NO. 1 2011 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 15 NO. 1 2011 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 15

VOL. 1 NO. 1 2011 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 15 VOL. 1 NO. 1 2011 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 15

Since 2007, as anticipation to increase in numbers the LFC and to win the competition, Garuda Indonesia has implemented a new concept of price regulation system, by implementing several pricing concepts with different application to each segment and channel (different price for different segment or channel). This new price regulation system is conducted to catch segment at lower market segment such as worker, student and switcher, and others (Tables VI and VII). Implementation of the system is also to increase awareness that Garuda Indonesia possessed various level of offering price, so that the currently planted image as airline with high price can be removed. Implementation of many pricing concept is not for lowering price as competitors did, however, by fixing route profitability then customer can get added value with similar price.

Price innovation is also done by Garuda Indonesia by implementing technology in the ticket buying process; for example, by means of internet booking which is easier and cheaper. The new fare development has enabled Garuda Indonesia to control its prices and gain more passengers for operated routes with limited distribution network. Another price innovation under development is the sophisticated bidding price model which has been implemented in new revenue management-origin destination.

The developments of routes and frequency have increased available seat kilometers (ASK) up to 3.97 percent, in compared with the preceded year. ASK is a result of multiplication of the amount of available seats and flight distance. The production capacity of ASK of international flights in 2009 has reached 12.21 billion, or 58.36 percent of the number of ASK 20.91 billion. The international routes of ASK are generally bigger that those of ASK domestic routes, because the international flight distance is longer than those of domestic flights. ASK of

Table VI Pricing concept for different segment

Market segment

Pricing concept

Garuda basic fare

Recommended selling price to end customer

Corporate and institution

Special scheme fare for corporate and institution employees and their family or vendor related

Partnership

Special offer to its partners which are willing to promote GA to their member

Group package

Create in-house package or to help branch office (BO) to boost their traffic together with agent

Attractive price for worker/trainee/entertainer to MEA, ASIA, Korea and Downloaded by New York University At 19:05 31 January 2016 (PT)

Labor/trainee/entertainer

JPN (together with BO to increase middle-low market)

Student, senior citizen,

Special fare for students, senior citizen, and ship crew

ship crew Switcher

Surprising offer fare

Table VII Pricing concept for different season

Season

Pricing concept

High, shoulder, low season

Yearly fare, RSP international

Special fares are avail significantly during low season

Promo fare and ad hoc fare

Price created for educating market to reserve seat earlier,

Advance purchase-Apex Fare

currently apply until 14 days before dept. for domestic and 28 days before departure for international Aiming for gimmick fare for lowest fare Garuda Indonesia

Early bird fare

using marginal cost concept Clearance fare for specific event

Low season

PAGE 16 j EMERALD EMERGING MARKETS CASE STUDIES j VOL. 1 NO. 1 2011 PAGE 16 j EMERALD EMERGING MARKETS CASE STUDIES j VOL. 1 NO. 1 2011

65.94 percent of the entire FATK. The FATK is originated from the cargo space of passenger aircraft that is operated. Regarding this cargo capacity, Garuda has not yet operated any freighter aircraft.

Seat load factor (SLF) rate on regular flights was at 77.5 percent in 2007, 76.5 percent in 2008, and 73.5 percent in 2009. The performance of SLF achievement at each service area is varied. SLF of service in Middle East, Japan, Korea, China, and Southwest Pacific are decreased, meanwhile SLF of service in and Asia are increased, in compared with the preceded year. SLF of domestic mainbrand flights and international flights in 2009 are decreased, respectively, at 78.65 percent (from 79.8 percent) and 69.83 percent (from 74.22 percent).

Development of passenger yield was one of goals in WIG. In 2008, Garuda Indonesia successfully reached increase in passenger yield at 22.2 percent from US Cent 7.8 in 2007 to US Cent 9.51 at the wide system scale of main brand flights. However, with full service airline strategy and favorable growth in domestic demand, the domestic passenger yield – passenger fare per average kilometer – is decreased by 14.05 percent from US Cent 10.46 in 2008 to US Cent 8.99 in 2009. For international market, which is generally conceived as experiencing a decrease in demand and threat of tight competition, the passenger yield is lowered by 25.03 percent from US Cent 8.79 in 2008 to US Cent 6.59 in 2009. The above combined price strategy results in a passenger yield of US Cent 7.66 or a decrease of 19.44 percent of US Cent 9.51 in 2008.

The sales volume of revenue passenger kilometers (RPK) of main brand Garuda has improved at 9.1 percent, from 14,039 million in 2007 to 15,395 million in 2008, but slightly declined to 15,373 million in 2009. RPK of international flights at 10.5 percent, which is higher than the growth of RPK of domestic flights, at 8.6 percent. RPK of international and domestic flights in 2008 have recorded, respectively, 8,756 million and 6,639 million.

Market share of domestic customers, concerning those who departed from and to Soekarno-Hatta Airport has reached 30 percent in 2007, 29.6 percent in 2008, and decreased 2.1 point to 27.5 percent in 2009. The market share of international customers, concerning those who departed from and to Soekarno-Hatta and Ngurah Rai airports on flight routes served by Garuda Indonesia, has reached 27.7 percent in 2007, 26.3 percent in 2008, and 23.3 percent in 2009. The decline occurring in both domestic and international markets is due to the increasing flight frequency of both local and international airlines, both full serviced airlines and LCC.

Downloaded by New York University At 19:05 31 January 2016 (PT) The market share of Garuda Indonesia against total market share (including routes that were actually not served by Garuda Indonesia) is still at low level. This condition indicates that there is still much other potential of routes, both domestic and international, which has not been deployed by Garuda Indonesia. The domestic market share of Garuda Indonesia against total amount of domestic passengers is at 20.3 percent, it is increased 1 percent, in compared with that in 2008. The international market shares of Garuda Indonesia against total amount of international passengers from and to Indonesia is at 13.8 percent, it is declined at 14.29 percent, in compared with that in 2008.

Citilink service includes six new flights routes which were just reopened in September 2008. As of the mid of January 2008, the company has conducted a reformation in order to prepare Citilink as true LCC. In company’s business context, Citilink flight usually manages any market of low-cost carrier, consistent with purpose of the SBU establishment in year 2001. This operation reopening was earlier than it has been planned; therefore, the available production capacity for Citilink is still limited. In 2009, the amount of passengers which are served by Citilink was up to 588,000 people, or increased 277.46 percent from 2008. ASK of Citilink flights reached 807.3 millions from only 220.8 millions in 2008. SLF rate of Citilink flights reached 63.16 percent and passenger yield is US Cent 4.29.