The Impact of Restructing on the Airline Performance: The Case of Garuda Indonesia

Issue: , Section: Research studies

ABSTRACT:
Garuda Indonesia is an airline company owned by the Indonesian Government. The airline has been vastly developed since being established in 1950. Remarkable growth has been achieved mainly due to the fact that in the early years there was minimal competition in the airline industry in Indonesia. Being the first Indonesian airline, Garuda Indonesia monopolised the commercial air transportation services. This situation allowed more than reasonable company performance for many years. However, since the government introduction of 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. To overcome these problems, restructuring was first undertaken during 1998 to 2001. The first restructuring was quite successful in reinventing the performance of Garuda Indonesia, indicated by positive operational profit and improved cash flow. Unfortunately, Garuda Indonesia’s performance decreased once again after the appointment of new management in 2002. The new management tended to be inconsistent in implementing company business strategies. Operational profit gradually decreased from 2003 and this continued to 2005. By 2005, the financial and operational conditions of the company were considered to be worse than the previous problems faced in 1997. To improve the performance, new management was appointed again in 2005. This new management then started the second restructuring of Garuda Indonesia. The effort was once again quite successful in bringing Garuda Indonesia to a turnaround phase in 2007. Since then, company performance has gradually improved until today. The purpose of this research paper is to analyse the internal and external factors influencing the success of Garuda Indonesia in improving its performance through two restructuring processes. Both primary and secondary data were used in the analysis. 185 of 385 managers (57%) were selected from Garuda Indonesia businesses. Interviews and focus groups were conducted with 35 respondents, 23 were from the top management and 12 from the selected respondents. Structural equation modelling (SEM) was employed. The findings suggest that both external and internal factors have significantly influenced the performance of Garuda Indonesia. The most appropriate indicator to represent the performance of Garuda Indonesia is the improvement of operation management followed by the improvement of corporate culture and costumer relation. The economic condition is considered to be the most valid variable of external factors in influencing Garuda Indonesia’s performance. The next most valid variables are competition among airline companies and fuel prices. As for internal factors, it is found that the strategic fi t, leading change, and entrepreneur orientation are the three variables which had the biggest impact on the performance of Garuda Indonesia. The most valid indicator in representing the strategic fi t variable is the company positioning indicator followed by environment adjustment and company value improvement indicators. The leading change variable is represented by the motivated leader, anticipatory leader, and inspirational leader. The most valid indicator to represent the entrepreneur orientation variable is the capacity to manage risks and problem solving. The second most valid indicator is the initiative capacity and risk taking bravery behaviour, while the last indicator was the self-confidence and working spirit.

KEY WORDS: airline, performance, restructuring, turnaround

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