Garuda takes another stab at London following short-term suspension

Garuda Indonesia has resumed services to London less than two months after suspending Jakarta-London Heathrow and will be adding a stop in Bali later this month.


Summary:

  • Garuda resumed services between Jakarta and London on 13-Dec-2018 following an extremely short suspension period of less than two months;
  • It is adding a stop in Bali on the return sector from London effective 22-Jan-2019 but will continue to operate nonstop from Jakarta on the outbound sector;
  • Over the last four years Garuda has tried several different combinations for serving the London market but none have succeeded so far.

Garuda is currently operating three weekly nonstop flights between Jakarta and London Heathrow using two-class 393-seat 777-300ERs. Garuda suspended the route in late Oct-2018 but in an unusual U-Turn resumed the route last month.  Garuda recently announced another adjustment and will operate the thrice weekly service on a Jakarta-Bali-London Heathrow-Jakarta routing from 22-Jan-2019, also using 393-seat 777-300ERs.

The Asian flag carrier launched flights to London in Sep-2014 and the service has struggled despite several adjustments. Initially Garuda served London Gatwick as a five times per week tag to its Jakarta-Amsterdam service using three class (economy, business and first) 314-seat 777-300ERs.

Serving London via Amsterdam was not part of Garuda’s original plan and the tag proved to be highly unprofitable. Garuda initially planned to launch nonstop services from Jakarta to Gatwick in Nov-2013 but postponed the launch a few months after starting ticket sales; it subsequently set a May-2014 launch date but again postponed the launch after a few months of sales and eventually switched to a Jakarta-Amsterdam-Gatwick routing.

Gatwick was never Garuda’s preference and the airline eventually was able to secure Heathrow slots. In Mar-2016 Garuda dropped the Amsterdam-London Gatwick tag and instead launched a five times weekly Jakarta-Singapore-London Heathrow-Jakarta service.

However, the service via Singapore also proved to be highly unprofitable. Initial load factors were less than 50% and Garuda also struggled with yield. Garuda reduced Jakarta-Singapore-London-Jakarta from five to three weekly services in Sep-2016 but the route continued to bleed.

At the end of Oct-2017 Garuda dropped the Singapore stop and started to offer nonstop Jakarta-London flights in both directions. But its load factor remained below 70% and it failed to generate a high enough yield to even approach break-even.

Garuda’s previous management team sensibly concluded the Jakarta-London market was too small and price sensitive to sustain a nonstop service, particularly given the intense one-stop competition. The broader Southeast Asia-London market, as well as the Australia-London market, is also extremely competitive, making it difficult for Garuda to attract sixth freedom traffic at a sufficient yield to cover costs.

Garuda is again talking up the Kangaroo route between Australia and London (it targeted Australia-London traffic in the original plan from 2013). However, this is a very low yielding market and Garuda needs to retime or add Sydney flights to offer connections with London in both directions. Under the new Bali-London and London-Jakarta schedule, quick connections will be available to and from Melbourne but Sydney only works in one direction. Perth does not work in either direction and Garuda dropped Brisbane in 2015.

The removal (from Dec-2018) of first class and reduction of the business class cabin should help improve the route’s economics. Garuda was not attracting many revenue first class passengers, resulting in very low load factors in the eight seat cabin at the front, and there was not sufficient business class demand to fill up the 38 business seats in the original configuration. In the higher density retrofitted 777-300ER now being used, there is 26 seats in the business class cabin and no first class.

However, the use of a higher density aircraft will likely not be enough to make the service profitable. The new routing creates a one-stop product from Jakarta to London and still results in a one-stop product from London to Bali, hardly giving Garuda a competitive advantage in either market. One-stop competitors have the advantage of offering a daily frequency and in most cases have a stronger brand in the UK market.

London is a challenging market that is often launched and maintained by smaller flag carriers for prestige rather than commercial reasons. Garuda’s decision to resume London is surprising and, in our opinion, likely to be politically driven.