The inherent risk of Garuda Indonesia around 2013 until

2015
2013
Indonesia's aviation industry growing by leaps and bounds from year to year
and has claimed to be the third-largest in the world in 2012. The rapid
development was also followed by the existence of potential risks such as
those derived from changes to the macro environmental factors such as
fluctuations in the price of fuel and limited infrastructure contribute in
increasing operating costs. In addition, the business competition has also
become an additional obstacle that has to be faced by the airlines.
1. Fluctuations in the price of aircraft fuel supply and aircraft fuel prices
impacted significantly to operating expenses and business results of
the company. In general the price fluctuations are influenced by
geopolitical issues as well as supply and demand. Fuel availability also
depends on the period when the market surpluses and deficits and can
be affected by demand as gasoline.
The company had been hedging for fuel during the year 2013, both to
fuel the Hajj as well as regular flights. Total fuel hedge conducted of
97% for the Hajj and 9% for regular flights. Such hedging has managed
to suppress the cost of fuel until it reaches 2% lower than the market
price. Other than hedging the company also did a Fuel Conservation
Program to save the cost of fuel use.
2. Information technology system failure against the achievement of
corporate business by 2013, the company has implemented a new
information technology system, i.e. New PSS Altea for reservation and
ticketing, inventory, as well as its integration with DCS. The existence
of the new system is expected to help the company's operations to be
more effective and efficient.

 Some of the efforts that the company has done in maintaining the
reliability and availability of information technology systems, among
others:
Perform infrastructure improvements as needed new PSS well against
bandwidth, reliability and security.
Carry out Joint Planning Session between a QX and Asyst to enhance
cooperation and make plans ahead for IT products to be delivered to
the Unit.
3. Liquidity. Not achievement of a target planners associated with cash
flow of incoming and outgoing cash flow can lead to the existence of a
disruption to the financing of operational activities of the company. It
can be caused by the sales did not reach the target or the existence of
a significant unplanned expenses.
Some efforts have been made to maintain the liquidity of the company,
among other things:
Increased control over the performance of the company and
subsidiaries
Do a commercial loan
Issuance of bonds
4. Limitations to recruit, train and retain pilots and cabin crew
The company's production capacity in 2013 is increasing along with the
addition of the fleet this year. The enhancement is done to follow the
growth of the business and market needs. However, the company
experienced a considerable constraint particularly in terms of the
fulfillment of human resources, namely pilots and cabin crew, to
support increased operational activities
The company has performed a variety of efforts to address the
limitations in the companies recruit, train and retain pilots and cabin
crew, that is by doing a pioritas implementation training from Chief
Pilot to accelerate the qualifications a pilot recuiting ab initio, as
scheduled, to recruit hire expat (licence crew), and increases control
over assignment of pilots to optimize operational and training
activities.

5. Competition in the airline industry Competition in the airline industry is

very closely related to the proportion of the market share that was
owned by the company. This is due to the movement of market share
gains against correlated value movement of the company. In addition,
economic conditions and policies of regulators also have great
influence to increased market share.
Intensify marketing program on domestic destination with value
proposition (TV, radio, billboards, print advertisement)
The addition of fleet and the frequency of flights
Focusing some marketing program to First Class (for certain routes)
Intensify loyalty program by way of a redesign of all cards (design,
benefits, procedure, etc.) and promotion through the bonus mileage
Determine pricing policy strategies
Implementation of New PSS (RIT) in early July 2013 and DCS from
September 2013
6. The limitations of the Airport Infrastructure current airline industry
Progress has resulted in a lack of airport infrastructure available. Some
airport infrastructure conditions in Indonesia can be said already
inadequate capacity when compared to the needs. This resulted in a
disruption of the achievement of the target company's operations such
as On-Time Performance, expansion of routes, increased services, as
well as the disruption of security and safety.
In terms of reducing the likelihood and impact of those risks, the
company has done several steps, among others:
A Dedicated Gate in the UPG, SUB, BPN, and DPS
The signing of a MoU with Angkasa Pura II associated dedicated
terminal to the company
7. Barriers in extension of Range Expansion of the range of Destinations
destinations both domestic and international in the region undertaken
by the company in an effort to improve performance has its own
constraints that must be faced by the company. One of the barriers are
is from the side of the product. This relates to the readiness of the
infrastructure of the new destinations that will be targeted, the

availability of land or air personnel that will serve these destinations,

as well as the readiness of the slot and licensing.
The company has performed a variety of efforts to overcome the
obstacles in expanding the range of destinations, including:
Prepare a feasibility study with accurate.
Create a rolling forecast to reduce the gap between the actual
Budget
Coordination

with

related

parties

such

as

the

Ministry

of

transportation about the licensing issues.

Preparing the operational, technical, and commercial.
Implement the addition of new routes iso frequency.
8. Fluctuations in interest rates and the exchange rate fluctuations of
interest rates and currency exchange rates may affect the company's
financial performance. The magnitude of fluctuations in foreign
currency exchange rates affect the income and the debt burden of
companies as well as to be borne. The magnitude of the exposure
caused by most of the company's receipt obtained in rupiah while
spending the majority of the company issued in foreign currencies.
Increased exposure to fluctuations in exchange rates also affect the
magnitude of the load must be repaid interest especially if using
floating interest rates.
With the principle of prudence of the company have been doing risk
management fluctuations in interest rates and exchange rates through
mechanisms such as:
Hedging
The use of fixed rate scheme
9. Capital and operational costs of the above Estimates (Capex Opex &
Overrun) the magnitude of the expansion done company certainly
requires a fairly high Capex costs. The main increase in these costs
comes from the increase of investment in buildings and equipment
that can support the company's performance. The higher the value and
the level of complexity of an investment feeding the greater risk
exposure anyway.
To reduce the magnitude of exposure due to excessive expenses then
done some efforts such as:

 Approval of the realization of the budget is focused on activities that

support the company's strategic program
Tighten surveillance against approval of realization costs associated
with revenue attainment
Approval of Capex/Opex refers to the approved budget
Coordination with related units in monitoring the availability of the
company's cash flow
10.
Failure in providing the aircraft in accordance with the Schedule
The complexity of the procurement of the aircraft both in the
documentation, problems of technique, and other things that have an
affinity may interfere with your company in providing the aircraft in
accordance with pre-set schedules. The delay could affect the
company in planning the development of the network and the increase
in revenue.
The company has increased the anticipation towards the potential
existence of a failure to provide the aircraft on time, among others,
through:
Make the fleet plan as a reference point in the determination of
planning the arrival of the plane
Increase coordination with all units involved in the procurement of
aircraft
Mitigation
-Develop stronger risk-based procurement
-Job Board for Monitoring Risks related
1. Get an understanding of the risk management company that covers
various risks facing the company, strategy, system and policy of enterprise
risk management, internal control of the company, including policies,
methodologies and infrastructure.
2. Evaluation of risk measurement models used the company and provide
recommendations for further refinement.

3. monitoring the suitability of the various policies and the implementation of

enterprise risk management and monitors the various potential risks facing
the company.
4. Evaluating various risk management policy of the company.
5. Do the coordination of implementation and supervision of the existence
and

the effectiveness

of

each

component

and

the

Enterprise

Risk

Management (ERM) in the company.

6. Measure the effectiveness of each component of the ERM has been
applied across the enterprise
Activities To Enhance The Management Of Risks
-

Annual Risk Review

During the year 2013, the effectiveness of risk management has been a
review on a regular basis (per quarter) Units through Enterprise Risk
Management (ERM). The review was conducted with the contribution of each
unit called the PIC with the PRO Team (Performance and Risk Officer Team)
through the media workshop, focus group discussion, or sharing session.
In addition to the review of risk management on a regular basis, Unit ERM
together with the PRO Team also did a review of the associated possibility of
the emergence of new risks that have not been identified before and
ensuring the adequacy of mitigation actions to be performed.
-

Stage implementation of ERM

To support the achievement of the objectives of the company through the

implementation of ERM who the better forwards, required the existence of a
clear stages as the direction of the implementation of ERM in every year.
These stages are described through a Snapshot of ERM Roadmap as follows:
(the PICTURE on PAGE 198)

Improvements to the sixth pillar of the appropriate ERM Roadmap above

(includes risk governance & organization, risk management strategy, risk
management activities, reporting, communication tools & & technology,
culture & capabilities) is expected to increase the level of maturity of the
implementation of risk management.

2014
Safety risks
Garuda Indonesia is determined to maintain its reputation in the aviation
industry through the continuous investment while maintaining safety and
security aspects of the flight. Garuda puts the level of risk associated with
the aspect of safety and security that could potentially harm the flight
operations at an acceptable level. One of these is risk mitigation implement
Safety management systems (SMS-Safety Management System). SMS is a
systematic and comprehensive approach to managing safety in Garuda
Indonesia. As like all system management, SMS Garuda has set targets and
goals, planning, creating programs, conduct surveillance, and safety
performance measurement. SMS is a part of the company's overall
management system is needed to assess, develop, implement, achieve and
maintain job safety and health for employees, partners and customers.
Type of Risk and Its Management
Risks related to the safety aspect appeared when normal operating activities,
as a result of business expansion and contraction, any change management
system, equipment, programs, products and services, as well as the
implementation of new work procedures and equipment.
Risk management safety at Garuda Indonesia carried out through six main
steps, namely:
1. Identify the risks through a combination of approaches in reactive,
proactive, and predictive. The risk may be obtained from the results of the
analysis of occurrences, audits, and change management
2. Determine the cause
3. Determine the level of risk at this time and set a target level of risk after
the mitigation

4. Assessing the internal controls that exist in your organization

5. Drafting plans for mitigation is needed to minimize the risk of potential
dangers and lowering the level of its impact
6. Reviewing the effectiveness of the mitigation plan back has been
implemented
Meanwhile, there are three main strategies of Garuda Indonesia performed in
control and mitigate risks, namely:
1. Avoid (avoidance): cancel the operation/activity safety due to the risk that
exceeds the benefits of continued operation.
2. Reduce the (reduction): reduce operating frequency to reduce the impact
of risk.
3. Exposure to Segregation (segregation of exposure): isolating the effects of
the consequences of the potential danger.

2015
RISK MANAGEMENT
The risk of aviation industry against external factors such as macroeconomic
conditions, fluctuations in fuel prices, foreign currency fluctuations and
limited infrastructure put pressure alone in the business of the company.
In addition, the number of competitors in both the domestic and international
market became one of the factors determining the competitiveness of the
company in the industry. The existence of uncertainty towards those factors
lead to increasingly higher risks in the aviation industry.
The Concept Of Risk Management
Implementation of the risk management system of the company is carried
out based on the mechanism of the ERM process, namely the following:
Mechanism of risk management using ERM process is done on a regular basis
to identify risks that may impede the achievement of the target company.
ERM process begins with the identification of risk, risk measurement,
mitigation and monitoring of the operations of the mitigation. The company
routinely conducts monitoring Corporate Risk Profile (CRP). In addition, the
ERM process is also integrated with corporate strategy which is owned by the
company, so any decision making is done taking into account and respond to
uncertainties in the business.
Each year, the company performs the measurement of the effectiveness of
the application of risk management through Enterprise Risk Management
(ERM) Maturity Assessment. Assessment of the level of maturity of the ERM
done against the six main pillars, namely:

The result of the assessment of the level of maturity that will be used as one
reference in drawing up a work program of the implementation of risk
management in the company. It was intended to, there is an improvement in
the effectiveness of risk management.
Currently, the company has five magnitudes of risk categories i.e. risks
related to strategic, operational, security and flight safety, financial, and
compliance risk. The five magnitudes of these risks has its own criteria to do
management. The management course is based on the level of risk assessed
priorities based on the magnitude of the exposure risks. The following is an
overview of the main risks of the company which have been identified by
2015:
1. The challenges in reaching the Target Revenue
2. the result of the nature of the airline industry are prone to cycles of
economic, political and social can negatively affect the financial condition
and results of the company's business
In addition, by 2015 in the form of natural disasters, external factors have
significant influence towards the achievement of the company's revenue
such as volcanic eruptions, smog and other disasters. As the impact of
volcanic eruptions by 2015, there was the closure of the airport in Denpasar
and Surabaya which have an impact on the cancellation of the flight.

To minimize the impact of those risks, the company has taken steps in
conducting the strategic risk mitigation, there are:
a. strengthening of pricing strategy and marketing plan
b. the development of Ancillary Revenue programs
c. Optimizing revenue through alliances
d. improving the competency and retention program of sales force
3. Liquidity Pressure could affect the company's ability to meet Obligations
Maturing
The existence of external factors that affect the company's business results
lead to experiencing the pressure of liquidity. The company's ability to
regulate the payment of debt and other fixed obligations will depend on
operational performance and cash flow, which will ultimately depend on the
economic and political conditions currently, factors
Finance, competition, regulation, business, natural disaster and other, where
many of these factors are beyond the control of the company.
As for mitigation, which the company has done in the face of such risks
include:
a. push the cost efficiency
b. Finding alternative funding such as limited public offering (right issue) and
bonds
c. Designing ancillary revenue programs
3. The limitation of the capacity and Facilities of the airport in Indonesia
Although commercial aviation infrastructure Indonesia has experienced
significant progress in the last few years, the resources of several segments
on the aviation industry including airports and air traffic pemandy system, its

use has exceeded the maximum capacity as a result of a significant increase

in passenger growth and increased the number of fleet.
Due to this, the company's ability to conduct increased fuel savings, OTP,
providing passenger comfort and development network (the network) be
distracted.
The company has been conducting initiatives to overcome these constraints
through:
a. use of wide body to dense routes
b. Create a dedicated terminal
c. Create a comfortable lounge for passengers
4. Limitations of the Crew of the aircraft that meet the qualifications
There is a lack of key personnel, namely the crew in the airline industry both
at the national and global environment. The company looked at that the
labor shortage will increase because companies and other competitors,
particularly in the aviation industry Indonesia, trying to increase the number
of its aircraft fleet. To meet these needs, the number of companies also
needs to improve the training effort. The limitations of the company in the
recruit, train, retain and motivate the crew can negatively impact business
activity, the financial condition and results of the company's business.
The limitations of the company in the recruit, train, retain and motivate the
crew can be resolved in several ways such as:
a. hiring new pilots and pilots who already have certification
b. cooperation with the flight school
c. fix the remuneration system for the crew
d. the addition of new simulator

5. The sustainability of the routes are not profitable

One of the company's growth strategy is to increase the number of fleet,
increasing frequency and opening new routes. In doing the expansion it takes
time to gain an advantage so that in the process of opening new routes the
company will face unfavorable conditions. This is related to the initial
investment that must be issued by the company. This condition also has a
dependency with the economic uncertainties, natural disasters, and other
competitions.