Indonesian Airline Hopes to Return to U.S. With Global Expansion

JAKARTA, Indonesia—Indonesia's largest airline is moving forward with its international expansion plans, aiming to push further into Europe and China and possibly re-enter the U.S. market in the future if it gets the green light from aviation officials there.

"This is the investment stage for us," Arif Wibowo, chief executive of Garuda Indonesia, said in an interview Thursday at his office overlooking a new hangar at Jakarta's international airport. "In terms of expansion mode, we really need to add more capacity."

State-owned Garuda pulled back from international expansion plans in 2014, deferring new flights to Europe and scrapping plans to fly to Mumbai and Manila as it struggled with big financial losses.

The airline now is aiming to continue a drive into China and likely add Paris and Frankfurt flights in coming years, something it opted against after last year's terror attacks in the French capital and worsening economic signs in Europe, Mr. Wibowo said.

Garuda is content for now to subsidize its only European offerings—Amsterdam and London—with profits from more-established flights to the Middle East, Mr. Wibowo said.

"We need one to two years for these long-haul routes, because I need to build brand awareness, reputation, consistency of product," he said, adding that the company would endure short-term losses on new routes. "If not, I'll never grow. We have to consider it an investment."

Garuda's international expansion is designed to help the Southeast Asian nation position itself for a boom in demand for international travel as incomes rise in the country of 250 million people, aviation analysts say. The government also has hopes of making Jakarta into a regional travel hub and drawing in more tourism to help offset declines in the resource-rich country's commodity sales.

Mr. Wibowo said that he hoped that restrictions on Indonesian airlines flying to the U.S. could be lifted as early as this year. The Federal Aviation Administration downgraded Indonesia's safety status in 2007 after a series of airline accidents, including crashes by Garuda and now-defunct Adam Air. No Indonesian airline has flown scheduled routes to the U.S. since Garuda in the late 1990s, when the Asian financial crisis roiled carriers.

Indonesia's Transportation Ministry has said getting an upgrade to the U.S. is a major priority and that FAA officials have been to Jakarta for talks several times this year. An FAA spokeswoman said it was premature to comment. Mr. Wibowo said Garuda could make preparations for flights to the U.S. within a year of an upgrade.

The European Union banned all Indonesian airlines from Europe in 2007, but lifted the ban for Garuda in 2009. Garuda began flying to Europe in 2010 and today it remains the only Indonesian airline flying scheduled flights to the region.

Garuda has expanded aggressively and received new planes from Airbus Group SE and Boeing Co. while fighting for supremacy in the fast-growing domestic market of the world's fourth most-populous nation. Garuda and its low-cost subsidiary, Citilink, control more than 40% of Indonesia's domestic market, but they face stiff competition from Lion Air, a low-cost carrier that is among the world's fastest-growing airlines and has amassed domestic market share roughly equal to Garuda's.

Garuda lost $369 million in 2014 as it pushed into long-haul flights overseas, but turned in a profit of $78 million last year. In the first quarter of 2016, net profit dropped to $834,775 from $12.4 million a year earlier. Garuda's stock is up 63% this year, at 505 rupiah (four cents) as of Friday's close, but remains well below its early 2015 high point of 600 rupiah.

"We have to be careful in expansion mode," Mr. Wibowo said. "We are still expanding this year, and we have to stabilize the expansion mode [of] the last three years."

Mr. Wibowo said he expected oil prices to stay at $40-$50 a barrel for the rest of 2015, helping airlines cut fuel costs.

Brendan Sobie, a Singapore-based analyst at the CAPA Center for Aviation, said Garuda would face challenges with the expansion because it lacks scale and a well-known brand outside Asia.

"And of course you have the competition with the Gulf carriers, and other more established carriers in this region like Singapore Airlines," Mr. Sobie said. "It's very hard to overcome this kind of competition."

Andy Pasztor in Los Angeles contributed to this article.

Write to Ben Otto at ben.otto@wsj.com and I Made Sentana at i-made.sentana@wsj.com

(END) Dow Jones Newswires

June 10, 2016 06:55 ET (10:55 GMT)

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