Nama: Anindito Widya Wicaksono

Kelas : Eks 29 D

5 Force Porter Air Transportation Industry

1. Industry Competitors or Segment Rivalry
Air transportation industry is a business that has tight competition. This tight
competition is one of the implications of the deregulation of the domestic airline
industry by the Government of Indonesia since 2000, It certainly opened up competition
and great access to get into the airline industry in Indonesia. Tight competition marked
by the increasing number of domestic airlines and international airlines who operate and
develop routes or air service in all airports in Indonesia. Domestic airlines in Indonesia,
such as, Merpati Nusantara Airlines, Indonesia AirAsia, Lion Air, Kartika Airlines,
Batavia Air, Riau Airlines, Wings Air, Trigana Air Service, Travel Express, Sriwijaya
Air, Linus Airways, Republic Express Airlines, Cardig Air, Manunggal Air Service,
Indonesia Air Transport, Kal Star Aviation, Megantara Air, Pelita Air Service, and TriMG Intra Asia Airlines. While some international airlines including Singapore Airlines,
Malaysia Airlines, Air Asia Malaysia, China Airlines, Korean Airlines, and Thai
Airways.
Garuda Indonesia is facing competition from both different airlines; Full service
carrier/FSC and airlines low cost carrier/LCC. Based on the law on aviation and
Ministerial Decision No. 26 in 2010, full service carrier was declared as a business
entity scheduled commercial air transport in the running of its activities with the
maximum standard,such as provision of food and drink, snacks, and the executive
lounge facilities for business class and first class .While low cost carrier is described as
a business entity which scheduled commercial air transport in conducting its activities
with the minimum standards, such as there is only one (1) class of service, without the
provision of food and drink, snacks, executive lounge facilities, and charged for
baggage.
The main competitor for Low Cost Carrier is Lion air, To address competition among
with LCC industry,especially with Lion air, each airline has its own resources differ
from each other. Garuda Indonesia is the established airline company that acts as a flag
carrier, has the profesional experience that much more from lion air. With this condition,

the strategic business of Garuda Indonesia focused on service, comfort, security,

punctuality and prestige (Prestige) on board. It is a big mistake if the Garuda Indonesia
participated in competition with the concept of cheap flights. Furthermore, to anticipate
this competition, Garuda Indonesia is develop Low Cost Carrier airlines with Citilink.
The main competitor of Garuda Indonesia for Full Service Carrier in International
Market is Malaysian Airlines, and Thai Airlines. Garuda Indonesia faced competition
with other airlines based on several factors such as price, schedule, route network,
quality of service, the type ,age of the aircraft and revenue.
The Competitor FSC Based on : Revenue.
No
Name of airline
Revenue in 2012
1
Garuda Indonesia
$ 2,293,80
2
Malaysian Airlines
$ 4,296.88
3
Thai Airways
$6,027.871
Source: Hoover
The Competitor FSC Based on : Route network and Number of Fleet 2012
No

Name of
airline

Route of Desrination

Garuda
Indonesia

48 Route (Domestic and

International)

Malaysian
Airlines

80 Route (Domestic and

International)

Thai Airways

60 Route (Domestic and

International)

Number of
Fleet and
Age
87 Aircraft,
6.5 years
127Aircraft
,
12.2 years
90 Aircraft,
10 years

Type of
Aircraft
Boeing and
Airbus, &
Next
Generation
Boeing and
Airbus
Boeing and
Airbus Jet

The Competitor FSC Based On: Number of Passenger 2011

No
1
2
3

Name of Airlines
Garuda Indonesia
Malaysian Airlines
Thai Airways

Passenger
17.10
17.04
18.04

Load Factor
75.2%
74.5%
76.6%

ASK
32.5 Billion
55.8 Billion
55.6 Billion

In the face of increasingly competitive in the airlines industry, Garuda Indonesia

continues to innovate for business growth. One of them by launching an aggressive
expansion plan called Quantum Leap. Quantum Leap include achieving other
competitive factors faced by the aviation industry. Quantum Leap plans to doubling the
aircraft fleet and increase passenger numbers by adding routes to the destination

domestically and internationally. In addition, Garuda Indonesia is also developing new

services based on the concept of hospitality and uniqueness typical of Indonesia's called
Garuda Indonesia Experience. This service covers a variety of aspects of the culture,
cuisine and hospitality Indonesia.
Furthermore concluded that Garuda Indonesia can survive the competition in the
airlines industry in Indonesia, since the company has done a variety of ways to deal
with the major competitive factors in the airline industry like Improving service quality
with brand FSC in Garuda Indonesia, the company that developed the LCC Citilink
service, continue to innovate for business growth by adding and rejuvenating the fleet,
adding routes, and increasing the quality of service for customers, is expected to further
strengthen the position of Garuda Indonesia as a leader in the airline market in
Indonesia, and also we can concluded that Garuda Indonesia is the growing company
airline for the next year ahead.
2. Potential Entrants
As a result of the competitive rivalry in the airline industry, Garuda Indonesia faces the
entry of new competitors from both domestic and international markets. These new
competitors are mostly low-cost airlines (low cost carrier / LCC). The entry of new
competitors, especially LCC cause some changes in the airline industry. Experienced
changes such as entry of new competitors has increased the seating capacity of
passengers and increasing price competition on routes that have been available. New
competitors low-cost carrier (LCC) has expanded and increased flight frequencies to be
able to make lose market share of Garuda Indonesia in 2009.
PT Citilink Indonesia is a subsidiary of PT Garuda Indonesia (Persero) engaged in the
transportation scheduled commercial low-cost carrier (LCC). Development of LCC
service via Citilink is a way for the company to compete with new competitors and gain
market share of the economy that has been dominated by competitors. So with
developing Full Services Carrier industry namely Garuda Indonesi Low Cost Carrier
services industry with Citilink, the company is expected to be able to compete with new
competitors and market share in the Indonesian airline industry. And for now, Full
Service Carrier airline industry in Indonesia just held by Garuda Indonesia, so, if

viewed from the FSC industry in Indonesia, the threat of new entrants from local FSC is
very weak.
High capital requirements and large amount of investment is a barrier for number of
new entrants to enter the airline industry. Even if new entrants have the capital,
Government of Indonesia

has said it will ensure the maximum protection to the

national carrier. The protection given by the government is only allowed international
airlines fly regional routes to and from the airport from abroad the same direction
(point-to-point) to the airport of origin, such as Soekarno-Hatta in Jakarta, Polonia
airport in Medan, Ngurah Rai Airport in Denpasar, Juanda Airport in Surabaya, and
Hasanudin Airport in Makassar. Foreign airlines will not be given permission to fly
domestic routes.
3. Substitutes Threat
Product substitution of air transport is sea and land transportation services. The use of
replacement transportation services may be an option for the customer if a short
distance and lower cost than using air transportation. Ground transportation services
that can be a replacement product is rail, bus or car. Customers who prefer to use train
mostly people who wants to travel in Java island, because there is a rail service.
Meanwhile, people who choose to travel by train, bus or car it is because they travel in
short distance.
However, the current high level of mobility that has resulted into people to choose air
transportation for their activities. Because air transportation more faster than ground
transportation. In addition, many airline, such as Garuda Indonesia provide a promo
ticket to travel so affordable to low and medium passenger to buy.
4. Bargaining Power of Supplier
Suppliers are partnership with the airlines are those that supply the raw materials
necessary for the company to carry out the operational activities of the company. PT
Garuda Indonesia Tbk has some suppliers that support operations such as PT Angkasa
Pura, fuel suppliers, and manufacturers of aircraft and aircraft engines. PT Angkasa
Pura is the state-owned enterprises that provide airport operations in Indonesia. PT

Angkasa Pura provides a range of services for Garuda Indonesia to support its
operations.
Services supplied by PT Angkasa Pura (Limited), which includes the use of airport
facilities such as ticket sales and rent office space services, air traffic control, ground
control services and other aviation services. With a variety of services and service
received, Garuda Indonesia received a bill each month for the use of facilities and
services at any airport in Indonesia where the company operates.
The fuel is needed in the implementation of airline operations. Fuel suppliers Garuda
Indonesia consists of Pertamina and several international suppliers. Aircraft fuel used by
Garuda Indonesia amounting about 70% and it is derived from one source, namely
Pertamina.Fuel supply agreement with Pertamina lasted for five years where fuel
pricing refers to the price of domestically produced post Pertamina including discounts,
which are determined based on their own policies. While the agreements with several
international suppliers are valid for one to two years where the international fuel pricing
refers to the average base price of oil, published by Platts Singapore through based on
the Mean of Platts Singapore (MOPS), Mean of Platts Arabian Gulf (MOPAG), the
Arabian Gulf, Saudi Arabia and the Netherlands, which was published by ARAMCO or
Rotterdam.
Garuda Indonesia also require suppliers of aircraft and engines that support the
provision of spare parts related to flight operations of the company. Garuda Indonesia
using a fleet of two aircraft manufactured by Boeing and Airbus suppliers. While the
machines used by aircraft manufactured by CFM International SA (Joint venture
between Snecma (SAFRAN Group) of France and General Electric in the United
States), and Rolls-Royce Plc. The purchase of a fleet of aircraft and spare parts takes
Garuda Indonesia carried out in accordance with the purchase agreement. So that
Garuda Indonesia may get approval at a reasonable price with best quality spare parts
with the suppliers i.e. Boeing, Aibus, CFM International S. A, and Rolls-Royce Plc.
Therefore it is important for Garuda Indonesia to choose the right supplier that can
support corporate flight operations. Suppliers are expected to work together in
developing the operational quality and service Garuda Indonesia for provide the supply

of raw materials and spare parts required with the best quality, on time, and in
accordance with the agreements.
5. Bargaining power of Consumer
Customers Garuda Indonesia can be categorized into two groups: customers who use
domestic and international routes. As premium airlines, consumer who used Garuda
Indonesia as a FSC in domestic flight routes that a customers who are on the middle to
top category. Thus, not all people can use the services of Garuda Indonesia, company
provided options with LCC Citilink service aimed at consumers who use domestic
routes that are on economy class. Moreover, to serve the customers domestic routes, the
company has developed the FSC and LCC services that can reach the entire market
share in the domestic avirline industry.
Customers who using international routes such as Hajj passenger, government, and
other consumers who use the service airline Garuda Indonesia. Hajj passenger are fix
consumers of international air service Garuda Indonesia every year. Flight service for
Hajj passenger make a great contribution in non-flight schedule in Garuda Indonesia.

Potential Entrants:
Low Cost Carrier
industry (local and
international)

Competitive pressures coming

from potential new entrants
to seize the market (consumen)

Bargaining Power
of Supplier :
-PT Angkasa Pura
- PT Pertamina
-Boeing and Airbus
-CFM International
S.A and Rolls Royce
Plc

Industry
Competitors or
Segment Rivalry

-LCC : Lion Air

-FSC :
Malaysian airlines,
Thai Airline

Bargaining Power
of Consumer :
- Domestic route
customer
- International
route customer
i.e Hajj
Passenger

Competitive pressures coming

from businesses market (competitors)
to seize the market (consumers)

Substitutes
Threat:
- Land
transportation
: Rail, Car,
Bus,Motorcycle
- Sea
transportation:
Cruise

No

Porter
Analysis

Type of
risk

Potential entrants

Low risk

Description
Full Service Carrier airline industry in Indonesia
just held only by Garuda Indonesia, so, if viewed
from the FSC industry in Indonesia, the threat of
new entrants from local FSC is very weak.

Industry
Competitors or
Segment rivalry

High risk

Substitutes threat

Low risk

Bargaining power
of Supplier

Bargaining power
of consumer

Garuda Indonesia is Facing competition with both

local and international airline as a low cost carrier
and full service carrier.
Nowdays, mobility of people is higher than few
years ago, travelling with air transportation is the
best option to save time than if using land or sea
transportation.
Customer facing a trade off : Price or Time.
Garuda Indonesia made a long-term contract with
their suppliers to reduce the risk regarding
unstable future condition.

Medium
risk

Medium to
High risk

For fix scheduled flights consumers they have

power to make a choice whether to use the
services of Garuda Indonesia or not . They can
easily switch to other airlines wit low to none cost.
But for non fix scheduled flight, like Hajj
passenger, the demand for passenger seat Hajj is
always increase every year.

Competitive rivalry in Garuda Indonesia affected by the Porter's five forces. It can be
seen that the threat of new entrants come is low risk, bargaining power of suppliers is
medium risk, bargaining power of buyers is medium until high it depends on the type of
passenger, intensity of segment rivalry is high and the threat of substitute products is
low. Thus, it is concluded that Garuda Indonesia industrial environment is quite
attractive. Garuda Indonesia strategic success depends on the mission and competitive
advantage. Therefore, the main purpose of Garuda Indonesia is to strength their markey
in Indonesia and expand their market globaly.