France, Alitalia, China Airlines, China Eastern, China Southern, Czech Airlines, Delta Air Lines, Kenya Airways, KLM Royal Dutch Airlines, Korean Air, Middle East Airlines, Saudia, TAROM, Vietnam Airlines and Xiamen Airlines. (SkyTeam)

The alliance between Garuda Indonesia and SKYTEAM has open wider gate for foreign airline users to go to Indonesia and so does SKYTEAM. SKYTEAM may strengthening their route network in Asia Pacific and Australia through Garuda Indonesia‟s direct flight services to Brisbane, Melbourne, Perth, and Sydney, as well as in Japan through Garuda Indonesia‟s flight service to Haneda and Narita. Garuda Indonesia has open wider flight network as much as 1,064 cities in 178 countries through 15.723 flight frequencies every day which includes more than 90% of the world air traffic flow and open access as much as 588 million of global passengers to Indonesia including the 189 million SKYTEAM airline member‟s frequent flyer members. (Garuda Indonesia Resmi Menjadi Anggota Ke-20 Aliansi Global SkyTeam, 2014) Garuda Indonesia is currently serving nonstop flights from Jakarta to seven SKYTEAM hubs, namely Seoul, Guangzhou, Beijing, Shanghai, Taipei, and Amsterdam. In addition, Garuda also adds Jakarta as an alternative gateway to and from Southeast Asia as well as 40 new destinations served by Garuda into the SKYTEAM global airline network. (Djawahir, 2014)

Codeshare Partners

The other conduct of Garuda Indonesia in expanding its international network is through codeshare agreement with several foreign airlines. A codeshare agreement is an aviation business arrangement where two or more airlines share the same flight. It simply allows flight whose operating by one

carrier to be marketed by its codeshare partner under that codeshare partner‟s flight code and flight number (Steer David Gleave, 2007). Through codeshare partnership, Garuda Indonesia can broaden their international network and generate additional traffic with relatively low cost. Codeshare partnership cannot be done without pin faith to each airline; therefore, a codeshare agreement can therefore give confidence to the market about products offered in terms of their level of service, suitability of the product and seamlessness of ticketing and flight connection arrangements. (Steer David Gleave, 2007)

In preparing the ASEAN Open Sky 2015, Garuda Indonesia is in their process of making codeshare agreements with several airlines in Southeast Asia, like Singapore Airlines, Bangkok Airways, Myanmar Airways, Malaysia Airlines, Philippine Airlines, and Vietnam Airlines (Megah, 2014). Besides, Garuda Indonesia already have codeshare partner with several airlines like KLM-Royal Dutch Airlines, Etihad, Turkish Airlines, Royal Brunei Airlines, China Airlines, Air France, All Nippon Airlines (ANA), Kenya Airways, China Eastern, Xiamen Airlines, China Southern, Delta Airlines, Jet Airways, Korean Air, and Silk Air.

Codeshare partnership with several foreign airlines has opening wider access to foreign public who wants to visit Indonesia, either being a tourist or just doing their business here. As Indonesia has committed to support Indonesian tourism, this codeshare partnership is providing low cost for Garuda Indonesia to expand their international routes. Noted from the table given by Garuda Indonesia network alliance unit, Garuda Indonesia has operating like hundreds of codeshare routes to all over the world.

4.3.3 Low Cost Carrier

Along with the rapid economic development in the region, the airline business in Southeast Asia grows and increasing the competition among airlines. The outbreak of low-cost carriers (LCC) trends in Southeast Asia tightens the competition among airlines especially for full- service air carriers who actually tries to survive in competing with the

LCCs (Boeing: Southeast Asia, 1995-2014). CAPA – Center for Aviation – analyzed that LCCs are rapidly claim for more than 50% shares in the intra-Southeast Asia‟s international market in the region‟s four largest domestic markets (Indonesia, Malaysia, Philippines and Thailand) (Southeast Asia airline market sees more rapid growth & high international low-cost penetration rates, 2013).

Since there will be a lot more tougher competition among airlines in ASEAN and its surroundings. This intense competition in the Southeast Asia will leads to the non-slowdown battle for airlines in Southeast Asia. The competition heats up not just for the full service carriers, but also between full-service carriers and LCCs. As the economic growth of the region expands rapidly, people tend to fly with these LCCs since it has lower fares. In this case, the full service carriers are some sort of disadvantaged by LCCs. Garuda‟s share price had been under pressure since Lion Air (Indonesia‟s LCC) has grown rapidly with its expansion that currently operates 122 aircraft and account for almost 50% of Indonesia‟s domestic seat capacity (Marlow, 2014).

To handle the situation, Garuda Indonesia is currently developing its LCC subsidiary – Citilink, focusing on the domestic market help Garuda Indonesia to gain its market share. Separating the management of Garuda Indonesia and Citilink so that the development of Citilink can be more focused only on one management and currently focused on domestic routes supporting Garuda Indonesia to compete with Lion Group. Citilink have 3 domestic hub yaitu Jakarta, Surabaya, dan Batam with its flight routes scattered from Sabang to Merauke (Rute dan Jadwal Penerbangan, 2015).

Located in southern Jakarta and closer to downtown, Halim Perdanakusuma airports reopened for commercial traffic to congest the overcapacity in Soekarno-Hatta. The LCC subsidiary is taking its opportunity to increase their passenger traffic growth by secured eight slot pairs at Halim, enabling it to launch on 10-Jan-2014 eight daily flights on

55 four domestic routes (Garuda Indonesia LCC subsidiary Citilink will focus on the domestic market as fleet growth slows, 2014). There are a total of 35 daily slot pairs set aside for domestic narrowbody operators. Mr Wibowo says Citilink is now using 21 of these slots and is aiming is to secure another nine slots (Garuda Indonesia LCC subsidiary Citilink will focus on the domestic market as fleet growth slows, 2014).

Citilink serves 16 flights from Halim Airport, namely, Halim – Semarang (HLP – SRG) roundtrip, Halim – Yogyakarta (HLP – JOG) roundtrip, Halim – Malang (HLP – MLG) roundtrip, and Halim – Palembang (HLP – PLM) roundtrip everyday, effective as of January 10 2014 (Penerbangan Citilink di Bandara Halim Perdanakusuma Jakarta Sukses Berkat Dukungan Semua Pihak, 2014). Starting in mid-June 2014 Citilink will also add flights from and to Halim to Medan (KNO) and Denpasar (DPS). In addition, byJuly 2014, Citilink then opens new flight route from Halim – Solo and Halim – Balikpapan roundtrip for both flights. Choosing Solo as its new flight destination is a part of business expansion once part of an effort to improve the economy with a population of as many as 560,000 Solo soul and have economic growth reached 5.4 percent in 2013 (Perluas Konektivitas Antar Kota, Citilink Buka Rute Halim-Solo, 2014)

Citilink is currently operates 27 A320 fleets. It started with an all- A320 fleet consisting of 24 aircraft, having parked its remaining 737- 300/400s in 2013 (Garuda Indonesia LCC subsidiary Citilink will focus on the domestic market as fleet growth slows, 2014). Citilink took its 25th A320 in June 2014, its 26th aircraft in July 2014 and its 27th aircraft in mid-August 2014 (Garuda Indonesia LCC subsidiary Citilink will focus on the domestic market as fleet growth slows, 2014). Without forgetting the quality of service and safety of Garuda Indonesia, Citilink also maximize its aircraft maintenance and utilization in order to achieve a high level clock, improving flight safety assurance, as well as providing efficient service for passengers. In addition, Citilink also has a low

distribution costs strategy in order to compete with other LCCs (Connecting Diversity - Laporan Tahunan, 2013, p. 36).

Figure 5 Citilink Annual Passenger Traffic: 2010 to 2013

Source: CAPA – Centre for Aviation and company reports

The LCC subsidiary's passenger traffic had grewn by 76% in 2012 to 2.9 million passengers as 11 additional A320s were added. In 2013 Citilink passenger traffic grew by another 87% to 5.3 million passengers as 10 more A320s were added and has quickly become Indonesia's third largest domestic carrier after Lion Air and Garuda Indonesia (Garuda Indonesia LCC subsidiary Citilink will focus on the domestic market as fleet growth slows, 2014).

Until the first half of 2014, Citilink continues to expand their market with its passenger numbers reached up to 3.3 millio which may increase the growth rate in 2014 slightly over 50% in compared to its growth in 2012. Growth of over 50% would make Citilink the fastest growing airline in the Indonesian domestic market) and allow the Garuda Group to make another

breakthrough in expanding their market share, particularly given the overall Indonesian domestic market is expected to see very modest growth in 2014 (Garuda Indonesia LCC subsidiary Citilink will focus on the domestic market as fleet growth slows, 2014). The Citilink expansion is an important component of Garuda‟s strategy to win back domestic market share. Citilink is being used to compete at the bottom end of the market and has quickly become Indonesia‟s third largest domestic carrier after market leader Lion Air and Garuda (Garuda Indonesia LCC subsidiary Citilink will focus on the domestic market as fleet growth slows, 2014).

4.3.4 Fleet

Table 4.2 Fleet Matrix Aircraft Type In Service In Storage On Order Airbus A330-200 11 - - Airbus A330-300 6 - - Airbus A330-300E 5 - 13 ATR 72-600 8 - 17 Boeing 737-300 1 - - Boeing 737-500 3 2 - Boeing 737-8 - - 50 Boeing 737-800 75 - 2 Boeing 747-400 2 - - Boeing 777-300ER 6 - 4 Bombardier CRJ-100NG 15 - 3 Total 132 2 89

Source: CAPA Fleet Database as of December 16th, 2014

To support Garuda Indonesia‟s strategy in expanding both of its domestic and international network as well as its efforts to reduce the operating costs of airlines, Garuda revitalite their fleets to become more effective. The fleet revitalization is the act of anticipation to the increased competition and rising currents of air passenger transportation services. Through a fleet of new aircraft development is also intended to improve fuel efficiency and lower costs for aircraft maintenance considering new aircraft more efficient than older aircraft (Laporan Tahunan, 2013).

Cover up Indonesia‟s remote areas, the national carrier bought single class cabin aircraft like ATR72-600 and CRJ1000 Bombardier (Pujobroto, Garuda Indonesia Perkenalkan Sub-Brand "Explore" ATR72-600 untuk Melayani Rute-rute Penerbangan di Remote Area, 2013). Garuda has been using the ATR 72 to add several new domestic destinations that were previously served by competitors including Lion Group regional subsidiary Wings Air. Garuda plans to have five ATR 72 bases by the end of 2015 – Bali, Balikpapan, Makassar, Medan and Surabaya (Garuda Indonesia plans more rapid expansion for 2014 and beyond despite intensifying competition, 2013). The CRJ1000s have opened up new thin routes from four bases – Balikpapan, Medan, Makassar and Surabaya. The aircraft operate significantly longer sectors than the ATR 72s, including a small number of international routes (Garuda Indonesia plans more rapid expansion for 2014 and beyond despite intensifying competition, 2013).

Through operating turboprop aircraft, Garuda Indonesia keep developing their domestic network to remote areas by serving small routes that only serving less than 400 Nm mileage throughout the whole archipelago while having the capability to land on small runway (less than 1.600 meters) that the usual jet aircraft couldn‟t land. Garuda sees an opportunity to penetrate small routes with short runway (Pujobroto, Garuda Indonesia Perkenalkan Sub-Brand "Explore" ATR72-600 untuk Melayani Rute-rute Penerbangan di Remote Area, 2013).

Garuda also continues to add capacity on domestic trunk routes10, partially through up-gauging certain flights from 737-800s to A330s. Garuda is committed to further strengthening its domestic presence through a combination of capacity increases in existing markets and extending its reach to more secondary markets as it takes more ATR 72s.

The 777-300ER fleet was initially acquired to pursue expansion in Europe but has mainly been used in other markets including Japan as Garuda

10 Trunk routes: Flight route that have lots of demand and profitable for the airlines (http://www.airliners.net/aviation-forums/general_aviation/read.main/334545)

has stepped back from earlier ambitions to operate several non-stop routes to Europe. Garuda is no longer planning to use the three 777-300ERs being added in 2015 to launch new long-haul routes. The aircraft instead will be used on flights to Saudi Arabia to maximize the demand for flights to Saudi Arabia. Garuda currently operates 12 weekly scheduled flights to Jeddah (Garuda Indonesia 2015 outlook: slower, but still double digit capacity growth as new CEO takes over, 2014). These flights are supplemented with regular charters most of the year to cover the Umrah and Hajj religious pilgrimages (Garuda Indonesia 2015 outlook: slower, but still double digit capacity growth as new CEO takes over, 2014).

Garuda now uses a mix of 777-300ERs, 747-400s and A330s on its Saudi Arabia flights (Garuda Indonesia 2015 outlook: slower, but still double digit capacity growth as new CEO takes over, 2014). The airline plans to phase out its 747-400s in 2015 and also increase frequencies to Saudi Arabia, both of which will provide opportunities for the additional 777-300ERs being delivered in 2015 will take over for the 747-400s and be used for additional frequencies in the Saudi Arabia market (Garuda Indonesia 2015 outlook: slower, but still double digit capacity growth as new CEO takes over, 2014).

4.3.5 Brand Awareness

As the Indonesian flag carrier, Garuda Indonesia is supposedly supporting Indonesian soft power. Therefore, Garuda Indonesia has its mandate to promote Indonesia, especially its culture and its tourism destinations. In terms of its brand awareness, Garuda Indonesia has bringing Indonesia as their main elements.

Service Concept

“Garuda Indonesia Experience” is the new service concept of Garuda Indonesia which serves the best aspects of Indonesia to the passengers. Starting from the time of reservation flight to arrive at the destination airport, the passengers will be pampered by the friendly service and genuine hospitality that characterize Indonesia, represented by „Salam Garuda

Indonesia‟ from the cabin crew. The concept of Garuda Indonesia Experience is based on 5 senses, there are, sight, sound, scent, taste, and touch.

For the sight senses, Garuda Indonesia had a share in preserving Indonesian cultural heritage. In terms of the female flight attendant uniforms and cabin interior, Garuda Indonesia uses batik as their uniform and interiors main element in preserving Indonesian cultural heritage (Cabin Features, 2014). The new female flight attendant uniform is a modified kebaya and using Parang Gondosuli batik motif. This uniform has three colors chosen by the uniqueness of Indonesian textile tradition, there are Tosca green that representing a fresh tropical look, orange for a warm and dynamic impression, and blue which represent Garuda Indonesia‟s color scheme. In terms of its cabin interior, Garuda Indonesia pick terracotta brown, orange and brick-red as its interior colors that combines natural colors and traditional motifs of Indonesia, reflecting the visual beauty of Indonesia. (Sight - The concept of Indonesian hospitality is applied into several icons to delight the five senses, 2014)

In terms of sound, Garuda Indonesia in collaboration with Addie MS, a famous Indonesian music composer, rearranging Indonesian traditional folk songs in the form the orchestra music which then used as the official music during flight that will be well as in each lounge and sales offices of Garuda Indonesia as their effort to introduce Indonesian culture through “Garuda Indonesia Experience”. Tourism Minister and Creative economy Mari Elka Pangestu gave his appreciation to what has Garuda Indonesia been done because of its spirit to develop the creative industry. (Tribun News, 2014)

Indonesia has been using aromatic flowers and herbs as the aromatherapy and spa treatments since ancient times, Garuda Indonesia presenting Indonesian typical fragrance to pamper the passengers so they can relax during flights. Garuda Indonesia is now developing the scents to be used in the passenger‟s cabin onboard in order to provide a fresh Indonesian scent. During flights, passengers of Garuda Indonesia will be pampered with

61 a typical aromatic fragrance combination of Indonesian traditional essential oils extracted from native Indonesian plants and spices combined with clove and nutmeg to help the passengers relaxing their mind during flight. (Scent - The concept of Indonesian hospitality is applied into several icons to delight the five senses, 2014)

Indonesia has been known as the land of spices and a heaven of tropical fruits, the variety of food that Indonesia have are mixture of ancient recipes and foreign influence which makes Indonesian food tastes interesting yet delicious to eat. So, in terms of taste, the in-flight catering of Garuda Indonesia serves Indonesian signature dish to be serve to the passengers, like rendang, Indonesian fried rice, Nasi Kuning (yellow rice), Martebe juice (made of yellow-flesh passion fruit and Dutch eggplant) and many more. The passenger might sense the taste of Indonesia the moment they eat the in-flight catering and for the foreign passengers, they might experience the exotic and tantalizing Indonesian traditional food (Taste - The concept of Indonesian hospitality is applied into several icons to delight the five senses, 2014).

Then, the last sense is touch. From the moment they check-in until they arrived to their destinations, the passengers of Garuda Indonesia will be spoiled with Indonesian hospitality, the politeness, sincere and friendly behavior of Indonesian people as symbolized in Garuda Indonesia‟s new standard greetings, “Salam Garuda Indonesia”. (Touch - The concept of Indonesian hospitality is applied into several icons to delight the five senses, 2014)

Garuda Indonesia has been signing the Memorandum of Understanding (MoU) to actively promote Indonesian tourism destination with the Ministry of Tourism and Creative Economy in 2012. Ministry of Tourism and the economy Creative and Garuda Indonesia agreed to support each other in every tourism promotion activity that was carried out by each party (Kemenparekraf-PT Garuda Indonesia Lakukan MoU tentang Promosi Pariwisata, 2012). Garuda Indonesia always gave support to Indonesian

62 tourism, with this new service concept, Indonesia will be widely known by the foreign tourists.

The new signature service concept “Garuda Indonesia Experience” promotes Indonesian hospitality and also Indonesian culture throughout the foreign public. This air transport liberalization demands all airlines in ASEAN to increase their standards quality to fulfill the world-class professionalism. By this new service concept, Garuda Indonesia is identifying themselves to be the airline of Indonesia and able to attract consumer by its uniqueness.

Corporate Social Responsibility (CSR)

Corporate Social Responsibility has become the exact approach for a company to grow within the community. CSR has become the shackle between companies and customers as their attempt in creating the customer‟s sense of belonging to the company as well as harmonizing their business with environmental sustainability. To achieve the Quantum Leap in 2015, Garuda Indonesia must increase their brand awareness as well as increasing the nation‟s awareness within domestic society and also the foreign public. Thus, CSR Garuda Indonesia held various programs that aimed for supporting the society while promoting Indonesia towards domestic societies and also foreign public through Garuda Indonesia Cares program which designed to support the development and community development environmentally sustainable.

CSR Implementation in Garuda Indonesia is closely related to sustainable development where the activities not solely based on financial factor but also based on social and environmental consequences even for a long period of time. In 2013, along with the route and network development, the CSR program of Garuda Indonesia has expanded to wider areas in Nusantara. As state-owned enterprises, the implementation of “Garuda Indonesia Care” is referring to regulation of the Minister of State-owned companies no. PER-05/MBU/2007 and PER-08/MBU/2013 about Partnership

Program for State-Owned Enterprises with Small business and Environmental Development program. (Laporan Tahunan, 2013)

Through loan and partnership development programs, Garuda Indonesia has been distributing loans to Small and Medium Enterprises (SMEs) in all over Indonesia. This partnership program is aimed to improve the ability of small business to survive the market by using the capital loan of Garuda Indonesia. Until the end of 2013, Garuda Indonesia have a total 4,881 partners which consist of 4,157 partners that is made by the synergy between state-owned enterprises and other institutions, such as PT Capitalization Civil Society (Persero), PT Sanghyang Series (Persero), and PT Perkebunan Nusantara X (Persero) and the other 724 partners that was built directly by the company. (Laporan Tahunan, 2013)

Table 4.3 UKM Partners of Garuda Indonesia

Source: Annual Report Garuda Indonesia 2013

The channelization of partnership loan from year to year has helped numbers of SMEs in developing their business and has indirectly raised the Indonesian people‟s economy. Besides giving partnership loans, Garuda Indonesia has actively involved in developing their SMEs partners by several

64 programs related to their education, training, and promotion. For example, Garuda Indonesia had given chances to the partners to promote their product in the in-flight shop catalog of Garuda Indonesia. Utami Silver (one of Garuda Indonesia‟s partner) had become the supplier of brooches that pinned to the uniform of each Garuda Indonesia cabin crew member (Garuda Indonesia Care for Economy, 2014), the joint cooperation between Garuda Indonesia with Cita Tenun Indonesia in their effort to preserve Indonesian woven-cloth had attract Indonesian famous designer, Priyo Oktaviano, in designing exclusive clothes using woven cloth from Bali and Sambas as its main component (Metro Bali, 2014). The program started in Sidemen, Klungkung, Seraya Singaraja then developed Sambas. They did preserving woven by introducing the woven artists to the new motifs and techniques, so that the traditional woven cloth be preserved but also enriched its diversity and able to survive in the middle age changes so that they can follow the trend market, even can be brought to international fashion market. (Laporan Tahunan, 2013) The economic liberalization in ASEAN have the ability to close the chance for the SMEs entrepreneurs whom have no experience in business, Garuda Indonesia Care for Economy is actively supporting, guiding, and giving information to the SMEs entrepreneurs and also supporting Indonesian economy.

Garuda Indonesia Care for Community program is representing Garuda Indonesia‟s concern and commitments to actively support Indonesians in improving their prosperity through community development programs in education, sports, health, natural disaster aid, and public facilities. They help in preserving the Indonesian traditional woven industry in collaboration with Cita Tenun Indonesia, actively support the school renovation and giving aids for the learning facilities from elementary school until high school in West java, West Sumatra, Banten, and Riau. The other CSR program is “Garuda Indonesia Tennis Open” as Garuda Indonesia‟s commitment in developing national sport, by holding annual tennis tournament which aims to filter and enhancing Indonesian young athlete‟s

65 tennis ability so they can become high-achieving Indonesian athlete in the international arena. (Laporan Tahunan, 2013)

Those activities have actively supporting Indonesian soft power to the society, by actively conserving Indonesian art heritage. Garuda Indonesia‟s partnership program have successfully supporting Indonesian traditional woven clothes and silver craftsman or artisan in terms of developing and rejuvenating their product quality and designs so that people may get attracted and buy their products. People returns to realize that Indonesian traditional products are as good as the foreign product does even the international public may buy their product to be sold in their home country. Besides, Garuda Indonesia had continually supporting Indonesian athletes, supporting Indonesian soft power from sport sectors, active enough to support Indonesian sports.

Commercial Partnership with Liverpool FC

Along with its effort in becoming global player, Garuda Indonesia is fully aware about their role in promoting Indonesia to the foreign public, bring the beauty of Indonesia and its richness culture to the world. With co- branding partnership with LFC, Garuda Indonesia is very confident that Indonesia will be increasingly recognized by the world as what Emirsyah Satar stated during the press conference in June 1 2014 (Satar, 2014). Developing their brand awareness globally and keeps pushing their limit by developing and upgrading their commercial partnership with Liverpool Football Club to increase the reputation of Garuda Indonesia in the international level by becoming its training kit partner for the next two seasons (Jones, 2014). It is Garuda Indonesia‟s strategy to improve their brand awareness in the international market through the marketing communications within Garuda Indonesia and Liverpool FC. This commercial partnership is also in line with the transformation and expansion program in Quantum Leap 2011-2015 to make Garuda Indonesia as a Global Player (Pujobroto, Garuda Indonesia dan Liverpool FC Luncurkan “Garuda Frequent Flyer - Liverpool Football Club Edition Card”, 2013)

Before then, Garuda Indonesia had become the Official Global Airline Partner of Liverpool FC Pre Season Tour in 2013 that was held in three cities in Asia and Australia, namely, Jakarta (Indonesia), Melbourne (Australia), and Bangkok (Thailand). During the first phase of partnership in 2013, Garuda Indonesia‟s name and logo also appears on the sidelines Light Emitting Diode (LED) at Anfield Stadium every game during the season (2013/2014 to 2014/2015). (Edward, 2014) Other than that, Garuda Indonesia also launched “Garuda Frequent Flyer – Liverpool Football Club (GFF – LFC) Edition Card” (Pujobroto, Garuda Indonesia dan Liverpool FC Luncurkan “Garuda Frequent Flyer - Liverpool Football Club Edition Card”, 2013)

Emirsyah Satar stated that this commercial partnership is intentionally made to improve the global branding of Garuda Indonesia. Since this partnership initiated in the early 2013, Garuda Indonesia‟s advertisement has always been appearing during English Premiere League. Because of this sponsorship the awareness of other countries against Garuda increases and the number of passengers as well as international flight schedule had raise until 11%. He also argued, as a global player and the flag carrier of Indonesia, Garuda Indonesia is committed to bringing the beauty of Indonesia and its rich culture to the world. With a co-branding partnership with LFC, Indonesia will be increasingly recognized by the world and especially by Liverpool fans worldwide (Jones, 2014).

4.3.6 Cost Discipline

Garuda Indonesia is focusing on reducing cost without neglecting the quality of services provided as a full-service carrier to achieve a competitive cost structure (Annual Report Garuda Indonesia, 2011, p. 9). For its commercial costs, Garuda Indonesia will be more focus on large corporate which has many branches and high potential for business travel or for its family (Laporan Tahunan, 2013, p. 69). The benefit received by the corporate customers, such as discount, additional luggage, priority handling if the aircraft is full and other benefits have been continuously developed (Laporan

Tahunan, 2013, p. 69). Nonetheless, Garuda Indonesia still have more advantage from this corporate sales, the advantages are higher revenue for the airlines, the creation of captive market11 for quite long period and will reduce the distribution cost as well as supporting market expansion (Laporan Tahunan, 2013, p. 69).

Garuda Indonesia has developed several partnership with multinational companies like Shell International Ltd., Standard Chartered Bank, Citibank NA, Microsoft, Total, Caterpillar, IBM, UBS, HSBC, Merck, and the World Bank (Laporan Tahunan, 2013, p. 69). Until the end of 2013 the number of corporate customers reached 1,981 companies, with an average increase in revenue from 2007 to 2013 reached 46.8%. Revenues in 2013 amounted to Rp 2.01 trillion (Laporan Tahunan, 2013, p. 69).

For its sales distribution, Garuda Indonesia is optimizing its direct channel Call Center, Sales Office & Ticketing Office, Website, Garuda Online Sales (GOS), Interline Staff Travel Agremeent (ISTA). In 2013, Garuda Indonesia add the type of direct sales channels to re-launch the Mobile Ticketing Counter (MTC) in November 2013 (Laporan Tahunan, 2013, p. 68). The MTC is the concept of providing reservation services and other services using the vehicles move. Currently there are 2 MTC operating in Jakarta, and is due to increase in other areas throughout Indonesia

(Laporan Tahunan, 2013, p. 68).

In terms of its operational cost, Garuda Indonesia is operating several efficiency programs like economical tanking, optimizing the Ground Power Unit, Flight Fuel Conservation, and Zero Flight Time Training. Zero Flight Time Training is the flight training efficiency that was initially using aircraft but now the training is being replaced by using flight simulator, the other trainings that the Flight Operation Officer (FOO) should do once a year like

11 Captive Market: potential consumers where there are no competitive sources for products, and the only choices are to purchase what is available or to make no purchase at all (Dictionary of Marketing Terms for: captive market. Retrieved February 14, 2015, from: http://www.allbusiness.com/barrons_dictionary/dictionary-captive-market-4965151-1.html)

Recurrent Dangerous Good and AVSEC is being done through e-Learning to reduce the transportation and accommodation cost, instructor cost, and class usage cost (Laporan Tahunan, 2013, p. 74). For the zero flight time training, the cost efficiency in 2013 had reached Rp. 124 billions, increased by 41% than in 2012 (Laporan Tahunan, 2013, p. 74).

Economical Tanking is a program to save on fuel costs by applying the procedure tinkering with the aim of obtaining a profit from the price difference of fuel between two stations, departure and arrival (Laporan Tahunan, 2013, p. 74). During the year 2013 the program was implemented at the station Balikpapan, Jakarta, Jayapura, Denpasar, Manado, Medan, Surabaya, Makassar, Kuala Lumpur, Penang and Singapore (Laporan Tahunan, 2013, p. 74).

In optimizing the use of the Ground Power Unit, the airlines optimizing it for the RON (Remain Over Night; Aircraft provided at the airport to get through the day) aircrafts, first flight aircrafts after the completion of RON and for aircraft transit more than 2 hours (Laporan Tahunan, 2013, p. 74). In 2013, the GPU has been optimized in several domestic station like Ambon, Banjarmasin, Balikpapan, Batam, Jakarta, Denpasar, Yogyakarta, Mataram, Manado, Medan, Padang, Pekanbaru, Palembang, Pontianak, Semarang, Surabaya, SOC and Ujung Padang (Laporan Tahunan, 2013, p. 74). For international station, the airline had optimized the GPU in Amsterdam, Guangzhou, Korea, Osaka, Tokyo, Sydney, Beijing and Shanghai (Laporan Tahunan, 2013, p. 74).

For flight fuel conservation, the fuel savings are obtained from the difference Plan Fuel and Actual Fuel. Fuel saving occurs when fuel is smaller than the actual fuel plan. In 2013, the airline have managed to save on fuel usage amounted to 18.5 million liters, down 24% compared to the previous year which amounted to 24.2 million liters (Laporan Tahunan, 2013, p. 74). This decrease was made possible by the increasing flight time caused by increasing air traffic density. Total consumption of fuel (fuel burn) in 2013 amounted to 1,371 million liters, an increase of 16% compared to the

previous year 1,183 million liters (Laporan Tahunan, 2013, p. 74). This increase was driven by increased production in which the frequency of flights increased by 22% whereas Available Tonne Kilometres (ATK) increased by 16% (Laporan Tahunan, 2013, p. 74).

4.3.7 Human Capital

As one of the 7 strategies to drive growth, developing human capital with the right quantity and quality, building the capability and leadership of each talent in the organization based on performance and knowledge learning, to drive company‟s performance through the implementation of best strategies in alignment with the corporate strategy (Annual Report Garuda Indonesia, 2011, p. 141).

Garuda is currently experiencing sustainable growth and thus requires a strong foundation in human capital. Therefore Garuda Indonesia Training Center (GITC) was doing the alignment, so that learning will become part of the company program to achieve high performance organization. To encourage employee productivity and make Garuda Indonesia as a high- performing organization, human resource planning in the Company is built on three main pillars, namely FLY-HI12 corporate culture to create a condusive working environment, talent development, and Improve and expand the role of people manager so that employees can develop their competence and maintain productivity and performance (Laporan Tahunan, 2013, pp. 134-135).

The number of employees in 2013 was as much as 7861 employees increased by 12.2% compared with the number of employees in 2012 as many as 7008 employees. This is to support the operation of the fulfillment especially in sectors affected employees directly increase the number of fleet and additional capacity or operational. The airlines also done the employee training investment of Rp 20.65 million per person and are divided into 4

12 FLY-HI: Garuda Indonesia‟s corporate culture which consist of eFficient & effective, Loyalty, customer centricitY, Honesty & openness and Integrity that is still becoming the line item of Garuda Indonesia‟s employees. (Laporan Tahunan, 2013, p. 137)

70 categories of training programs, namely: Flight Operation Training, Flight Attendant Training, Airline Business Training and Flight Operation Officer Training.

CHAPTER V

CONCLUSION

In 2003, ASEAN have declared to create the ASEAN Economic Community (AEC) by 2015 and through the guidance of ASEAN Economic Community Blueprints. AEC will transform ASEAN into a region with free movement of goods, services, investment, skilled labor, and freer flow of capital. Connectivity is one of the key successes of this regional development. Inter-state connectivity is very essential for development to support the economic growth of a region. Realizing this importance, AEC has the principles and framework of ASEAN Single Aviation Market or the “Open Sky Policies” as one of the 12 designated priority sectors for economic integration, all of which are the key components for the proposed AEC.

As part of ASEAN member countries, Indonesia is preparing itself to face the liberalization. Indonesian aviation industry also take a big step forwards through professional human resources qualifications, the flight safety standards, and the proper service quality. With good planning system, given Indonesia's geographic advantage over other member states, Indonesia should be able to compete with other foreign airline industry. Garuda Indonesia, the national carrier of Indonesia whose credibility has been recognized globally, has significant role in various sectors to support Indonesia in ASEAN Open Sky 2015.

This research is analyzing Garuda Indonesia‟s Quantum Leap program with its 7 strategies to drive growth in pursuit of the airline‟s sustainable growth and in facing ASEAN Open Sky in 2015. Optimizing Garuda Indonesia‟s Quantum Leap Program in supporting Indonesia in the implementation of ASEAN Open Sky Policy.

A series of programs and services done by Garuda Indonesia has helped in increasing the number of foreign and domestic tourists. It may help

Indonesia to survive the competition among ASEAN countries in its preparation towards ASEAN Open Sky in 2015. As the world class airline and Indonesia‟s national carrier, Garuda Indonesia is completely aware of its role in promoting Indonesia to the foreign public and supporting Indonesian aviation industry to face the fierce competition in the upcoming ASEAN Open Sky.

Technically, Garuda Indonesia have facilitate Indonesia to gain connectivity across continents by facilitating government elites, ministers, ambassadors, and even president for their foreign affairs activity. Through its credibility in the international world, Garuda Indonesia is very influential in tourism sectors, using Indonesian values as part of the airline‟s service concept bridging Indonesian values to the foreign public may influence in bringing more foreign passengers to Indonesia.

Garuda Indonesia plays an active role in Indonesian domestic market, protecting Indonesian aviation business in the midst of fierce competition among airlines in Southeast Asia regarding the implementation of ASEAN Open Sky in 2015 to ease inter-region connectivity becomes more accessible in its pricing flexibility that can be enjoyed by all people with Garuda Indonesia as the premium class airline and Citilink as its LCC subsidiary. Besides, Garuda Indonesia also provide connectivity to all regions in Indonesia and its international network by joining SkyTeam global alliance and codeshare agreements.

BIBLIOGRAPHY

BOOKS AND JOURNALS

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Taste - The concept of Indonesian hospitality is applied into several icons to delight the five senses. (2014). Retrieved November 20, 2014, from

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INTERVIEW

Megah, Muhammad. (2014, November 28). Network Management Analyst PT Garuda Indonesia (Persero) Tbk. (A. Zerlina, Interviewer)

Pribadi, Adi (2015, February 5). Communication Analyst PT Garuda Indonesia (Persero) Tbk. (A. Zerlina, Interviewer)

APPENDIX

Appendix A – Transcript of the Email Interview with the Network Alliance staff of PT Garuda Indonesia (Persero) Tbk.

From: Andhita Zerlina ([email protected]) To: Muhammad Megah ([email protected]) Cc: Adi Pribadi , Toto Sugiarto , Lilik Yulianto Nugroho Date: November 26th , 2014 16.25 PM Subject: Permohonan Permintaan Data (Research Data Request)

Bahasa Indonesia:

1. Apa saja yang telah dilakukan Garuda Indonesia untuk mempersiapkan ASEAN Open Sky 2015 mendatang?

 Menjalin kerjasama codeshare dengan beberapa airlines di ASEAN, seperti SQ, Bangkok Airways, Myanmar Airways, Malaysia Airlines, Philippine Airlines, Vietnam Airlines  Menghubungkan kota-kota di Indonesia dengan kota-kota di ASEAN untuk meningkatkan konektivitas  Berkoordinasi dengan Pemerintah, melalui Kementerian Perhubungan, dalam hal menentukan rute antar kota di Indonesia dengan di kawasan ASEAN

2. Sejauh yang telah saya teliti, tahun ini Garuda Indonesia telah membuka beberapa penerbangan domestik ke rute-rute kecil dan penghubung dengan menggunakan pesawat-pesawat kecil. Dengan dibukanya rute-rute kecil dan penghubung ini, apakah berpengaruh terhadap pertumbuhan penumpang asing (di kawasan ASEAN) yang menggunakan Garuda Indonesia ke tujuan-tujuan domestik? Apakah terjadi peningkatan penumpang atau malah terjadi

penurunan? Jika terjadi penurunan, apa saja penyebab penurunan pertumbuhan penumpang tersebut? (Jika ada data atau grafik yang mampu membuktikan, boleh kah saya meminta data tersebut?)

Terjadi peningkatan penumpang pada rute-rute perintis, baik dengan pesawat ATR maupun CRJ. Namun, berdasarkan data manifest penumpang sulit untuk ditentukan apakah penumpang asing juga meningkat kunjungannya.

Dengan demikian dapat dipastikan bahwa rute-rute perintis tersebut merupakan salah satu cara Garuda Indonesia untuk bersaing di era ASEAN Open Sky tahun 2015. Dengan adanya rute-rute tersebut dapat

3. Garuda Indonesia telah bergabung dengan aliansi global SkyTeam, dalam hal apa SkyTeam mampu membantu Garuda Indonesia untuk bisa bertahan di ASEAN Open Sky tahun depan?

Keiikutsertaan Indonesia dalam Sky Team, memudahkan Garuda Indonesia untuk melakukan penetuan inovasi rute-rute dalam rangka meningkatkan konektivitas.

4. Bagaimana Garuda Indonesia menghadapi sixth air traffic freedom relaxation dalam pelaksanaan ASEAN Open Sky tahun depan? Apa saja kebijakan yang telah dibuat?

Berdasarkan informasi dari Kementerian Perhubungan, pelaksanaan ASEAN Open Sky tahun 2015 hanya dilakukan hingga fifth freedom, open sky tersebut dapat dikatakan sebagai half open sky (apabila meminjam istilah dari EU Expert), sehingga kebijakan yang dilakukan Garuda Indonesia tidak jauh berbeda dengan jawaban pada pertanyaan pertama.

5. Apa saja kontribusi Garuda Indonesia dalam membantu Indonesia untuk mensukseskan ASEAN Open Sky tahun depan?

Dengan dibukanya rute-rute perintis, akan banyak penumpang dari kawasan ASEAN yang lebih banyak masuk ke wilayah Indonesia. Pemerintah pun sudah menetapkan beberapa Hub Bandara yang akan dibuka dalam mendukung

ASEAN Open Sky. Melalui hub Bandara tersebut, yang dimana Garuda Indonesia melakukan pembukaan rute baru dan peningkatan kapasitas pada kota-kota kecil di wilayah Indonesia.

English:

1. What has been done by Garuda Indonesia to prepare for ASEAN Open Sky 2015?  Establish a codeshare cooperation with several airlines in ASEAN, such as SQ, Bangkok Airways, Myanmar Airways, Malaysia Airlines, Philippine Airlines, Vietnam Airlines  Connecting cities in Indonesia with cities in ASEAN to improve connectivity  Establish coordination with the Government, through the Ministry of Transportation, in terms of determining the route between cities in Indonesia and ASEAN 2. So far I have known, this year Garuda Indonesia has opened some domestic flights for short and connecting route with the use of small aircraft. With the opening of these small routes, do it affect the growth of foreign passengers in ASEAN which uses Garuda Indonesia for domestic purposes? Does the passenger will be increased or a declined? If there is a decrease, what are the causes of the decline in passenger growth?

(Can I also ask for data or graph that supported the statements) There is an increase in passengers on routes pioneer, both with ATR and CRJ. However, based on the passenger manifest data is difficult to determine whether the foreign passengers also increased his visit. Thus it can be ascertained that these routes pioneer is one way of Garuda Indonesia to compete in the era of ASEAN Open Sky 2015. With these routes may be

3. Garuda Indonesia has joined the SkyTeam global alliance, what are the terms that SkyTeam will able to help Garuda Indonesia to be able to survive in the ASEAN Open Sky next year?

Indonesian cooperation in the Sky Team, facilitate Garuda Indonesia to undertake innovation Determination these routes in order to improve connectivity

4. How Garuda Indonesia faced sixth freedom traffic water relaxation in the implementation of the ASEAN Open Sky next year? What are the policies that have been made?

Based on information from the Ministry of Transportation, the implementation of the ASEAN Open Sky 2015 only made up fifth freedom, the implementation of that open sky can be described as a half-open sky (by borrowing a phrase from the EU Expert), so that the policies adopted by the Garuda Indonesia is not much different from the answer to the first question.

5. What are the contributions of Garuda Indonesia to help Indonesia succeed in Indonesia Open Sky next year?

With the opening of these pioneer routes, there will be a lot of passengers from the ASEAN region enter the Indonesian territory. The government has set several services that will be opened in favor of the ASEAN Open Sky. Through the airport hub, which is where Garuda Indonesia opening new routes and increased capacity in small towns in the region of Indonesia.

Appendix B – Transcript of the Email Interview with the Communication Analyst of PT Garuda Indonesia (Persero) Tbk.

From: andhita zerlina [mailto:[email protected]] Sent: Wednesday, February 04, 2015 9:34 AM To: Adi Pribadi Subject: Quantum Leap

Bahasa Indonesia:

Berdasarkan milestone di atas ada beberapa tahapan yang ditargetkan Garuda Indonesia untuk mencapai Quantum Leap pada tahun 2015, menggunakan 7 strategies to drive growth seperti gambar dibawah

Yang ingin dianalisa adalah: Apakah ketujuh strategi tersebut digunakan untuk mencapai masing-masing target tiap tahunnya? Dengan menceklist tabel dibawah

Dan apakah kelima milestone tersebut dapat memberikan pengaruh terhadap persiapan Indonesia dalam menghadapi ASEAN Open Sky Policy?

English:

Based on the milestones above there are several steps that targeted Garuda Indonesia to achieve the Quantum Leap in 2015, using the 7 strategies to drive growth as shown below

The problem statement is: Are the seven strategies can be used to achieve the target each year?

By filling the checklist table below.

And if the five milestones can give effect to the preparation of Indonesia in the ASEAN Open Sky Policy?

From: andhita zerlina [mailto:[email protected]]

Sent: Thursday, February 05, 2015 08.32 AM To: Adi Pribadi Subject: Re:Quantum Leap

Bahasa Indonesia:

1. IPO, pelaksanaan IPO mendorong adanya cost discipline dan peningkatan kualitas human capital. Kenapa? Karena dengan menjadi perusahaan publik maka segala sesuatunya menjadi lebih dapat dipertanggungjawabkan, terutama terkait cost dan human. Cost Discipline, Human Capital. 2. Global Alliance, bergabung menjadi anggota SkyTeam memberikan kesempatan bagi Garuda untuk memperluas jaringannya (khususnya rute- rute Internasional). Namun demikian, Garuda juga perlu memperkuat jaringan domestiknya agar para penumpang inbound (dari luar Indonesia) dapat menikmati jaringan domestik Garuda yang luas. Caranya, dengan membuka rute-rute destinasi eksotis menggunakan armada ATR 72-600 “Explore” dan CRJ1000 NextGen “Explore-Jet”. Domestic, International, Fleet, Brand. 3. Network Expansion, memperluas jaringan membutuhkan service yang lebih baik dan brand yang lebih kuat. Selain itu, Citilink (sebagai LCC dari Garuda Indonesia Group) turut berperan untuk membantu memperkuat bottom-line. Domestic, International, Fleet, Brand, LCC. 4. Service Excellence, dilakukan juga melalui perbaikan di aspek layanan, sehingga mendukung penguatan brand Garuda. Brand. 5. Quantum Leap, dengan fondasi-fondasi yang telah disiapkan pada tahun- tahun sebelumnya, maka “lompatan besar” dapat dilakukan dan membantu Garuda untuk bersaing kuat di dalam pasar industri penerbangan. Fleet, Brand.

English:

1. IPO, IPO push for cost discipline and improving the quality of human capital. Why? Due to being a public company then everything becomes more accountable, especially related to cost and human. Cost Discipline, Human Capital. 2. Global Alliance, became a member of SkyTeam provides an opportunity for Garuda to expand its network (especially these international routes). However, the company also needs to strengthen its domestic network so that the passengers inbound (from outside Indonesia) can enjoy extensive domestic network Garuda. How? by opening these routes destinations using a fleet of ATR 72-600 exotic "Explore" and CRJ1000 NextGen "Explore-Jet". Domestic, International, Fleet, Brand. 3. Network Expansion, expanding network needs a service that is better and stronger brand. Additionally, Citilink (as LCC of Garuda Indonesia Group) contribute to help strengthen the bottom line. Domestic, International, Fleet, Brand, LCC. 4. Service Excellence, made also through improvements in aspects of services, thus supporting the strengthening of the brand Garuda. Brand. 5. Quantum Leap, the foundations of which have been prepared in previous years, the "big jump" can be done and help Garuda to compete strongly in the aviation industry market. Fleet, Brand.