Garuda Bets on Recovery With Indonesia Relaxing Virus Curbs

(Bloomberg) -- Indonesia’s flag carrier is betting on further easing of social distancing rules to spark a revival in travel for work and leisure after the coronavirus pandemic pushed the airline to seek a debt restructuring and government aid to stay afloat.

PT Garuda Indonesia’s passenger traffic has risen to 16% of its capacity after the government lifted a temporary ban on non-essential travel last month, President Director Irfan Setiaputra said in an interview. Travel demand may further improve if authorities open up popular tourist destinations like Bali, he said.

“There have been continuous improvement in consensus among analysts on when the industry will fully recover,” Setiaputra said. “In May, they were saying it will happen in 2023 but as of last week it has been moved forward to 2022. If the industry can fully recover only in 2022, then Garuda will not be able to make it.”

Garuda reported a net loss of $120 million in the first quarter and was forced to restructure $500 million of debt last month to survive the hit from the pandemic that’s hurt airlines worldwide. The carrier has cut employee salaries and renegotiated aircraft lease agreements to survive the travel slump and secured a credit line from the government.

The airline has no plan to seek further financial assistance from government or its other shareholders even though its cash position is “extremely challenging,” Setiaputra said. The government, which owns 61% of Garuda, has extended 8.5 trillion rupiah ($590 million) from the budget to meet the airline’s working capital requirements.

Perception Problem

“The problem faced by the industry right now is not a technical problem, but a perception problem,” Setiaputra said. “How to create a perception that will encourage public to fly again. Our research shows that people are having a wait and see attitude. In other industries this attitude is fine, but for us it’s dragging our costs.”

Lion Air Group, Garuda’s main rival in the Indonesian market, said on Thursday it had cut an unspecified number of jobs due to the business uncertainty caused by the coronavirus.

Indonesia still remains under the grip of the pandemic with new cases hitting a daily record of 1,624 on Thursday. The country has the most number of infections and fatalities in Southeast Asia, forcing authorities to impose mobility restrictions and mandatory virus testing before flights, discouraging fliers.

Garuda shares gained as much as 2.4%, set for the first back-to-back gain since June 8. The stock has stumbled 50% this year even after soaring 36% in the second quarter.

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