Should we close down Garuda?

The bankruptcy of an airline is not uncommon. Dozens of airlines have gone from the sky in modern aviation history. This is mainly due to the nature of the business, which is extremely sensitive to even small changes, making profit margins surprisingly small and companies prone to large losses.

Volatile oil prices, expensive maintenance of technology and human capital, political conditions and even unique unexpected events such as volcanic eruptions or crashes can adversely affect the profitability of an airline. In the realm of free-market business, when an entity has failed to make money, especially for a long time, terminating it is possibly the most logical option.

However, this is often not the case for a national flag carrier. Roughly defined as a “national airline”, with which a state or nation is associated, the decisionmaking process is made more complex. So many flag carriers are actually struggling, but filing for bankruptcy is not easy. There are several reasons why it is not easy to close down a money-losing national airline.

A flag carrier, as the name suggests, has a function of showcasing a nation internationally. No matter its profitability, the existence of a national airline is considered mandatory to tell the world, “We still exist!” It aims to build a positive narrative about the nation in international community. If Garuda, for example, could regularly fly to world’s central business cities, such as New York or London, the political and economic effect would be positive. Of course, this is supposed to be accompanied by perfect safety records and services.

Another reason is its historical roots. In Garuda’s case, for example, the airline witnessed our nation’s struggle during a critical period of the fight for independence. It played a significant role in defending our nation’s independence by transporting the founding fathers to many regions in the archipelago. This initiative later developed a so-called “imagined community” among us, as Benedict Anderson put it, which virtually united us.

Popular perception matters too. In the case of Garuda, the perception of this national airline is likely to be positive. Garuda can be associated with assurance of good safety, high scores on-time performance and exceptional service. Even though the trend was up and down throughout history, including the darkest years during late 2000s, recent facts show Garuda is technically better. Some people don’t mind paying twice or three times the price of private-sector competitors for these assurances.

These reasons are likely to shape our emotional bias toward the airline. It makes it difficult for us to just let it go. As a popular theory in behavioral sciences notes, a loss of something is perceived as emotionally more severe than an equivalent gain. We humans tend to avoid losing even if it risks us twice as much than gaining something. We can’t just lose our national pride!

Sunk-cost bias may also complement the explanation. The investment of money, time and other resources so far to keep Garuda in the sky has produced resistance to stopping its operations. Whereas, closing down the company might be able to stop bigger losses and potentially generate new opportunity.

At this point, Garuda mostly serves as a pride-defender for Indonesia. Business-wise, Lion Air and its group have currently won the competition by overtaking more than 60 percent of the domestic market share. The pandemic has just made the situation worse for Garuda.

To serve nation’s remotest areas, Susi Air and Trigana Air (and possibly some new players) have been coming into play, replacing the role of the now-defunct Merpati Nusantara Airlines. Garuda seems not to be penetrating too much into this area.

Several options to salvage Garuda have been discussed, from refinancing to filing for bankruptcy. Whatever the choice is, one thing to be kept in mind is this pride-defender function. This is mostly our emotional reason to do whatever it takes to rescue this pride. If it were just purely business, Garuda might have been shut down long ago.

The global trend of aviation business is changing. The success story of low-cost carriers (LCCs), such as Ryan Air, Southwest and AirAsia, should be able to inspire. The notion of a “flag carrier” is no longer relevant. It was initially strictly defined by the Chicago Convention during mid-1940s as “an airline that is financed and operated by a government”, yet the definition seems to be vague now. It is all about perception.

Nowadays, any airline that can create strong associations with a particular nation may be considered a flag carrier. Wizz Air of Hungary, for instance, even though it is not the country’s flag carrier, has successfully promoted the name of Hungary by flying to more than 40 destinations in Europe, replacing the defunct flag carrier Malev Hungarian Airlines. Even in Ireland and Europe, Ryanair is probably more popular than the flag carrier Aer Lingus.

Any attempt at saving Garuda must be in one integrated package with effective rebranding. As its current name explicitly mentions Indonesia, Garuda automatically promotes Indonesia as the name of our nation. With a different name, the effects and impression may change.