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Indonesian carriers feel pinch from weak rupiah
Publication Date : 16-09-2013
Some local airlines have decided to scale back their fleet expansion plans and reduce their promotion expenditure as the rupiah’s fall against the US dollar has began to affect their businesses.
Budget carrier Citilink Indonesia has, for example, decided to reduce the number of new aircraft it will operate this year in order to reduce the impact of the depreciation of the rupiah on their balance sheet.
“The weakening rupiah has affected our business because 75 percent of our spending is in US dollars, while most revenue is in rupiah,” the airline’s president director, Arif Wibowo, said. Due to the weak rupiah, Citilink will only be able to operate eight new Airbus A320s next year, instead of the 10 it had originally planned.
Arif said that all of the planes would arrive in the second half of 2014. Citilink has also implemented cost-cutting measures to make savings during this tough time.
One of them is by improving its on-time performance (OTP), which should improve efficiency in the usage of aviation turbine fuel (avtur).
According to Transportation Ministry data, Citilink recorded a 77.8 percent OTP from January to June this year.
Meanwhile, other carriers have said that they are in “wait-and-see” mode as they monitor the effects on the Indonesian currency of government policies to help strengthen rupiah, the impact of a reduction in the US stimulus program and the possible involvement of the US in the Syrian conflict.
“We still have to wait and see how weak the rupiah is going to be in the near future. We might review our plans if the rupiah keeps depreciating but in the meantime, we are sticking to our Quantum Leap program,” national flag carrier Garuda Indonesia vice president of communications Pujobroto said.
Based on the Quantum Leap program, Garuda plans to operate 154 aircraft with an average fleet age of five years by the end of 2015. Today, it operates 106 planes including six sub-100 seater Bombardier CRJ1000 NextGen jets on regional routes.
However, he admitted that the airline had taken some measures to help improve its profitability due to the depreciation of the rupiah. “We have reduced the number of promotional fares that we offer to customers because we have to keep the business going strong,”he said.
He added that Garuda had considered optimizing its aircraft utilization by increasing the flight hours of every plane from the current 12 hours per day to 13 or 14 hours so that they could carry more passengers, thus increasing revenue.
The Indonesian currency has declined by about 16 percent this year, most of the falls have occurred during the past several weeks due to a massive outflow of foreign funds from the local stock and equity markets over concerns about a reduction in the US central bank’s stimulus package.
In line with Garuda, the general affairs manager of the country’s largest budget airline Lion Air, Edward Sirait, said that they needed to see how far the depreciation would go in the coming weeks before deciding whether to review their current business plan.
But, Edward said that if the rupiah continued to fall against the dollar until the end of this year, the airline would transfer some of its planes to its subsidiaries Malindo Airways and Thai Lion which operate in Malaysia and Thailand, respectively, and which may have healthier markets.
“That’s one of the possible ways to go because if our currency is weaker compared to others across the Asean market, it will be tougher to fly more planes here,” he said.
Lion Air has ordered 234 Airbus and 201 Boeing aircraft that will be delivered in phases between 2014 and 2022.
In a bid to cope with a weaker rupiah eating into its revenues, the carrier had optimized its aircraft utilization to around 12 to 13 hours daily, Edward said.