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Indonesian budget carrier gives up, shuts down operations

Publication Date : 19-06-2014

 

Cash-strapped Indonesian budget carrier PT Mandala Airlines, which operates under the brand Tigerair Mandala, says it has decided to cease its operations starting July 1 after battling to keep its business alive.

The chairman of Mandala’s board of commissioners, Jusman Syafii Djamal, said in a statement on Wednesday that his firm was no longer able to beat the pressure in the country’s highly competitive aviation industry as well as the surging operational costs.

“We have looked at every angle to make this work, and have also discussed with other potential strategic and financial investors. In addition to the overcapacity situation that has put significant pressure on yields, the weakening rupiah, which has depreciated more than 20 per cent since the beginning of 2013, has also increased operating costs significantly,” he said.

Mandala has undergone restructuring programs twice but still failed to turn around its operations.

Mandala is 64.2 per cent owned by equity firm Saratoga Capital — which was cofounded by Sandiaga Uno and Edwin Soeryadjaya — along with PT Cardig International, and 35.8 per cent by Singapore-based Tigerair Group.

The airline first shut down its operations in January 2011 after it was grounded by heavy debt.

It made a comeback in April 2012 by rebranding itself as Tigerair Mandala, after completing a financial restructuring that saw Tigerair coming in as a key investor with a 33-per cent stake.

In February, the firm even cut 11 routes to reduce its operational costs.

Tigerair Mandala senior communications executive Thoriq Husein said Mandala would provide severance packages to all its 291 staff members and that all passengers who had bought tickets for flights after July 1 would be transferred to Tiger Airways flights or have their ticket costs refunded.

The Malaysia-based CIMB Group previously projected that Mandala would suffer US$24 million to $28 million of losses in its 2014 and 2015 fiscal years, while Mandala’s losses would also cause Tigerair to suffer between $8 million and $9 million in losses.

“Mandala’s financial results reflect the challenges that it is facing in the difficult operating environment,” Tigerair CEO Lee Lik Hsin said in a statement to the Singapore Stock Exchange.

Indonesia’s low-cost airline industry has become increasingly competitive, with a growing number of low-cost carriers and a larger market.

The Transportation Ministry estimates that the number of air travelers in the country will hit more than 100 million this year, 11 per cent up from last year’s 93.56 million.

Lion Air, AirAsia Indonesia and Citilink are among the top budget carriers in the country.

 

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