Board of Commissioners’ Report


Dear Valued Shareholders,

First and foremost, we express our gratitude to God Almighty for His protection and guidance for the Company throughout a challenging 2018. It was not an easy year for any player in the aviation industry, but the Company successfully maintained its position as the leading low-cost carrier.

Rp3,314.86 billion Revenues from Flight Operations Segment

Despite a challenging year, we appreciate that the Board of Directors remained cosistent in implementing the strategic measures. We believe that the strong position that the Company has in the aviation industry will lead to a better performance and that we will continue to fly with Indonesia.

We appreciate the hard work of the Board of Directors in addressing the tough challenges and their dedication to the Company’s strategic measures and digitalization program. We believe their strategies in 2018 would pave the way for the Company’s successes in the future. Within its scope of authorities, the Board of Commissioners provided guidance and support to the Company and worked alongside the Board of Directors to ensure that the Company stayed within its course of growth.

With respect to ownership, PT Rimau Multi Investama (RMI) has fully transferred all of their shares in PT AirAsia Indonesia Tbk (IDX: CMPP) to AirAsia Investment Limited (AAIL) as of 9 October 2018. With the conclusion of this process, the Company’s stock ownership now consists of AAIL with 49.25% ownership, PT Fersindo Nusaperkasa (FNP) with 49.66% ownership, and public ownership of 1.09%. This corporate action was part of the One AirAsia vision expected to solidify the Company’s position in serving the commercial passenger segment and enhancing the connectivity in the Asian region.

2018 Economy in Brief

The global economy in 2018 in general experienced a variety of challenges driven mainly by the situation and policies in major economies that hold considerable influence over other economies. Among others, there was import tariff contestation between the United States and China as well as softened economic performance of Euro countries and Japan.

As one of the largest emerging markets in Asia, Indonesia experienced significant growth in 2018. At 5.17%, Indonesia’s growth was higher than the global growth level at around 3.3%. Domestic inflation rate, contained at a low 3.13%, was in line with the government’s target range of 3,5% ± 1%. This success was due to in part by the Indonesian government infrastructure priorities and the focus on streamlining regulations to boost the country’s competitiveness.

On the other hand, Indonesia was also affected by the global economic uncertainty. This was evident from the Indonesian Rupiah that was depreciated by 4.8% to the US Dollar. The depreciation, as we will see in the following discussions, had substantial impact on the aviation industry and the Company in particular.

There were decisive and swift government policy actions that significantly increased resilience to financial market volatility, but Indonesia’s moderately low levels of exports and foreign direct investment (FDI) suggested that pressures were likely to persist. Nevertheless, strong policy coordination by the government, improved fundamentals and sound foreign reserves meant that the risk associated with financial crisis remained low for Indonesia.

INDUSTRY AND BUSINESS ANALYSIS

Air travel around the world grows on the back of an increasingly globalized era and the lower barriers to transnational mobility of people. Multinational businesses and exciting tourism destinations bring people to different parts of the world. In turn, jobs are created, the economy grows, and there is a better understanding among people of different cultural backgrounds.

According to the International Air Transport Association (IATA) estimate, the traffic of global air passenger will increase at a compound annual growth rate (CAGR) of around 3.5% over the next 20 years. The Asia-Pacific region is key to this growth, which estimated CAGR of 4.8% is even higher than the global estimate.

In the region, Indonesia is highlighted as a standout market, especially in the Southeast Asia. In ASEAN, 40% of the total 625 million ASEAN population reside in Indonesia, making the country’s aviation sector having huge investment opportunities. According to the Central Statistics Agency, from January to December 2018 the number of air passengers for domestic flights increased by 5.35% year-on-year to 94.1 million people. International flight passengers, in the meantime, grew 8.21% year-on-year to 18.0 million people.

As an archipelago, air travel is naturally needed in Indonesia to facilitate the movement of people and goods. The government of Indonesia in 2017 made tourism as one of the five priority sectors other than infrastructure, maritime, energy, and food. The choice to prioritize the inseparably linked infrastructure and tourism will certainly boost the aviation industry growth in the coming years, with airports and runways being built and/or renovated and supporting infrastructure developed.

Despite its potentials, the industry also encounters a number of challenges, most importantly safety as avation safety issues can seriously hamper the industry. Last year, average jet fuel price increased and as the majority of the aircraft leasing and maintenance costs are paid in US dollar, depreciation of Rupiah against the US dollar inevitably led to rising operational expenses. Natural disasters in 2018 also impacted the industry and, by extension, the Company’s performance.

BOARD OF DIRECTORS’ PERFORMANCE ASSESSMENT

The Board of Commissioners is aware of and understands the tough challenges in 2018. The Board of Directors took the necessary strategic measures to overcome the obstacles. Their strategies were crucial in securing the Company’s as the leading LCC while maintaining its priority of the customers’ safety and comfort.

In 2018, the Company focused on increasing ancillary revenues through channels such as administrative fees, baggage fees, AirAsia’s ‘Santan’ (Inflight F&B), Seat Selections, RedCargo, Fly-Thru and travel insurance. To step up services, the Company invested in data, centralization, and digitalization initiatives. We also appreciate the success of AirAsia Indonesia to pass the IATA Operational Safety Audit (IOSA) in August 2018. This is an important accreditation that would enhance the credibility of the Company.

As the result of business strategies, ancillary revenue rose as well as the number of passengers carried by the Company, totaling to 5.2 million passengers or up 13% year-on-year. Nevertheless, high operating costs due to foreign currency risk and the increase in jet fuel forced the Company to record an operating loss of Rp987 billion and net loss of Rp907 billion.

VIEW ON BUSINESS OUTLOOK

In spite of a tough year, we share the Board of Directors’ business outlook and the encouraging prospect of Indonesian aviation industry in the future on the back of Indonesia’s demographic dividend, improved wage level that will drive the increase in the middle class population, and the overall interests of the Indonesian people to gain domestic and abroad travel experience.

The Company will continue its digitalization initiatives with plans for new IT innovations such as facial recognition boarding system and robotic process automation. Potential new routes will be introduced as well as increasing the frequency on some of the existing routes. In terms of market share expansion, we also plan to add 3 additional aircrafts, which will increase our fleet to 27 A320s.

COMMITMENT TO GOOD CORPORATE GOVERNANCE

We recognize the importance of good corporate governance principles as providing added value for all stakeholders. GCG implementation can support sustainable growth and as a public company the Company is dedicated in improving transparency and accountability.

The Board of Commissioners views that the good corporate governance is being strongly implemented in the Company. Other than observing all GCG principles, the Company has also established GCG Roadmap that include the structure and important manuals to guide our GCG implementation, such as the Code of Conduct, GCG Implementation Manual, and Board Manuals for both the Board of Commissioners and Board of Directors.

Overall, based on our observation, we trust that the Board of Directors has implemented sound GCG practices that will continuously be enhanced to achieve GCG excellent in the future.

BOARD OF COMMISSIONERS’ COMPOSITION CHANGES

Pursuant to the resolution of the Annual GMS dated 24 May 2018, the Meeting stipulated the changes of the Board of Commissioners’ composition in 2018. The Meeting approved the changes of composition ie. Kamarudin Bin Meranun that previously served as Commissioner has been assigned as the President Commissioner. And further, Pin Harris that previously served as President Commissioner has been assigned as the Commissioner.

APPRECIATION

In conclusion, we would like to express our appreciation to the shareholders and stakeholders for their continued support. We also thank the Board of Directors, the management, and all employees of the Company for their dedication and sound teamwork. Last but not least, we wish to convey our appreciation to our loyal customers and business partners for journeying with the Company throughout the year. We believe that the Company will continue to grow and fly with Indonesia.

Jakarta, 30 April 2018

On Behalf of the Board of Commissioners

KAMARUDIN BIN MERANUN

President Commissioner