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Garuda targets profit in 2018 on cost cuts after loss this year

[JAKARTA] PT Garuda Indonesia is targeting a return to profit next year after a loss in 2017 as the flag carrier works to reduce expenses and operations improve.

The airline is predicting a profit of US$75 million in the second half ending December but won't be able to post a profit for the 12-month period following a larger loss in the first six months of the year, chief executive officer Pahala Mansury said. Losses in the first half totaled US$284 million, he said.

The Indonesian carrier is boosting aircraft utilisation by reducing flight turnaround time and cutting expenses, steps that will help Garuda turn in a profit next year, Mr Mansury said. The executive, who took the helm six months ago, said Garuda aims to bring down its cost per available seat kilometre to 5.5 US cents to 6 US cents, from 6.7 US cents currently.

"We have been increasing the utilisation rate of our aircraft and will continue to do so,"  Mr Mansury said in an interview in Jakarta on Oct 18. "This will be the key factor to determine whether we are profitable in future and whether our financials improve."

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By comparison, cost per available seat kilometre across Singapore Airlines group, which includes budget carrier Scoot, was 6.83 Singapore cents in the latest fiscal quarter ended June, according to data compiled by Bloomberg.

Garuda is in discussions with planemakers to defer aircraft delivery, Mr Mansury said, without giving specific details. In 2015, the carrier committed to 60 planes from Boeing valued at US$10.9 billion at list prices and 30 aircraft from Airbus valued at US$9.1 billion, before discounts that are customary in the industry for large orders.

The company is restructuring its low-cost carrier Citilink and converting debt in the unit to equity, the CEO said. In addition, Garuda plans to boost revenue from other aviation-related businesses such as aircraft maintenance and its hotel subsidiaries.

Mr Mansury said Garuda is leveraging on Indonesia's geographic position to get more overseas customers. Revenue from international flights expanded almost 15 per cent in the first half from a year earlier, while the share from domestic travel fell.

Garuda shares have fallen 3 per cent this year, underperforming the 24 per cent gain in the Bloomberg Asia Pacific Airlines Index.

Starting next month, the airline will fly non-stop to London from Jakarta after years of setbacks, allowing it to tap around 700,000 passengers who travel between Australia and the UK each year on the so-called "Kangaroo route".

The group is targeting a net income margin of 1 per cent to 2 per cent in 2018, compared with 0.21 per cent last year.

"Garuda Indonesia's situation has improved," Mr Mansury said.

BLOOMBERG