SINGAPORE (Reuters) - Garuda Indonesia (GIAA.JK) is facing pressure on yields because of over-capacity in markets and weak economic growth, forcing it to restructure its fleet and defer some aircraft deliveries, the airline’s president said on Wednesday.
Garuda and its budget carrier, Citilink, face intense competition from privately held Lion Group, which has become a dominant local player, helped by aggressive expansion and record aircraft orders.
“The markets seem to be in over-capacity, not only domestic but also regional,” Garuda’s Arif Wibowo told Reuters in an interview at the Singapore Airshow.
He said air traffic at Indonesia’s flag carrier had been hurt by weaker demand from the natural resources sector due to the collapse in prices for oil, gas and other commodities.
He said Garuda had been deferring deliveries of some wide body airplanes and turboprop aircraft, adding that the airline is also restructuring its planes to fit in more economy seats at the expense of first class seats in most of its aircraft.
“We are facing strong tailwind from jet fuel prices and strong headwind from the economic growth in the region. The domestic growth is also below our expectations,” said Wibowo, who became the full service airline’s president in December 2014.
He said Garuda was still in discussions with Airbus and Boeing to buy 30 wide-body jets worth potentially $9 billion from one of them but the process was taking longer than expected.
Indonesia is set to emerge as one of the world’s top 10 aviation markets by around 2020, and could be in the top five with 270 million passengers by 2034, according to projections by the International Air Transport Association. But patchy safety record of airlines and creaking infrastructure have raised doubts over the potential of the market.
Reporting by Anshuman Daga, Editing by Tim Hepher and Siva Govindasamy