Board of Commissioners’ Report


Dear Valued Shareholders,

We extend our gratitude to God Almighty for the blessings and favor bestowed upon us. We wish for everyone to always be under His protection and guidance to overcome any challenges. It is important to acknowledge this gratitude as we succesfully concluded 2017 amid challenging global and domestic economy situation.

224,65% COMPANY PROFITS

We stand behind the Company’s transformation program to become Indonesia’s largest low-cost carrier and to enhance operational and financial governance.

First of all, we wish to express our highest appreciation to the Board of Directors and all of our employees. Thanks to their uncomprimising hard work, the Company concluded the year on a positive performance with Rp300.29 billion of profits which recorded the growth of 224.65% compared to Rp92.49 billion in 2016.

Also indispensable to this result was the apt strategies that the management formulated and implemented. The focus on efficiency and optimization of services contributed to revenue growth. Nevertheless, we need to remind the Company to stay vigilant as dynamic global and domestic economy will affect the Company’s performance.

In 2017, the Company changed its name from PT Rimau Multi Putra Pratama Tbk (RMPP) to PT AirAsia Indonesia Tbk (AAID) following the RMPP’s rights issue. This was an important milestone for AirAsia Group’s business development in Indonesia. As of 29 December 2017, PT Indonesia AirAsia (IAA) is the officially a subsidiary of AAID.

The conclusion of the corporate action brought the Company closer to OneAirAsia vision and has enhanced its contribution to increasing the number of foreign travellers to Indonesia.

As the Board of Commissioners, throughout 2017 we carried out our duties and responsibilities to the best of our abilities. In addition to providing oversight, we also conveyed our constructive criticisms and recommendations in the interest of the Company’s growth. We also sought to ensure that the Company’s management practices fully complied with internal and external regulations.

Allow us to now continue our accountability report where we will also discuss our assessment on the Company’s management and performance during the year.

THE ECONOMY IN BRIEF

The ongoing cyclical recovery in almost all regions in 2017 has pushed the global economy to grow higher than in 2016. The World Bank, in its Global Economic Outlook, predicts a global economic growth of 3.1%, while the International Monetary Fund (IMF) suggests a more bullish outlook of 3.9%. The confidence shown by these projections came from positive economic momentums – favorable market sentiments, favorable policies, and expansive fiscal policy of the United States.

The increasingly consolidated global economy brings a positive impact to Indonesian economy. In 2017, domestic economy grew by 5.07%, an increase from 5.03% in 2016. The growth was driven by rising export values, investments, as well as government spending. Besides external factors, strengthened fundamentals have also helped revamp the economy, in addition to being driven by external factors as well as strong fundaments.

The improvement in national economy was followed by growth across several macroeconomic indicators such as foreign exchange reserves, Indonesia’s trade balance, and inflation rate controllability. The movement of Rupiah against the US dollar was relatively stable throughout 2017. Investment rose as structural economic reform picked up its pace and business climate was favorable. Trade balance increase in particular was supported by stronger export performance driven by higher commodity prices.

Broadly, despite IMF’s positive projection, business players still need to pay attention to a number of factors, among others uneven economic recovery, geopolitical risk, policy uncertainty that may directly affect global market sentiment; more stringent measures in the finance sector that influence developing countries, and growth deceleration in China.

INDUSTRY ANALYSIS

In recent years, Indonesia’s aviation industry has experienced rapid growth with a yearly average growth rate of passengers reaching more than 11%. The growth was driven by, among others, increase in people’s income, airport infrastructure development, and government policies to promote tourism sector.

Increase in people’s income encouraged higher people’s mobility to various different places. Coupled with rising public interest in traveling, both domestically and internationally, the phenomena render positive impacts to commercial aviation business.

We indeed saw an increase in passenger volume, but the challenges faced by the industry were by no means easy to overcome. Cost of jet fuel rose alongside increased prices of oil in the global market, which in turn drove the rise of operating expenses. In the aviation industry, fuel accounted for around 40% of the cost structure. Another challenge was the weakening of Rupiah against the US Dollar, exchange rate variation is a great risk for air carriers as most of our expenses are counted in and paid for in US Dollar.

For 2018, there is a 10 to 15% of projected growth of passenger and goods in transit. Growth of GDP is predicted to result in a linear increase of passengers and goods volume. The national aviation industry is hopeful to benefit from this situation and drive revenues and, in turn, profits. The Board of Commissioners will provide unwavering support to the management’s business measures aimed to take advantage of positive market condition, pushing for better performance outcomes by increasing operational efficiency and improving services.

ASSESSMENT OF THE BOD’S PERFORMANCE

Amidst the dynamic aviation industry, the Board of Directors, through its subsidiary has executed a business strategy that is in line with the Company’s objectives. Various strategic initiatives implemented have brought in positive impacts both at operational and financial levels.

Operational-wise, by optimizing our fleet, exercising creative marketing programs, and increasing operating expense efficiency, the Company was able to maintain its market share of international flights in the industry. Our business strategy implementation also generated successful results of positive business performance.

Operating revenue amounted to Rp3.82 trillion in 2017, slight decline from Rp3.89 trillion in 2016. Operating income before tax soared by 224.65% to Rp300.29 billion as the Company succeeded to lowering operating expenses that in 2017 decreased by 7.14% to Rp3.43 trillion from Rp3.43 trillion in 2016. As the result, operating income grew by a notable 104.2% from Rp185.33 billion to Rp378.50 billion.

The Board of Commissioners is behind the Board of Directors’ transformation program that has been implemented to improve the Company’s operational and financial management. The management also had our full support in implementing business strategies aimed at improving our performance. The strategies included focus on customer service, exploration of new and profitable routes, and asset optimization achieved by increasing fleet utilization.

VIEW ON BUSINESS OUTLOOK

In terms of demography, Indonesia is the country with the largest population in Southeast Asia and the 4th largest in the world. In addition, it is an archipelagic country with scattered economic centers, resulting in great demands for air transport in support of business travels, tourism travels, or personal travels. On the other hand, the government continues to encourage the development of tourism industries that require infrastructure support, including airports and adequate aircraft availability.

In addition to the large demographics, people’s income shows an increasing trend every year. People working across cities or running cross-regional businesses have also increased demand for aviation services – this explains Indonesia’s position in fourth place in terms of number of air transport passengers in the world.

Internally, AirAsia Group is currently expanding its flight routes to new countries, thereby increasing transit passenger traffic to visit Indonesia. AirAsia also has a strong branding in the Asia Pacific region, one of which is proven by being awarded the “Best Low Cost Carrier in the World” for 9 consecutive years. Given the external and internal considerations, we believe that the Company’s business will remain promising in the future.

VIEW ON CORPORATE GOVERNANCE IMPLEMENTATION

Implementation of Good Corporate Governance (GCG) is not only an obligation, but also a necessity for the Company. GCG will support sustainable business growth. As such, we strongly support the Board of Directors’ efforts to spread information and education on the Company’s core values and GCG principles.

To date, the Board of Commissioners maintains that good corporate governance has been implemented according to governance principles and that governance structure is performing well. An Independent Commissioner has joined the Board of Commissioners, and is now in the process of establishing committees to assist the Board of Commissioners’ GCG duties – ensuring that our governance work complies with regulatory requirements at all times.

In line with our duties and responsibilities, the Board of Commissioners has endeavored to exercise oversight function and provide relevant recommendations to the management with respect to GCG. Overall, in our view, the Board of Directors has implemented sound strategies, risk control measures, and governance in the Company.

CHANGES IN THE BOARD OF COMMISSIONERS’ COMPOSITION

A change in the composition of the Company’s Board of Commissioners has been approved in the Extraordinary General Meeting of Shareholders (EGMS) held on 21 December 2017. The EGMS appointed Pin Harris as President Commissioner, Datuk Kamarudin Meranun as Commissioner, and Agus Toni Soetirto as Independent Commissioner. The EGMS also appointed Dendy Kurniawan as President Director and Dinesh Kumar as Independent Director. The following is the composition of the Company’s Board of Commissioners as of 31 December 2017:

President Commissioner Pin Harris
Commissioner Datuk Kamarudin Meranun
Independent Commissioner Agus Toni Soetirto

APPRECIATION

In closing this Report, we would like to express our appreciation to the Shareholders and Stakeholders for their support to the Company. To the Board of Directors, the Management, and all employees, we convey our appreciation for our well-established cooperation. Last but not least, the Board of Commissioners also would like to wish appreciation to the public, business partners and customers for their trust. It is our hope that going forward, the Company’s business will continue growing and deliver positive impacts to the national development.

Jakarta, April 2018

Respectfully Yours

PIN HARRIS

President Commissioner