Operation Management Is a Functional Field of Business with Clear Line Management Responsibilities

CHAPTER II

LITERATURE REVIEW

2.1 Operations Management

Operations Management is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services. Like marketing and finance, operation management is a functional field of business with clear line management responsibilities. This point is important because operations management is frequently confused with operation research and management science and industrial engineering (Chase, 2001, pp.6-7).

Operations management decisions at the strategic level impact the company’s long-range effectiveness in terms of how it can address its customer’s needs. Thus, for the firm to succeed, these decisions must be in alignment with the corporate strategy. Decisions made at the strategic level become the fixed conditions or operating constrains under which the term must operate in both the intermediate and short term.

At the next level in the decision-making process, tactical planning primarily addresses how to efficiently schedule material and labor within the constraints of previously made strategic decisions. Issues on which Operation Management concentrates on this level include: How many workers do we need? When do we need them? Should we work overtime or put on a second shift? When should we have material delivered? Should we have a finished goods inventory? These tactical

decisions, in turn, become the operating constraints under which operational planning and control decisions are made (Chase, 2001, p8).

2.2 Achieving Competitive Advantage through Operations

Competitive advantage implies the creation of a system that has a unique advantage over its competitors. The idea is to create customer value in an efficient and sustainable way.

2.2.1 Competing On Response

Response is often referred as flexible, reliable and quick responses. Indeed, we define response as including the entire range of values related to timely product and service development and delivery, as well as reliable scheduling and flexible performance.

Flexible response may be thought of as the ability to match changes in a marketplace in which design innovations and volumes fluctuate substantially.

The second aspect of response is the reliability of scheduling. In the airline business, reliable schedule is the main selling point for an airline. Delay on schedules can bring down customer to their lowest preferences to fly with one airline.

Consequently, the competitive advantage generated through reliable response has value to the end customer.

The third aspect of response is quickness. John Electric, discussed in the

Operation Management in action box, competes on speed – speed in design,

production, and delivery. Most passenger put quick and easy services to their top of the mind. From ordering tickets to passenger-handling process, and baggage handling process the operations manager who develop processes that respond quickly can have a competitive advantage(Heizer, 2001, pp35-36).

2.3 Strategic Analysis

Table 2.1 External versus Internal Analysis External Analysis Internal Analysis a. Customer analysis a. Performance analysis b. Segments, motivations and unmet b. Profitability, sales, shareholder value needs. analysis, customer satisfaction, c. Competitor analysis product quality, brand associations, d. Identity, strategic groups, relative cost, new products, employee performance, images, objectives, capability and performance, product strategies, cultures, cost structure, portfolio and analysis. strength and weaknesses c. Determination of strategic options e. Market analysis d. Past and current strategies, strategic f. Size, projected growth, profitability, problems, organizational capabilities entry barriers, cost structure, and constraints, financial resources, distribution systems, trends, key financial strength, constraints and success factors. weaknesses g. Environmental analysis h. Technological, cultural, economical, governmental, demographic, scenarios, information-need areas. Strategic strengths, weaknesses, Opportunities, threats, trends, and problems, constraints and uncertainties. uncertainties.

Strategy identification and selection 1. Identify strategic alternatives a. Product-Market Strategies b. Functional Area Strategies c. Assets, Competencies and Synergies 2. Select Strategy 3. Implement the operating plan 4. Review strategies

2.4 Quantitative and Qualitative Research

Moreover, most research methods can be used in either qualitative or quantitative studies. This is shown in table 2.2 the table underlines that methods are techniques which they are used. All this means that we need to resist treating research methods as mere techniques.

Table 2.2 Different Uses for Four Methods (David Silverman, 2001, p89) Methodology

Method Quantitative research Qualitative research

Observation Preliminary Work, e.g. prior to Fundamental to understanding

framing questionnaire another culture

Textual analysis Content analysis, i.e. counting Understanding participants’

in terms of researchers’ categories

categories

Interviews Survey research: mainly fixed Open-ended questions to small

choice questions to random samples

samples

Audio and video Used frequently to check the Used to understand how recording accuracy of interview records participants organize their talk

and body movements

Table 2.3 Methods of Qualitative Research (David Silverman, 2001, p90) Method Features Claim

Observation Extended periods of contract Understanding of ‘subcultures’

Textual analysis Attention to organization and Understanding of language and

use of such material other sign systems

Interviews Relatively unstructured and Understanding ‘experience’

‘open-ended’

Audio and video Precise transcripts of naturally Understanding how interaction recording occurring interactions is organized

2.5 Airline Business

An airline is an organization providing aviation services to passengers and/or cargo. It owns or leases airliners with which to supply these services and may form partnerships or alliances with other airlines for reasons of mutual benefit.

In view of the congestion apparent at many international airports, the ownership of slots at certain airports (the right to take-off or land an aircraft at a particular time of day or night) has become a significant tradeable asset in the portfolios of many airlines. Clearly take-off slots at popular times of the day can be critical in attracting the more profitable business traveller to a given airline's flight and in establishing a competitive advantage against a competing airline. If a particular

city has two or more airports, market forces will tend to attract the less profitable routes, or those on which competition is weaker, to the less congested airport, where slots are likely to be more available and therefore cheaper.

Other factors, such as surface transport facilities and onward connections, will also affect the relative appeal of different airports and some long distance flights may need to operate from the one with the longest runway.

Where an airline has established an engineering base at an airport then there may be considerable economic advantages in using that same airport as a preferred focus (or "hub") for its scheduled flights.

Each operator of a scheduled or charter flight uses a distinct airline call-sign when communicating with airports or air traffic control centres. Most of these call- signs are derived from the airline's trade name, but for reasons of history, marketing, or the need to reduce ambiguity in spoken English (so that pilots do not mistakenly make navigational decisions based on instructions issued to a different aircraft), some airlines and air forces use call-signs less obviously connected with their trading name.

2.6 Five-Forces Model of Competition

One important component of airline business and competitive analysis involves delving into the business’ competitive process to discover what the main sources of competitive pressure are and how strong each competitive is. This analytical step is essential because managers cannot devise a successful strategy without in-depth understanding of the business’ competitive character. Porter’s five-

forces model, depicted in Figure 2.1, is a powerful tool for systematically diagnosing the principal competitive pressures in a market and assessing how strong and important each one is. (Thompson, Jr, 2004, pp79-81).

FIRMS IN OTHER INDUSTRIES OFFERING SUBSTITUTE PRODUCTS

Competitive Pressures coming from the market attempts of outsiders to win buyers over to their products

RIVALRY AMONG SUPPLIERS Competitiv COMPETING Competitiv OF RAW e pressures SELLERS e pressures MATERIALS, stemming stemming PARTS, from from seller- BUYERS COMPONE supplier- buyer NTS OR seller Competitive collaborati OTHER collaborati prssures created on and RESOURCES on and by jockeying for bargaining ii better market iti d

Competitive pressures coming from the threat of the entry of new rivals

POTENTIAL NEW ENTRANTS

Figure 2.1 Five-Forces Model of Competition

In the airline business, especially in Indonesia, forces from rivalry among competing airline centered on price competition, competing to offer passengers, the best (lowest) price. As the airlines compete for market share, these forces tend to be

high. Potential entry of new competitor force is at moderate level, this is because airline business in Indonesia is in the transition period. In the past time, the barrier of new entrants is low, and it is not difficult to get an airline operating license, but nowadays, the government is stricken the rules, and tends to evaluate and maintain existing operating airline. The forces from the suppliers are on moderate level. It is because there are limited suppliers for the airlines, high switching cost. In the airline business the suppliers are airport service providers such as PT. GAPURA, JAS

Airport Services, etc. Buyers or passengers in the airline business, have considerable bargaining power level because with many airlines operating in Indonesia, switching cost from one airline to other airlines are relatively low, also passengers have all the information of airlines schedules, prices and costs. Substitute products / services such as land transportation with buses and trains, sea transport with ships and ferries have moderate forces in the airline business, because airline have their own specific market. Substitute services tend to have more leverage to the airline business because of safety issue and price consideration.

2.7 Low – Cost Carrier

A low-cost carrier (also known as a no-frills or discount carrier) is an airline that offers low fares but eliminates all unnecessary services. The typical low-cost carrier business model is based on:

1. A single passenger class.

2. A single type of aircraft (reducing training and servicing costs - often the

Boeing 737).

3. A simple fare scheme (typically fares increase as the plane fills up, which

rewards early reservations, known as "yield management").

4. Unreserved seating (which encourages passengers to board early).

5. Direct, point to point flights with no transfers.

6. Flying to cheaper, less congested secondary airports.

7. Short flights and fast turnaround times (allowing maximum utilization of

planes).

"Free" in-flight catering and other "complimentary" services are eliminated, and replaced by optional paid-for in-flight food and drink.

2.8 Flight Services

Flight services can be divided into four scopes: Pre-flight services, In-flight services, Operational service and Special service.

1. Pre-flight services: provided to the customers prior to aircraft departure. These

services provide customers with meteorological, aeronautical, and other

coordination information for planning a safe and efficient flight. Delivery of these

services includes consideration of type of aircraft, type of flight, pilot

qualifications and special needs.

2. In-flight services: provided to the customers during the flight. These services

provide En Route flight advisory services, Visual Flight Rules (VFR), also

customer services done by the flight attendants to the costumers, such as

entertainments, meals, etc.

3. Operational Services: include the development, translation, processing and

coordination of aeronautical, meteorological and aviation information to advise,

notify, and/or, educate customers. Operational services ensure the dissemination

of aviation information to achieve continuity of operation and protect national

security.

4. Special services: usually directed by the government, the example of special

services are: setting up and secure equipment, maintaining and configuring

systems necessary in the performance of these special events, providing personnel

needed to support special aviation events.

2.9 Causes of Delays (COD)

There are many things that can cause a flight delayed; those things can be grouped into seven categories, called the Cause of Delays (COD). These categories are:

1. Technical Causes

A. Engine breakdowns

B. Engines overhaul

C. Communication problems

D. Aircraft grounding.

2. Commercial Causes

A. Ticketing issues.

B. Booking and ticket distribution issues

3. Flight Operations

A. Operations Control: Controls aircraft dispatch activities and ramp control.

Loads the aircraft in the most effective manner. Day-to-day forward

planning and aircraft scheduling.

B. Check In: Monitors check-in of passengers and baggage, final seat

assignment, and issuing of boarding passes. Generates load control

information automatically and links check-in activities to the weight and

control system.

C. Crew Roistering: Rosters cockpit and cabin crew based on flight schedule,

work schedule of the individual crew members, and the required

combination of skills, taking into account legal regulations and time

zones.

D. Yield / Revenue Management: Manages fares based on strategic analysis

of market data, also known as revenue management. Optimizes revenue

by allocating the correct seat inventory using historical and current

reservation data for forecasting. Lets airlines selectively accept or reject

passenger bookings based on their overall revenue contributions, and

adjust inventories and prices in response to demand up to the day of flight.

E. Traffic Control: Provides safe, orderly, and expeditious flow of air traffic

both on the ground and in the air, including slot control, terminal control,

en route control, and flight service station control.

F. Maintenance Control: Monitors servicing of operational aircraft, from

providing specialist services to the complete management of your day-to-

day maintenance requirements.

4. Station Handling

A. Terminal Management: Manages the terminal, including gate handling,

shops, and other customer services. Manages day-to-day relationship with

airport authority.

B. Ground Fleet Maintenance: Manages the maintenance and repair of fleet

of ground vehicles, ensuring high equipment reliability and compliance to

government environmental reporting.

C. Security: Ensures the security of passengers and staff members before,

during, and after the flight according to the regulatory requirements of

aviation security.

D. Catering: Handles catering for scheduled flights. Plans, prepares and

delivers the required food and drink items, settling the commercial and

financial side.

E. Resource Management: Plans optimal equipment, personnel and location

resources on a long-term basis, and creates and assigns work schedules.

Creates duty assignments and work sheets for all employees and resources

based on these planning results and additional data such as flight schedule,

aircraft information, or ramp allocation. Displays conflicting resource

requirements immediately and provides a recommendation to resolve

them.

F. Baggage Handling: Controls the baggage handling from check-in to claim.

Goal is to deliver the luggage to the passenger the first time, on time,

every time. Baggage handling includes screening, sorting, transportation,

tracking, tracing and reconciliation.

G. Freight Handling: Offers operational and business management of cargo

carried by air. Includes flight space control, reservations, warehouse

management, flight processing, and delivery or transfer to another carrier.

H. Fuel Management: Determines how much fuel is in each tank, how much

time remains on the available fuel, which tank is currently being used, and

how much fuel was used. Controls how much fuel to purchase at each

location.

5. Airport Facility

A. Gates support.

B. Air Traffic Control.

C. Airport Supporting Equipments.

6. Weather

A. Bad Weather.

B. Turbulence.

C. Limited Line-of-Sight because of high-density fog.

7. Other Forces

A. Force Major

B. Strike

C. Political Issues.

2.10 On Time Performance

On Time Performance of an airline somehow in so much attached to Air

Traffic Management (ATM). ATM improvements could definitely save short-term excess costs of fuel and crew and most likely provide aircraft fleet savings in the long-term. The next question is what impact might ATM improvements have on airline strategic planning? Airline planning for routes determines what aircraft airlines need and their potential revenue. To secure the revenue, airlines invest in aircraft, ground equipment, hubs (if necessary) and reservation or ticketing systems.

ATM through the services it provides, the restrictions it imposes, and its role in congestion could influence scheduling, route planning or development, and fleet planning. To the extent that ATM impacts these decisions, ATM can indirectly influence decisions on ground equipment investments, hub development and reservation systems. The issue is the extent to which ATM affects airline product decisions with respect to both the importance to any one decision and the prevalence throughout decision-making.

An air carrier’s chief business interest is revenue generation. Key decisions involve route development, scheduling and fleet planning. Decision-making starts with strategic planning. Route planning and selection lead to fleet requirements. As specific schedules are made regarding city-pair routes, the chosen fleet can be assigned an itinerary. Operational activities provide feedback that may serve to alter a schedule. Scheduling relies heavily on historical operational data, especially block times. Block times can be influenced by ATM and airlines are sensitive to changes in

block times. ATM affects block times through the direct services it offers, with ATM restrictions and in the role ATM plays in contributing to congestion. To obtain their desired on-time performance, airlines will add padding into a schedule to reflect an amount above expected block times to allow for delay and seasonally experienced variation in block times.

Revenue is the main driver of route development decisions although congested routes are sometimes a concern. The issue is the extent to which ATM influences are recognized by airlines at this stage. Logically, if ATM improvements can lead to more economical routes, it can add to revenue and return to investors.

The ATM impact on fleet planning is mostly indirect. ATM can impact block times and block times can affect fleet assignment and fleet utilization. ATM can also influence congestion. Congestion indirectly impacts fleet planning by raising concerns about aircraft size. Thus, ATM influences on airline costs and revenues may be significant. Longer-term consequences of ATM changes and their influence on airline planning must be more clearly understood in order to assess more fully the benefits of ATM improvements.

2.11 Preview of PT. Garuda Indonesia

2.11.1 History

Garuda Indonesia began its first commercial services under the name of

“Indonesian Airways”. It was in October 1948 when the first Indonesian banner carrier was transported to Indonesia. The company’s first aircraft registered as RI-001

named Seulawah (Golden Mountain). It was during a time of change and upheaval for the country, which was struggling to maintain its independence. More recently,

Garuda, along with the country as a whole, has undergone a period of dynamic change. Garuda has continued its effort to improve its services and to provide safe comfortable and reliable air transportation services.

Through those efforts, Garuda has now succeeded in improving its performance in the areas of on-time departures, load factors and yield, and the company recently returned to a position of cash flow and operating profit. Garuda also realizes that the business challenges of the future will be increasingly complex and difficult. Consequently, Garuda is determined to improve its quality in all aspects of the company's activities, and to prepare for privatization which will be realized in the near future. Garuda has a forward view as a source of great national pride for

Indonesia, and that will continue to be one of Asia's most respected airlines.

From the stance of stakeholders, Garuda has been undergoing many significant changes to secure shareholders confidence, employee dedication, and ultimately, total customer satisfaction. Beginning with Garuda’s 1998 Consolidation

Program, Garuda have revitalized virtually every aspect of Garuda with each succeeding corporate rehabilitation plan in every year thereafter. While total customer satisfaction is the ultimate goal, all these particularly designed improvement programs are also envisioned to prepare Garuda for eventual privatization. And in a period of less than two years, Garuda now has a revitalized corporate culture, higher

Seat Load Factors (SLF), improved On-Time Performance (OTP), increased yields and profitability, and a growing base of satisfied customers. Energized by these

"small victories" stated as the strategic intent of Garuda, Garuda now has better identify customer needs which to provide the best possible service, and to deliver this service more efficiently than any other airlines.

2.11.2 Vision and Mission

Garuda Indonesia’s vision is to reach total customer satisfaction.

Garuda Indonesia's new mission is to deliver a total travel experience. To achieve this statement, Garuda realize that they should move forward not only with quick response of brand awareness, but also to keep on innovating to keep ahead of the competition in today's age of progressive air travel.

Garuda current action plan would be focusing on Expansion and Development

Program. Through this program, Garuda will seek to expand its routes, services and products, as well as its fleet. With intention not only to become the domestic market leader, but also to prepare themselves for competition within the international market place and Garuda expects to carry out privatization and become a public company in

2005.

2.11.3 Corporate Data

Company : PT. Garuda Indonesia

Official Airline Code : GA

Legal Entity : State-owned Company

Address : Garuda Indonesia Building

Jl. Merdeka Selatan No. 13

Central Jakarta

Phone : 021-2312612

Fax : 021-2311962

Holding Companies : 1. PT. Aerowisata

2. PT. Abacus Distribution System

3. PT. Gapura Angkasa

4. PT. GMF Aero Asia

5. PT. Angkasa Pura

2.11.3.1 Destinations

List of Domestic destination: 21 Destinations

Ampenan, Banda Aceh, Banjarmasin, Balikpapan, Batam, Biak,

Denpasar, Jakarta, Jayapura, Manado, Medan, Padang, Palembang,

Pekanbaru, Pontianak, Semarang, Solo, Surabaya, Timika, Makasar,

Yogyakarta

List of International destination: 24 Destinations

Bangkok, Hong Kong, Kuala Lumpur, Singapore, Seoul, Shanghai,

Guangzhou (Canton), Beijing, Ho Chi Minh City, Tokyo, Nagoya,

Osaka, Fukuoka, Auckland, Adelaide, Brisbane, Darwin, Melbourne,

Perth, Sydney, Jeddah, Dhahran, Riyadh, Amsterdam

List of Citilink domestic destination: 11 Destinations

Ampenan, Balikpapan, Denpasar, Gorontalo, Jakarta, Kendari, Palu,

Surabaya, Tarakan, Makasar, Yogyakarta

2.11.3.2 Joint Services

Garuda had established several joint services, especially in international flight services. Passengers planning to depart toward the existing joint service destinations will be posed as a Garuda Connecting Flight Passenger. These services enable various passengers to reach several uncovered Garuda service area.

Table 2.4 Garuda Joint Services Partner Date started Details Silk Air June 1997 Singapore - Balikpapan vv. China Airline Aug 1995 Jakarta - Taipei- Jakarta vv. China Southern Dec 2001 Guangzhou - Jakarta vv Airline Seoul - Jakarta vv, Korean Air Augusts 2000 Denpasar - Seoul vv. Kuala Lumpur-Jakarta vv, Medan - Penang vv, Malaysian Airline Feb 2000 Kuala Lumpur-Kinabalu-Manado vv, System Kuching-Pontianak vv, Kuala Lumpur-Frankfurt vv. Philippine Airline Feb 2001 Manila-Jakarta vv Doha-Jakarta vv, Qatar Airways Mar 2003 Singapore-Doha vv.

2.10.3.3 Passengers Traffic

Next is the passengers’ traffic growth in the last 10 years of Garuda contribution in the international and domestic aviation contest.

Table 2.5 Garuda Passenger traffic Year Passengers Progress

1993 5,478,290 -

1994 5,796,349 5.81%

1995 6,269,153 8.16%

1996 6,845,744 9.20%

1997 7,308,428 6.76%

1998 5,042,198 -31.01%

1999 5,213,085 3.39%

2000 5,975,239 14.62%

2001 6,633,517 11.02%

2002 7,452,879 12.35%

2.11.3.4 Fleet Line-up

There are several fleet line-ups owned or leased by Garuda in order to serve whole international and domestic destinations served by Garuda. Some of these fleets are still called ‘young’ in air mileage. These are the best national line-ups of Garuda including the latest model of Airbus A-330-300.

Table 2.6 Garuda Fleet Line-up No Type Total Seat Capacity per Aircraft

1 B-747-400 3 405

2 A-330-300 6 293

3 DC-10-30 5 272

4 B-737-400 26 124

5 B-737-300 17 104

6 B-737-500 5 92

7 F28-4000 2 85

8 F28-3000 3 65

TOTAL 67

2.11.4 Stakeholders

Garuda Board of Commissioners:

1. Mr. Abdulgani (Chairman)

2. Mrs. Gunarni Suworo (Members)

3. Mr. M Soeparno (Members)

4. Mr. Slamet Riyanto (Members)

5. Mr. Aris Mufti (Members)

Garuda Board of Directors:

1. Mr. Emirsyah Satar, PRESIDENT & CEO

2. Agus Priyanto, EXECUTIVE VP

3. Soenarko Kuntjoro, EXECUTIVE VP

Garuda employees

Table 2.7 Garuda employees Occupation Number of resources

Pilot and Copilot 639

Flight Engineer 69

Cabin Crew 2,006

Sales & promotion 911

Airport handling 437

Maintenance & Engineering 90

All Other personnel 1,695

Garuda Aviation Training 141

Garuda Cargo 408

Garuda Sentra Medika 88

Total 6,484

2.11.5 Achievements

1. Best Brand Award 2004

Marketing Research Specialist MARS and business magazine SwaSembada

presented Garuda Indonesia with Indonesian Best Brand Award as the most

valuable brand in airline/airways service category.

2. Indonesian Customer Satisfaction Award 2004

Marketing Research Institute Frontier and business magazine SwaSembada

presented Garuda Indonesia with their ICSA Award 2004 in the category

"Total Customer Satisfaction". An award for successfully meeting customers’

satisfaction for the past five years since 2000 until 2004

3. Best "On Time" Airline Schiphol International Airport

On 10 January 2002, Schiphol Airport Amsterdam declared Garuda Indonesia

as winner of its "Punctuality Intercontinental Airlines 2000"award-the most

on time airline on international routes.

4. International Standard Information System

DNV (Det Norto Veritas), A Netherland -based standard certification institute,

presented Garuda Information Systems with an ISO -9001 Certificate on 25

May 2000.

5. International Standard Training

Garuda Aviation Training received an ISO-9001 certificate on 26 January

2000 from TUV, a German-based standards certification institute.

7. FAA Maintenance and Repair Certificate - The United States Federal Aviation

Administration (FAA) on 28 February 2000 announced the Garuda

Maintenance Facility had fulfilled requirements as an "approved repair

station" in accordance with FAR 145, and had satisfied the quality guarantee

needed to carry out maintenance, including engine and aircraft components,

on aircraft owned by US airlines.

2.11.6 Competitors Analysis

As Indonesia emerges from the worst of the economic crisis, the airline sector has dramatically changed. By the end of 2001 it was projected that there will be 17 airline companies (both old and new) operating in Indonesia. Garuda Indonesia will compete with either newcomers such as Bayu Indonesia Airlines, Lion Mentari

Airlines, Batavia Airlines, Pelita Air Services, Air Mark Indonesia, Express Air, Star

Air, Kartika Airlines, Deraya and Jatayu Gelang Sejahtera and old player such as

Merpati Nusantara Airlines, Bouraq Airlines, Mandala Airlines and Dirgantara Air

Services.

All of these airlines will compete very hard to get a profitable share of domestic passengers. Domestic passenger traffic plunged dramatically to 6.2 million in 1998 from 13.3 million in 1997. In 1999 the figure rose slightly to

6.9 million. Analyzing the latest data, the passenger traffic had increased with the in

2002 to 12.1 million domestic passengers, and on first half of 2003 averaging 1.4 million passengers per month. The overview of Garuda Indonesia’s competitor is as follows:

2.11.6.1 PT. Merpati Nusantara Airline (MNA)

PT Merpati Nusantara Airline (MNA), established in 1962, also is a state- owned airline company, which serves international and domestic routes. However, unlike Garuda, MNA serves several pioneering routes, primarily in the eastern part of

Indonesia.

Back in 1999, MNA's load factor improved to an average of 70 percent, up from the 40 percent recorded in 1998. During the past economic crisis, MNA had to return 19 of its leased planes, which caused its revenues to drop to an average of

US$10.7 million per month.

In the future, MNA plans to open new routes to international and domestic destinations. For these additional routes, MNA will need more aircraft. It is expected that MNA will need at least 10 additional aircraft of various types such

Boeing 737-400. However, MNA indicates it does not intend to buy new aircraft, but only seeks to lease or to operate via a revenue sharing scheme instead.

2.11.6.2 PT. Bouraq Indonesia Airlines

P.T. Bouraq Indonesia Airlines, founded by J.A. Sumendap in 1967, flies to several cities in Indonesia and Manila. The company operates under the domestic investment (PMDN) scheme and is fully owned by the Sumendap family, one of the owners of the Porodisa group. In order to survive during the economic crisis, Bouraq had to lay off the majority of its employees and back at the moment operating only 10 aircraft, including six B737-200s, two HS-748s, one BN-

2A, and one F-28. However, currently Bouraq operates several B737-200s, and some

MD-82s to serve additional routes in the near future.

2.11.6.3 PT. Mandala Airline

P.T. Mandala Airline was established in 1969 and is fully owned by PT

Dharma Kencana Sakti, an organization of army veterans. With its 12 aircraft consisting of 11 B737-200s, and one F-28, Mandala serves 14 domestic routes.

In the near future, Mandala will expand to serve the international route Batam

- Kuala Lumpur, after adding one Airbus aircraft. For cargo services, Mandala has replaced its Boeing with an Airbus for the Batam – Hong Kong route. Now

Mandala has enhanced its fleet with B727-200.

2.11.6.5 PT. Lion Mentari Air

P.T. Lion Mentari Air (LMA) launched its first domestic flight on June 30,

2000. President Director Rusdy Kirana said that the initial investment of

US$3.4 million was used to acquire Boeing 737 aircraft. Back in year 2000, Lion have rented two Airbus A310-300s and two MD-82s from the Singapore-based airline Regent Air to accompany its existing five Russian aircraft YAK-42Ds and one

Boeing B737-200. Currently Lion Air focuses on standardization fleet with nineteen

MD-82s, and five DHC-8-301 fleets operating under the banner of Wings, serving areas in the remote regions or cities in Indonesia.

Lion Air offers low-fare flights, and it serves tourists, commercial tourist and common travelers. They believe that superior on-time performance and low-cost

strategy can boost their income as it is also the source of passenger’s satisfaction. In the future Lion Air wants to be considered as a reliable transportation service provider for the society, proved for their superior technology and on-time performance rate. As their motto goes “ We Make People Fly”.

From several airlines mentioned above, Garuda considers several national airlines as foremost Direct Competitors in regional area: Lion Air, Merpati Nusantara

Airline, Mandala Airlines and Bouraq Airlines. These competitors were taken by the share of airline market in Indonesia. In addition for supporting information, Garuda considers Lion Air as a direct competitor which both are lining in a head to head competition, based on the reasoning that both Garuda Indonesia and Lion Air are currently operating in the same Hub Units in the Terminal 2F in Soekarno Hatta

Airport Jakarta.

Furthermore are direct competitors for international airlines, which explained as operating airlines for international destinations that are currently served by Garuda.

Airlines such: Singapore Airlines, Qantas Airlines, Thai Airways, and KLM.

Competitors considered as indirect competitors. These competitors are airlines which operate in several destinations that are not served by Garuda, however currently operate in Soekarno-Hatta International Airport. International airlines such

Air Jordania, Lufthansa Airlines, and Korean Air.

Meanwhile the substitute services available for airline industry are: Train

Services operated by PT. PERUMKA, and Sea Cruise services operated by PT.

PELNI or some in short distance services by Private Corporation.