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Garuda adjusts 777-300ER route plans to focus on Japan while dropping Australia-London one-stops

Garuda Indonesia is planning further expansion to Japan as it decreases focus on Europe by dropping plans to operate non-stop services to London and to compete in the Australia-London market. The U-turn in Garuda’s widebody fleet deployment strategy reflects the intense competition in the Southeast Asia-Europe and Australia-Europe markets compared to the more attractive expansion opportunities within Asia.

Garuda’s new flagship fleet of 777-300ERs was initially intended to operate several new non-stop long-haul routes to Europe, starting with London in Nov-2013. Garuda instead now plans to use a small portion of its 777-300ER fleet for long-haul services, operating only five weekly flights to Europe on a Jakarta-Amsterdam-London Gatwick routing.

Garuda also has dropped plans to deploy the 777-300ER to Sydney as part of a one-stop same plane product for the Australia-UK market. The carrier instead is expanding capacity in North Asia, particularly to Japan where it sees growing demand and opportunities for connections with other SkyTeam members and new partner All Nippon Airways.

Garuda initially had high hopes for Jakarta-London non-stops and Australia-UK one-stops

Garuda took delivery of its first 777-300ER in mid-2013 and added three more of the type by the end of 2013. The carrier plans to take delivery of three more 777-300ERs over the remaining eight months of 2014 and a final three 777-300ERs from its 10-aircraft commitment in 2015.

The original deployment plan had the initial batch of four aircraft being deployed on new non-stop services from Jakarta to London Gatwick and on the existing Jakarta-Sydney route. Garuda initially planned to launch Jakarta-London on 2-Nov-2013 with five weekly 777-300 frequencies. At the same time it was also intending to use 777-300ERs to take over from A330s on its daily Jakarta-Sydney service.

Garuda in Apr-2013 began selling its London service as well as a one-stop same plane product between Sydney and London. It also started promoting one-stop connecting flights from Melbourne and Perth to London. (Brisbane-London was also available for sale but as a two-stop product because Garuda only serves Brisbane from Bali while its other three Australian destinations are served from both Bali and Jakarta.)

As CAPA previously discussed, Garuda was keen on becoming a major player in the Kangaroo route between Australia and the UK, recognising local demand between Indonesia and the UK was not sufficient to fill up the new Jakarta-London service. Garuda was expecting about one-third of its passengers between Jakarta and London to originate in Australia and about one quarter to originate in Sydney. Assuming average load factors of 80%, Garuda was expecting 63 passengers per Jakarta to London flight to originate in Sydney with another 21 passengers to originate in other Australian gateways.

See related reports:

Garuda's London route plans have changed several times

At the end of Jul-2013 Garuda postponed the Jakarta-London Gatwick route, forcing the carrier to refund or re-accommodate passengers who had booked tickets on the flight in the first three-plus months of heavily promoted sales, including a large number of Australian passengers. Garuda initially blamed the postponement on Jakarta airport, claiming the airport’s pavement needed to be upgraded to handle fully loaded 777-300ERs.

See related report: Garuda Indonesia’s international ambitions set back by London postponement

In early Nov-2013, Garuda reopened sales for Jakarta-London Gatwick along with the same one-stop connections from Australia with a revised launch date of 29-May-2014. But in Mar-2014, after four months of sales, passengers were refunded or rebooked following yet another change in the London launch schedule.

Garuda this time has decided to defer the launch of London until 8-Sep-2014 and change the routing to include a stop in Amsterdam. Garuda also decided to drop plans to use 777-300ERs on Jakarta-Sydney and instead continue to use A330s.

Garuda, however, still plans to begin using 777-300ERs to Europe at the end of May-2014, when the carrier’s five times per week service to Amsterdam is upgraded to non-stop. Amsterdam is currently served via Abu Dhabi with A330-200s. The Amsterdam-London Gatwick leg will be added from 8-Sep-2014 and passengers that had booked to Gatwick before 8-Sep-2014 have been offered routings via Amsterdam with connections to other London airports served by KLM.

Garuda remains keen to expand its partnership with KLM as Etihad partnership is de-emphasised

The decision to serve Amsterdam non-stop is logical as it enables Garuda to leverage KLM’s hub, which includes over 60 destinations in Europe. Garuda will also gain one-stop offline access to over 20 destinations in the Americas. Garuda and KLM are longstanding partners and expanded their codeshare following Garuda’s ascension into SkyTeam in early Mar-2014.

Garuda also has been offering offline connections to Europe via Etihad since late 2012. But Garuda has said it plans to focus more on building its partnership with KLM.

With the new non-stop service to Amsterdam, Garuda is dropping Abu Dhabi and the UAE entirely. Garuda stopped serving Dubai in Dec-2012 as it moved the stopover of its Amsterdam service to Abu Dhabi. Etihad will continue to operate Jakarta-Abu Dhabi.

While the codeshare with Etihad will be retained at least for now, Garuda will focus on Amsterdam for connections to Western Europe and the Americas, leaving Etihad to cover parts of the Middle East, Eastern Europe, Central Asia and Africa. Garuda also aims to start codesharing with SkyTeam member Saudia via Jeddah, which once Abu Dhabi is dropped at the end of May-2014 will become Garuda’s only remaining online destination in the Middle East.

See related report: Garuda gives SkyTeam leading presence in Southeast Asia as Garuda’s international profile is raised

The Amsterdam non-stop route enables Garuda to compete more effectively against Gulf airlines and SIA

Jakarta-Amsterdam is also a relatively large local market given the historical and economic ties between Indonesia and the Netherlands. KLM currently serves Jakarta with a daily service from Amsterdam via Kuala Lumpur while sister carrier Air France also plans to begin serving Jakarta on 1-Jul-2014 from Paris via Singapore.

The new non-stop from Garuda provides a more convenient option for passengers heading between Indonesia and the Netherlands. It also provides a one-stop product to Europe without having to rely on a Gulf carrier partner. Gulf carriers and other Southeast Asian flag carriers, particularly Singapore Airlines (SIA), now offer a wide range of one-stop Indonesia-Europe city pairs.

SIA is the largest foreign carrier serving Indonesia and along with SilkAir accounts for an 18% share of full-service international seat capacity compared to 28% for Garuda. Emirates, Etihad and Qatar are all leading foreign carriers in the Indonesian market and combined account for about an 8% share of international full-service seat capacity (and account for over half of all capacity between Indonesia and regions outside Asia-Pacific.)

Indonesia top 20 full-service international carriers ranked by seat capacity: 28-Apr-2014 to 4-May-2014

Rank Airline Total Seats
1 GA Garuda Indonesia 121,970
2 SQ Singapore Airlines* 60,006
3 MH Malaysia Airlines* 37,466
4 CX Cathay Pacific* 21,022
5 CI China Airlines* 19,173
6 MI SilkAir* 15,704
7 EK Emirates* 15,540
8 VA Virgin Australia* 15,236
9 QR Qatar Airways* 11,130
10 HX Hong Kong Airlines* 11,116
11 KL KLM Royal Dutch Airlines* 10,616
12 KE Korean Air* 10,470
13 SV Saudia* 9,776
14 EY Etihad Airways* 8,764
15 TG Thai Airways* 7,518
16 BR EVA Air* 7,056
17 NH All Nippon Airways* 6,748
18 OZ Asiana Airlines* 5,060
19 CZ China Southern Airlines* 4,498
20 SJ Sriwijaya Air 3,948

Garuda’s Australia-London strategy was risky

Dropping plans to operate non-stop flights to London is also a sensible move for Garuda as the local Jakarta-London market is not large enough to support the flight and the carrier would have struggled to secure enough connecting passengers to make the route viable. On the London end, connections would be difficult as Garuda has been unable to secure slots at London Heathrow, where there would be more opportunities to work with other SkyTeam members.

At the Jakarta end, Garuda’s only feasible option besides domestic connections was Australia connections as other destinations in Asia-Pacific would require backtracking and Garuda’s regional international network is much smaller than rival SIA or Malaysia Airlines (MAS).

But the Australia-London market is extremely competitive and Garuda would have likely had to sell tickets below cost to fill up the seats, particularly as it was offering unattractively long connection times at a congested airport with an inferior transit experience compared to most Kangaroo route hubs. By banking heavily on Australia connections in its original strategy for the London market Garuda was making a risky bet.

Dropping the planned London non-stop, however, is a bitter pill to swallow as the carrier will now have to work hard to rebuild its profile after twice cancelling the route before it was launched, inconveniencing thousands of passengers. Garuda’s position in the Australia market in particular is weakened as the carrier no longer will be offering a one-stop option to London despite heavily promoting and marketing its planned one-stop product for several months. Garuda is now offering the Australian market a one-stop product to Amsterdam but this is a much smaller market and is also competitive as Gulf carriers, SIA and MAS all offer one-stop Australia-Amsterdam connections.

Garuda would be better to serve London as an offline market over Amsterdam

Garuda saves some face by still serving London, where it has invested significantly in marketing campaigns and opened an office ahead of its original anticipated Nov-2013 launch. But only serving London via Amsterdam is a completely different product. This may mean unravelling a number of existing commitments, but tag-end flights on long haul services can be notoriously costly.

Relying on connections with KLM to serve the London market would make more sense, particularly financially, than operating a tag from Amsterdam with its own aircraft and crews. The Air France-KLM group operates a high frequency service from Amsterdam to London Heathrow and London City, airports which are generally preferred by business travellers.

KLM also offers connections to several regional cities in the UK, giving Garuda sufficient access to the UK market without having to invest in its own tag flight to Gatwick. For passengers insisting on Gatwick, there is always the option of high frequency service from Amsterdam to Gatwick on easyJet and British Airways, although neither are Garuda partners. (easyJet also serves Amsterdam from London Luton, London Stansted and London Southend.)

A non-stop to Amsterdam with quick connections on KLM to London Heathrow and London City should provide a sufficient response to Emirates, Etihad, Qatar, SIA, Malaysia Airlines and Thai, all of which offer a one-stop product between Jakarta and Heathrow.

Southeast Asia to London Heathrow capacity by carrier (one-way seats per week): 19-Sep-2011 to 26-Oct-2014

Garuda has shelved further expansion in continental Europe

Garuda is in a difficult position because for over a year it has talked up non-stops to London and an expanded European network. Garuda was initially planning to operate four to five non-stop routes to Europe by 2015, when the final 777-300ER from the 10-aircraft batch will be delivered. Paris, Milan, Rome, Frankfurt, Berlin and Munich have all been evaluated with the initial expectation that one destination in Italy and one destination in Germany would be selected along with Paris.

But Garuda has now put all possible additional European destinations on the backburner. If Garuda later decides to revisit expansion in Europe, Paris followed by Milan or Rome would seem to be the most logical options as they are SkyTeam hubs. But Amsterdam would offer essentially the same connections.

For now Garuda is content on focusing on Amsterdam and making its first non-stop route to Europe viable. If the Amsterdam service and connections succeed at wooing passengers away from Gulf and Southeast Asian competitors, Garuda will likely then relook at serving a second European SkyTeam hub.

For at least the medium term Garuda is content on not fully utilising the range capabilities of its new 777-300ER fleet, which is its only aircraft in three-class configuration (with 268 economy, 38 business and eight first class seats). The type was acquired and configured for the long-haul market, with a lie-flat business class product and the return of a first class service. But for now there are more attractive opportunities to expand capacity on medium-haul routes.

Garuda currently operates 777-300ERs on the Jakarta to Tokyo Narita, Shanghai and Jeddah routes, according to OAG data. The aircraft has particularly performed well in the Japanese market, where there is growing demand including for premium services.

Garuda will expand further in Japan market with a new Jakarta-Haneda route

Garuda recently unveiled plans to begin serving the Jakarta-Tokyo Haneda route from mid-Jun-2014. The route will initially be served daily with A330-300s but given the rapid growth in the Tokyo-Jakarta market and Garuda’s new partnership with ANA this route could also potentially be up-gauged to 777-300ERs as additional aircraft are delivered.

Jakarta-Tokyo is a large and rapidly growing business market, driven by increased Japanese investment in Indonesia. In addition to the one existing daily 777-300ER flight operated by Garuda to Narita, ANA currently operates one daily 767 flight on Jakarta-Narita as well as one daily 787-8 flight on Jakarta-Haneda while Japan Airlines operates one daily 777-300ER flight on Jakarta-Narita. Garuda also links Jakarta and Osaka Kansai with four weekly A330 flights.

In addition Garuda serves Haneda, Narita and Osaka Kansai from Bali with daily A330 frequencies on each route. Bali is a much different market as it is primarily leisure.

Both the Bali-Japan and Jakarta-Japan markets have been growing. Garuda recently stated that about 480,000 Japanese visited Indonesia in 2013, up 8% compared to 2012. Indonesian visitors to Japan increased by 36%, but on a much smaller base, to about 137,000.

After the launch of Garuda’s Jakarta-Haneda service there will be almost 18,000 weekly one-way seats between Indonesia and Japan. This represents about a 50% increase in seat capacity compared to Jun-2013 and about an 80% increase compared to Jun-2012, according to CAPA and OAG data. Garuda capacity has increased by almost 70% over the past two years.

Indonesia to Japan total capacity (one-way seats per week): 19-Sep-2011 to 26-Oct-2014

As of mid-Jun-2014, Garuda will account for about 61% of seat capacity in the Indonesia-Japan market compared to about 19% for ANA and about 20% for JAL. ANA and Garuda began codesharing on all their Indonesia-Japan services at the end of Mar-2014, following a partnership agreement which was inked between the two carriers in late 2013. The two airlines also have started codesharing on domestic connections within Indonesia and Japan.

Garuda has said that the partnership with ANA, which is a member of Star, is intended only for the local Indonesia and Japan markets. Markets beyond Japan, such as the west coast of North America, will be covered by SkyTeam partners.

Garuda will also expand in the Korean market

Garuda currently codeshares with two SkyTeam members from North Asia, Korean Air (KAL) and China Airlines (CAL), and is hoping to add links with SkyTeam’s Chinese members.

Garuda now operates daily services to Seoul from both Jakarta and Bali with A330s but plans to add two additional weekly frequencies on the Jakarta-Seoul route from early Jun-2014 for a total of nine. Seoul is another potential route for 777-300ERs as the Indonesia-Korea market continues to grow and as Garuda works to expand its partnership with Korean.

Taipei is a much smaller market for Garuda and is now only served from Jakarta with 737-800s. CAL, however, has a big operation in Indonesia with 17 weekly flights to Jakarta (seven non-stop and 10 via Hong Kong), seven weekly flights to Bali (all non-stop from Taipei) and seven weekly flights to Surabaya (all via Singapore). All 31 of CAL’s weekly flights to Indonesia are operated with widebody aircraft, making CAL the largest SkyTeam carrier after Garuda in the Indonesian market.

KAL is smaller in Indonesia, with 10 weekly flights on the Jakarta-Seoul route and nine weekly flights between Bali and Seoul. SkyTeam currently accounts for about one-quarter of total seat capacity in the Indonesian international market, including a 16% share for Garuda and nearly a 3% share for CAL.

Indonesia international capacity share (% of seats) by global alliance: 28-Apr-2014 to 4-May-2014

SkyTeam connections could enable further Garuda expansion in North Asia

A stronger relationship with KAL could help justify up-gauging some of Garuda’s Seoul flights to 777-300ERs as more aircraft come into the fleet.

While SkyTeam does not have a member in Japan, which enables Garuda to work with ANA, Garuda aims to connect with other SkyTeam-operated services at Narita including Delta and Aeromexico. These connections further build the business case for continuing to use its flagship aircraft on the Jakarta-Narita route.

Garuda’s focus on North Asia is logical as Indonesia-North Asia is a large and growing market for both inbound and outbound travel. Northeast Asia currently accounts for 19% of total international seat capacity from Indonesia, according to CAPA and OAG data.

Indonesia international capacity share (% of seats) by region: 28-Apr-2014 to 4-May-2014

Competition in the Indonesia-North Asia market is also not nearly as fierce as Indonesia-Europe (or Australia-Europe), where Garuda has to contend with the Gulf carriers as well as Southeast Asian flag carrier with larger international networks.

Garuda is wise to adopt a lower risk, forward looking strategy

Pursuing ambitious expansion in Europe, as Garuda initially envisioned, would be a risky proposition. After two postponements, to offer just one European route having talking up European expansion and downgrading London to a one-stop service is tough from a public relations standpoint - as is pulling completely out of the one-stop Australia-UK market after several months of promotional activity.

But these are rational moves that should improve Garuda’s position and short to medium-term outlook amid challenging market conditions in Southeast Asia.

To rely more on end-to-end traffic flows is undoubtedly a smaller gamble, even if the potential rewards and higher profile are less evident. At a time when both opportunities and risks abound in equal proportions, erring on the side of caution is a more sensible approach.

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