PT Garuda Indonesia (GIAA) has bids from four companies to purchase a stake in its low-fare unit Citilink as the national airline seeks a partner to expand amid a boom in air travel.
Garuda expects to take a decision on the strategic partner by June, Chief Executive Officer Emirsyah Satar said in an interview in Singapore today. The Jakarta-based company said yesterday it’s planning an initial public offering for Citilink. Satar declined to name the four bidders.
Getting a strategic partner and raising funds will help Garuda compete with PT Lion Mentari Airlines in a market where passenger numbers are expected to increase as much as 20 percent this year. From Indonesia to Vietnam to Myanmar, carriers in Southeast Asia are also buying aircraft as about 600 million people -- as many as the combined population of the U.S., Germany and Brazil -- fly more.
“The budget market is growing quite fast in Indonesia,” Satar told Bloomberg Television. “We feel we need a partner who is really experienced in terms of driving the low-cost carrier.”
Citilink operates 30 aircraft for 70 routes across the Indonesian archipelago, according to company figures. Standard Chartered Bank Plc and Bahana Securities Ltd. are advising Garuda on the stake sale, Satar said.
The emergence of low-cost carriers such as Lion Air and AirAsia Bhd. (AIRA) have helped fuel demand for flying in Southeast Asia as tickets get cheaper. Lion Air and Sepang, Malaysia-based AirAsia have together ordered 764 planes worth $73.8 billion at list prices since 2011.
By the end of this year, Lion Air and state-controlled Garuda will surpass Singapore Airlines Ltd. (SIA) as the region’s biggest carriers by fleet size, the CAPA Centre for Aviation, which advises airlines, said last year.
“Ten years ago there were no low-cost carriers in Asia or Southeast Asia,” Randy Tinseth, Boeing Co. (BA)’s vice president for marketing, said yesterday at a press conference. “The growth is even more dynamic in Southeast Asia, where today low-cost carriers provide 22 percent of available seats. That’ll grow to represent about 42 percent of seats” in 2032, he said.
Indonesia overtook its former colonial master, the Netherlands, in 2011 to become the world’s 16th-largest economy, according to data compiled by Bloomberg. If it maintains a growth rate of about 6 percent, it will leapfrog Germany and the U.K. by 2030 to rank seventh, consulting firm McKinsey & Co. predicts.
Garuda’s net income fell to $11.04 million in 2013 from $110.6 million a year earlier, due to depreciation in the rupiah, which weakened 21 percent last year, and higher operating costs. About half the company’s revenue was in foreign currencies and about 60 percent of its costs were in dollars, Satar told a press conference yesterday. The company will try to lift dollar revenue to match expenses, he said.
Citilink will do better this year and not incur a loss, Satar said today. Garuda plans to add 30 aircraft this year and take its fleet to about 250 by the end of 2025, from 194 planes by the end of 2015, Satar said. The company is looking to buy wide-body aircraft and considering Boeing’s 787 Dreamliner as it expands internationally, he said.
“We should not read too much on their 2013 numbers, which were affected by the rupiah,” Shukor Yusof, an analyst at Standard & Poor’s in Singapore, said by phone today. “Once they announce new orders and increase the network into Europe, things will turn around. By the end of this year I think they should be in far better shape than many other carriers in the region.”
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