Board of Commissioners Report
Against a challenging backdrop, thanks to its astute business strategies AirAsia was able to turn its profitability around, recognized as the world’s best LCC for the eleventh consecutive year, and optimized its digital transformation initiative.
Dear Esteemed Shareholders,
Please allow us to first of all extend our gratitude to God Almighty for His blessing upon the Company’s journey in 2019. The year had an interesting dynamic overall, and we are proud of AirAsia Indonesia’s ability to turn its profitability around in 2019, whilst maintaining its position as the world’s best low-cost carrier for the eleventh consecutive year.
ECONOMIC SITUATION IN 2019
In 2019, Indonesia’s economy grew by 5.02% from 5.17% in 2018. There are several factors behind this lower performance. In the domestic scope, Indonesia’s household consumption decelerated, a cause for concern, as this component contributed more than half of the national gross domestic product (GDP). Meanwhile, globally, multiple countries including Indonesia’s trade partners experienced slowdown. At the end of the year, global growth reached just 2.4%. This figure was far lower than 2019’s projected growth. Trade barriers, geopolitical tension, and hampered investments were some of the factors that contributed to the economic downturn.
However, against this global context, Indonesia’s growth was highly appreciated. Experts agreed it was not an easy time to achieve 5% level of growth. Indonesia’s resilience was further complemented by low inflation rate at around 2.72% during 2019. Responding to the global situation, Bank Indonesia decreased benchmark interest rate four times and closed the year by maintaining interest rate at 5.00%. Meanwhile, rupiah rate at the end of 2019 strengthened by 0.15% or 21 points, the strongest performance among other Asian currencies.
INDUSTRY AND BUSINESS ANALYSIS
The air transport sector is always intertwined with global developments. Changes in currency rates and crude oil price, for example, are only some of the challenges that the business players in this sector constantly face.
As the association of international air transport, IATA stated how 2019 was a tough year all around. Moreover, IATA lowered its projection on the industry’s global profits from US$35.5 billion in December 2018 to US$28 billion in June 2019. Mentioning decelerated global trade and increase in fuel price as the main factors, IATA also predicted that operating costs would grow by 7.4%, higher than projected revenue growth of 6.5%. Passenger number, however, received a more optimistic projection to achieve 4.6 billion passengers from 4.4 billion in 2018.
While global projections should be wisely considered, we also believe in Indonesia’s potentials as tourism and investment destinations as well as country of origin of travelers. Transnational traveling, which has been made easier through visa facilitation and affordable ticket prices, has created new travelers, particularly from the middle class. Domestically, Indonesia is not short of exciting places to visit.
For the Company, aside from cost management, we saw that the market was increasingly competitive for AirAsia. Some competitors expanded to international routes with bigger aircrafts, while massive land infrastructure development offers more choices to travel between cities in the same island.
BOARD OF DIRECTORS PERFORMANCE ASSESSMENT
Learning from the challenges in both global and national context, the Board of Commissioners appreciates the strategic decisions made by the Board of Directors that aimed to maintain the Company’s position as a trusted airline of choice and one that is financially robust. The Board of Directors also keeps vigilant in terms of safety as a non-negotiable factor in this business.
The Company focuses on expanding domestic routes and contributes to the growing national tourism sector. At present, domestic routes accounted for 41% of the total routes served.
In 2019, the Company changed its marketing strategy and chose to rely instead on AirAsia.com mobile and web-based services. This decision was proven effective in improving service, as the platform offers best-price and exclusive facilities guarantee to our prospective customers. The AVA chatbot as a new communication channel was also able to interact with the customers. Equipped with comprehensive features, AVA provides not only generic information, but can also help customers review and amend their flight schedule.
In terms of route, the Company focused on adding domestic routes and contributed to growing national tourism sector. At this time, domestic route accounted for 41% of the total routes served. In addition, ten out of fourteen new routes in 2019, most are domestic: Jakarta- Lombok, Jakarta-Semarang, Jakarta-Sorong, Jakarta-Belitung, Denpasar-Kertajati, Denpasar- Labuan Bajo, Denpasar-Lombok, Lombok-Yogyakarta, Lombok- Surabaya and Surabaya-Kertajati. The Company also started to operate new hub in Lombok. More routes certainly require more capacity; to address this, the Company added four aircrafts to its fleet, now totaling to 28 units.
As a result, AirAsia.com contributed 55% for domestic routes and 67% for international routes to total revenues, while AVA was able to resolve 72% of the inquiries it received, a solid number considering that the chatbot was a relatively new addition. Passenger load factor reached 84% in 2019 and Revenue Passenger Kilometer (RPK) rose by 46% compared to previous year, which was in line with the growth of Available Seat Kilometer (ASK). Number of passengers increased to 7.97 million passengers year-on-year on the back of strong connectivity and presence in Southeast Asia. With improved operational performance AirAsia Indonesia was able to turn things around financially. The Company reported operating revenues of Rp6.71 trillion from reporting losses of Rp987.05 billion in the previous year.
The Company also received several awards, such as Planet Tourism Award and Certificate from the Governor of West Nusa Tenggara for its contribution to building Lombok’s air connectivity.
VIEW ON BUSINESS PROSPECT
The Board of Commissioners support the Board of Directors’ view that we need to be cautiously optimistic in 2020 due to the global pandemic that will deeply affect the global economy. Nevertheless, we believe the Company will be ready to seize the opportunities once the global situation recovers.
COMMITMENT TO CORPORATE GOVERNANCE
The success of business strategy and management depends on many things, including good corporate governance. By ensuring that all the Company’s activities comply with applicable regulations and standards, accountability and trust towards the Company will also increase.
As part of our commitment to good corporate governance, the Board of Commissioners observes all regulatory requirements and consistently ensures it meets its mandate as one of the Company’s units. We have also prepared mandatory documents, such as Code of Conduct, Good Corporate Governance Guideline, and Board Manual.
We also view that the Board of Directors has applied good corporate governance practices. Going forward, we will continue refine our corporate governance to support the Company’s sustainable growth.
CHANGES IN THE BOARD OF COMMISSIONERS’ COMPOSITION
In 2019, there was no change to the composition of the Board of Commissioners.
To conclude, we would like to express our appreciation to the shareholders and stakeholders for the continued trust to the Company. We also extend our appreciation to the Board of Directors, the management, employees, and our business partners for their hard work and commitment to the Company. Lastly, but also importantly, we convey our gratitude to all passengers for flying with AirAsia.
Jakarta, April 2020
On Behalf of the Board of Commissioners
KAMARUDIN BIN MERANUN