Garuda looks to scrap first class, axe most international routes

Distressed airline Garuda Indonesia may stop selling first class and withdraw from most international routes as it focuses on local flying.

The state-owned carrier will concentrate on business, premium economy and economy seats because it is more suitable for the market, State Enterprises Minister Erick Thohir said in an interview on Thursday.

He reiterated that Garuda will stop most international routes to cut costs, except for a select few, including pilgrimage flights to Saudi Arabia.

“Garuda had the wrong business model in the past, with its leasing costs way above the industry average, so we need to fix that,” said Thohir. International flights can still be served via code-sharing arrangement with other airlines, he added.

The airline is revamping its operations to meet a goal of returning to operating profit in 2023 while restructuring about US$9.5 billion in debt.

Four first class suites crown Garuda's flagship Boeing 777-300ER.

Garuda, which narrowed its loss in the first quarter, plans to boost its fleet to 120 from 30, gradually returning to its pre-pandemic size.

Garuda will acquire the additional planes from one or two lessors assigned by Airbus or Boeing, said Thohir, adding that he is confident it will have no problem making deals due to the country’s huge air travel market. He predicted that as many as 1,800 planes in total will eventually be needed to serve the entire archipelago.

The SkyTeam member is also willing to renegotiate a deal for 49 Boeing 737 Max jets that haven’t yet been delivered, by either reducing the order size or pushing back deliveries, Deputy Minister for State-Owned Enterprises Kartika Wirjoatmodjo noted mid-year.

The decision to stop receiving the Max started in early 2019 after two crashes – the first of which occurred in Indonesia – that led to a global grounding of the model.

“Boeing wanted us to keep our commitment on the Max purchase,” said Wirjoatmodjo, who met with officials from the US manufacturer earlier this year.

“We want them to renegotiate, just like Airbus, by pushing back the deliveries or reducing the orders for 737 Max. They don’t want it. So like it or not, we might have to settle it in American court, we have to do Chapter 15.”

Garuda’s creditors, which included plane lessors, earlier this year approved a plan to restructure liabilities worth 142 trillion rupiah (US$9.5 billion). The agreement gave the company more financial headroom as it seeks to capitalize on a rebound in air travel.

Garuda last posted an operating profit in 2019, prior to the pandemic.

Additional reporting by David Flynn