Strategic Management

Garuda Indonesia Case Study

Background / Facts of the Case

Garuda Indonesia is an Indonesian Government airline company. The airline has vastly developed

since being established in 1950. One of the main contributing factors of the airline’s growth was due to

the fact that in the early years there was minimal competition in the airline industry in Indonesia. Garuda

Indonesia monopolized the commercial air transportation services since they were the first Indonesian

airline which eventually brought them better performance throughout the years.

However, since the government introduced an open domestic airline industry in 1990, Garuda

Indonesia started to face difficulties. Garuda competed against a number of private airlines, which

possessed expansive strategies in developing routes as well as increasing the number of aircraft. The

performance of Garuda Indonesia gradually decreased to a low when operational profit and cash flow

reached negative figures during the period 1993 to 1997. Further, the seat load factor and on time

performance were also worsening.

On January 6, 1988, the company elected a new president, Mr. Mohammad Soeparno. Upon the

inherited difficulties and poor management of the previous administrators, current operational plans were

established. These plans were subdivided into three classifications - marketing, operations and finance. In

marketing, the company improved the sales by better designing souvenirs, expanding wine list on

international flights, resumption of serving snacks and soft drinks on short domestic flights, promoting

executive class, changing of logo and whole livery and introducing Visit Indonesia Air Pass with three

different packages. Also the following are integrated to enhance the operation system; owning 77

aircrafts, in-flight immigration inspection on Tokyo-Jakarta Bali flights, the agreement with Continental

Airlines, and the process of purchasing tickets by using American Express cards.
 Lastly, the company extended the financial condition through leasing training facilities to other

airline companies then recorded a net income of 300 million rupiah from its activities.

Statement of the Problem

Should Garuda, under Mr. Soeparno, continue with Mr. Lumenta's relatively successful policies?

Alternative Courses of Action

A. Continue with Mr. Lumenta's policies.

Since Mr. Lumenta's policies has proven itself effective, a direction more or less the same would

work as the existing policies ensures that Garuda would go down a path that works.

B. Formulate new policies with current and future problems in mind.

A complete overhaul of the company's policies would enable Garuda to better deal with the

problems faced in the current state of affairs as well as the future problems that may arise from

the current situation. This would also open up the chance for Mr. Soeparno to steer Garuda into a

new, more modern direction.

C. Revise Mr. Lumenta's strategies and policies to better adapt to modern times.

Since Mr. Lumenta's strategies and policies has been working for Garuda, it could mean that a

complete overhaul could completely flip the company's fortunes. However, faced with the

limitations of Mr. Lumenta's strategies and policies and the forthcoming and current obstacles,

the changing of some policies under key problem areas could be the answer to Garuda's growth

constraints.

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Plans for Implementation

The group has chosen alternative course C - Revise Mr. Lumenta’s strategies and policies to

better adapt to modern times as a plan to be implemented.

It is worth pointing out that with the impending growth of the East Asian air-transport industry,

any increase in Garuda's market share would greatly improve their market and financial positions in the

future.

● It would greatly benefit Garuda to adapt a more customer-centric approach to their operations. As

proven in 1984, improving customer service is a great strategy for increasing the number of

passengers choosing Garuda over its domestic competitors.

● It was also pointed out that Garuda had poor reservation services and manual ticketing schemes.

Improving this by investing in new technology, particularly in business process improvement

systems, would further help the airline in providing top-notch customer service.

● It is also suggested that Garuda lobby for a new government committee to which they will

directly report to. This would effectively cut out the bureaucratic processes which have been a

major cause for concern regarding Garuda's access to funding. In lobbying, Garuda could make

use of the fact that they have been able to reach their revenue targets before schedule as the

government is more concerned about the company's bottom-line than anything else.

● It is also suggested that Garuda make plans to acquire new aircraft for their relatively outdated

international fleet in the long term since Garuda's immediate concern is its customer service.