I. Theoretical Background
As mentioned before, strategic management is the persistent arranging, observing, examination and evaluation of all that is essential for an association to meet its objectives and targets. Quick paced development, rising advances and client desires compel associations to think and settle on choices deliberately to stay effective. The strategic management process helps organization pioneers survey their organization’s current circumstance, chalk out strategies, deploy them and analyze the effectiveness of the implemented strategies (Rouse, 2018).
Figure 1: Stages of Strategic Management
Source: (Thompson et al., 2016)
In order to form a beautifully crafted strategy, one should have gone through several step before finally executing it. Strategic management process, however is according to David, sorted into three stages; strategy formulation, strategy implementation, and strategy evaluation. Strategy formulation illustrations are included choosing what organizations to enter, which organizations to abandon, how to designate assets, regardless of whether to expand tasks or enhance, whether to enter global markets, whether to unionize or shape a joint wander and how to evade an antagonistic takeover. As the following stage, strategy implementation cases are setting up yearly targets, devise approaches, propel representatives, and assign assets with the goal that figured techniques can be executed. Here and there strategy implementation is called activity organize where strategy evaluation appended nearly. Strategy evaluation consolidates three central strategy-evaluation exercises: (1) audit outer and inside variables on current systems, (2) measure execution, and (3) take restorative activities (David, 2011).
Though David’s framework is acceptable, as seen in figure one, a much more comprehensive process is available. The table explain more especially for the first stage, during the strategy formulation process, as it is divided into three part; develop strategic visions, set objectives, and craft a strategy (Thompson et al., 2016). In order to pursue its most suitable strategy, there are a lot of sides we can take into account in which side to focus on. Hence Garuda Indonesia works closely to customers first hand, the brand become one of the most influential factor to taken care of, therefore, a deeper study into brand theories is necessary.
A. Brand Theories
According to Park, et al., the construction and maintenance of the brand image is prerequisite to the brand management. Theoretically, all products and services could be demonstrated by functional, symbolic or experimental elements, through which brand image is established. Up to now, scholars haven’t come to an agreement on the definition of brand image. Throughout prior literature, researchers define brand image mainly from four perspectives: blanket definitions, meanings and messages, personification, cognitive or psychological elements (C. W. Park, Jaworski, ; Maclnnis, 1986). To accommodate a proper brand image, a company should’ve have a proper branding strategy for themselves, and then it will be use to explore its brand image.
The brand strategy itself has a definition as a long-term marketing support for a brand, based on the definition of the characteristics of the target consumers. It includes understanding of the preferences, and expectations from the brand. (Glen, 2017). A brand is a concept that happens in a consumer’s mind. It’s a perception. A company does not create brand, it merely creates the tools, actions, and processes that enable the formulation of a brand.
Figure 2: Brand Equity
Source: (Keller, 2001)
Brand equity is an intangible asset in which there are psychological and financial value for the company (Kotler & Keller, 2008). According to Aaker, brand equity has important roles that can be seen both from the customer and the company sides. In general, when seen from the side of the customer, brand equity can increase or decrease the value perceived by the customer. Therefore, brand equity is strongly related to customer’s purchase intention (Aaker, 1991).
Brand equity can also provide additional value that leads to increasing customers’ confidence in making purchasing decisions. That value is derived from customer’s experience in using the product/service and their knowledge in the characteristics of products/services. Keller’s brand equity as seen on figure 1 then being broken down to several important points, which are (Majid, Alias, Samsudin, & Chik, 2016):
1. Brand Awareness (customer’s level of awareness towards certain brand)
2. Brand Association (impression/image that comes to customer’s mind about certain brand)
3. Perceived Quality (overall quality of a brand that is perceived by customers)
4. Brand Loyalty (level of customer’s loyalty towards certain brand)
B. Competing in International Market
Another point to emphasize is the advantage of entering the international market. Perhaps the most obvious reason to compete in international markets is gaining access to new customers, companies often expand internationally to extend the life cycle of their product (Edwards, n.d.). From what we can see in the figure 3, the reasons industries are expanding themselves internationally are usually based on these four major factors. Attributes that individually and as a system constitute the diamond of national advantage, the playing field that each nation establishes and operates for its industries.
Figure 3: The Diamond of National Advantage
Source: (Porter, 1990)
However, a so called slogan of “act locally, think globally” is becoming the most used mindset for companies to expand abroad. Why? Because It is easier to adopt the discourse of ‘think global, act local’ and develop ‘knowledge sharing’ and capacity building programs around this mantra. That is, to provide desperately needed support for local universities and policy institutes as well as to make global knowledge more accessible to developing countries for local interpretation and application (Stone, 2001).
II. Garuda Indonesia
Garuda Indonesia and its subsidiaries in the first quarter of 2017 booked operating revenues of 909.5 million US dollars. Garuda Indonesia Group also managed to record the growth of the number of passengers during the 1st quarter in 2017 to 8.4 million passengers. This was revealed by President ; CEO Garuda Indonesia Pahala N. Mansury when describing the financial and operational performance of the company in the first quarter of 2017. Throughout the first quarter of 2017, Garuda Indonesia recorded strong operational performance, with a passenger transport growth of 8.4 percent, with significant achievements in the international market sector with an increase in passenger growth by 26.1 percent compared to 1st quarter of 2016 (Butarbutar, 2017).
Amid the achievement of the strong operational performance, the company’s financial performance pressure is now become a challenge to continue to accelerate in order to create a sustainable profitability of the company. The world’s airlines industry trend that has tended to decline over the last five years, as well as the weakening consumer demand of early this year, has a direct impact on the company’s continued financial performance. With the pressure of losses that tend to be progressive, a fundamental transformation of aspects of financial strategy and financial mitigation is needed. Garuda Indonesia targets a significant increase in the company’s financial performance over the next six months by implementing short-term financial strategy focusing on financial performance, operational excellence, and customer experience (Mansury, 2017).
The strategy is implemented through the “5 Quick Wins Priority” program by maximizing fleet cost optimization, route optimization, reducing cost, enhancing value from subsidiary Citilink, and Enhance Revenue Management System (Butarbutar, 2017).
Figure 4: 5 Quick Wins Strategy
Source: (Lilies, 2018)
In line with its “5 Quick Wins” program, PT Garuda Indonesia (Persero) Tbk. (GIAA) managed to record positive growth from operational aspects, services, information technology, to revenue management, which was significant during the first semester of 2017. Through initiatives covering fleet optimization, service level improvements, route optimization, digital service upgrades and improved revenue management systems, Garuda Indonesia recorded first-quarter revenue of 2017 of USD 1.9 billion with growth of 7 percent over the period same in 2016 (Bowo, 2017).
Along with the company’s ongoing sustainable financial transformation strategy, Garuda Indonesia succeeded in reducing its net loss in the second quarter of 2017 with a net loss of USD 38 million, down significantly to 62 percent compared to the net loss of 1Q 2017 of USD 99.1 million (Bowo, 2017). Also, Garuda will maximize all their aspects by not only providing the best service, but also accompanied by operation excellence in the case of On Time Performance (OTP). Garuda is very concerned with OTP as an effort to increase brand. This is evidenced through a special program to handle OTP by cooperating with Airnav and Angkasa Pura. Customer satisfaction is everything to Garuda (Hendra, 2017).
The airline business in Indonesia is experiencing a very tight competition domestically, as well as internationally. Along with the increasing level of mobilization, we can see from figure 4, that currently there are various international-flight airlines offering high quality services in order to compete in World’s Top Airlines. This makes the competition among airline services become increasingly tight, considering that Skytrax World Airline Awards has been global benchmark for airline excellence (Passengers Choice Awards). In addition, consumers as decision makers are also becoming more and more selective in deciding airline service for their international flights (Skytrax, 2018). Airline companies compete not only in terms of products or services offered, but also in accentuating their brand. Companies are now competing with each other to attract customers through their respective airline brand in order to inform and suggest consumers to keep buying and using their services. Therefore, a strong brand equity becomes important in the airline industry. Brand equity is an intangible asset in which there are psychological and financial value for the company (Kotler ; Keller, 2008).
Figure 5: World’s Top 10 Airlines
Source: (Skytrax World Airline Awards, 2013-2016)
A strong brand equity is proved by the achievement in the future where consumers will know the product and feel closer naturally. To achieve this, companies need to understand the meaning of the brand through the customer’s viewpoint, called Customer-Based Brand Equity (CBBE). With a strong brand equity, the attractiveness of the product or service will be stronger in the eyes of consumers, so that it can lead them to the purchase of product or service offered (Taskin ; Akat, 2010). PT. Garuda Indonesia Tbk. has been a pioneer of airline in Indonesia since 1949. Garuda Indonesia is also the only airline which has strong financial support from the Indonesian government. In addition, Garuda Indonesia has become the first Indonesian airline to join SkyTeam since 2004.
SkyTeam is an alliance consisting of various major airlines in the world. Together with the SkyTeam alliance, Garuda Indonesia is connected to more than 1,000 city destinations across the world. Beside gaining greater access, Garuda Indonesia is also benefited by flight frequency and route connectivity increases, making it easier for people to travel internationally with them. With their increased routes, especially on international routes, Garuda Indonesia has high potential to strengthen its existence in international flights.
We can analyze from the figure 6 that characteristic of the initiatives for Garuda Indonesia to expand themselves internationally and joining SkyTeam has been aligned with the core mindset as it is depicted in figure 3. The mindset of act local, think global is pursued during the company’s effort to please the customer, especially for Indonesians.
Figure 6: Garuda Indonesia 5 Quick Wins Medium Term Initiative
Source: (Lilies, 2018)
Regarding their development, Arif Wibowo, the CEO of Garuda Indonesia explained three main pillar that become the company’s current main focus. The pillars are: financial performance, operation excellence, customer experience (figure 4) which also supported by applying the efficient cash-flow policy within the company that is on-going proportionally. He hoped that with this kind of arrangement, the company would still be growing positively up to 2020 (Butarbutar, 2016).
Brand association according to Aaker, is an image reflection of a brand towards certain impressions in relations to habits, lifestyle, geographic, benefits, product attributes, prices, competitors, celebrities, and others. Customer having more brand association would have more brand loyalty (Aaker, 1996). Customer having more brand association would have more brand loyalty. Zinbauer and Bakar also found that brand association has a positive impact on brand loyalty (Zinbauer ; Bakay, 2004). In relation to airlines, when customer have a positive brand association with an airline, they will be more likely to retake this airline brand or recommend this brand to others (J.-W. Park, Robertson, ; Wu, 2004).
IV. S.W.O.T Analysis
Garuda Indonesia, through all of its capabilities and weaknesses is still a growing company, a SWOT analysis is something rather normal to conduct, to measure its capabilities.
Good services. it was proved by three awards that have been received. ICSA Award in 2017 (Indonesian Customer Satisfaction Award) in the class of Entire Customer Satisfaction and besides Best On Time Airline Award from Schiphol International Airport Amsterdam. Good relations with the governor, hence the award in Indonesian Good Corporate Governor awards in 2017. Garuda also have good finance, and leading brand among Indonesians and the world, proven in World Branding Award 2017. Good human resources development. The pilot is known as good pilots that are wanted by many air hoses. The expert cognition of the Garuda Indonesia pilots is every bit impressive as the technological admirations they fly. Garuda pilots are one of the most experienced pilots in the universe.
Scaning the interior condition is other than utile to happen Garuda Indonesia failings. After deliberately perception from some writing start. it was discovered that the failings of Garuda Indonesia can be arranged in two focus points.
1. Financial occupation that is most originates from the expansive obligation and the lessening of gaining.
Even after effectively for obligation rebuilding on 1998, debt problem is still there for Garuda Indonesia, even though not as bad as it was before. LT-Debt-to-Total-Asset is an estimation speaking to the level of a corporation’s assets that are financed with credits and money related commitments enduring over one year. The proportion gives a general measure of the budgetary position of an organization, including its capacity to meet money related prerequisites for extraordinary advances. It is computed as an organization’s long haul debt isolate by its Total Assets. PT Garuda Indonesia (Persero) Tbk’s long haul debt for the quarter that finished in Dec. 2017 was $621.96 Mil. Total Assets for the quarter that finished in Dec. 2017 was $3,763.29 Mil. PT Garuda Indonesia (Persero) Tbk’s LT-Debt-to-Total-Asset for the quarter that finished in Dec. 2017 was 0.17.
PT Garuda Indonesia (Persero) Tbk’s LT-Debt-to-Total-Asset declined from Dec. 2016 (0.24) to Dec. 2017 (0.17). It might propose that PT Garuda Indonesia (Persero) Tbk is logically ending up less reliant on debt to develop their business (GuruFocus, 2018).
2. Customer Relationship Problem
Contrasted with other air hose in ASEAN. Garuda is non related vast air hose house. Fitting to the e-look into result. it found that customer still have protest on Garuda benefits especially in dated entertainment framework. pilot announcements. unstimulating couches. no continuous round arrangement and open perceptual experience (“SWOT Analysis Garuda Indonesia Essay,” 2016).
The airlines industry will always have room for opportunities. with the growing number of the population, its just normal for higher demands in aviation realm. Garuda Indonesia with a strong brand image will surely took some advantages from this situation, as long as they’re able to keep their brand image good and well.
The authorities’ ordinance about mention duty that is excessively low (SK Dirjen Perhubungan Udara No. 35)
There are some of new domestic air hose rival come in air hose industry such as: Lion Airlines. Tiger Air. Batavia Air. Air Asia. Susi Air. New rival can add its aircraft. and so do low-cost and low monetary value scheme. It makes the competition in domestic path become so tight (“SWOT Analysis Garuda Indonesia Essay,” 2016).
Strategic management is the art and science of formulating, implementing, and evaluating cross-functional decisions to achieve organization’s objectives. Various models are created to apply strategic management theory in line with organization’s goals, culture, and other internal and external influence. A state-owned company, Garuda Indonesia is a vital all inclusive and family unit airplane that has been the lead of Indonesia’s flying courses for more than forty years. It is the greatest flying machine in Southeast Asia and one of the greatest in the Southern Hemisphere.
Though the tension between the airlines companies are building up, due to the strict competitiveness, the brand image of an airlines becoming more crucial to the company’s durability. Garuda Indonesia’s current strategy that emphasize more on customer satisfaction, operational excellence, and financial performance, seems so build up more and more good reputation for them, proved by the growing number of sales. Garuda Indonesia’s brand equity in this case never cease to develop positively. Garuda’s attempt to join the international market also has brought satisfaction. Proven by many awards coming from the action.