Board of Directors Report
While we operate as a low-cost carrier, quality is something that we never compromise on. Aside from extending our IOSA certification, in 2019, for the eleventh consecutive year we were recognized as the best LCC carrier by Skytrax. Financially, we delivered impressive improvement by reporting revenues. These achievements were a testament to our continuous efforts to become more than just an airline.
Dear Distinguished Shareholders,
It is an honor for us to be facilitating the travels of millions of passengers and providing the best services to each and every one of them. We believe that while we operate as a low-cost carrier, quality is something that we never compromise on. Instead, our business model affords us the flexibility we need to create uniquely excellent experience to our customers. We are pleased that our efforts received Skytrax’s acknowledgement that awarded AirAsia as the world’s best LCC for the eleventh consecutive year.
2019 ECONOMIC SITUATION IN BRIEF
The global economy had been predicted to grow at 3.5% in 2019, but results show that growth achieved just 2.4%. There are several things that contributed to this deceleration, including increased trade barriers that led to uncertainties, structural and cyclical economic downturn in developed countries, countryspecific pressures in several emerging markets, and dampened investments.
Those challenges were experienced by several of Indonesia’s trade partners, such as Singapore, China, South Korea, and the United States. Consequently, their downturn was reflected in Indonesia’s economy. Global conditions aside, Indonesia also had to manage a domestic challenge. Household consumption, Indonesia’s main growth driver, slowed from 5.08% in the third quarter of 2019 to 4.97% in the fourth quarter of 2019.
As the result, quoting the data from Statistics Indonesia (BPS), Indonesia grew by 5.02% throughout 2019, or lower compared to 5.17% in 2018. According to BPS, the growth performance was more similar to 2016 position, when Indonesia reported 5.03% of growth. However, against the sluggish global backdrop, Indonesia’s performance deserved to be appreciated. Many experts admitted that 5% growth was not an easy achievement considering the overall context. Additionally, inflation rate was stable at an average of 2.72% with interest rate at 5.00%. Many considered Bank Indonesia to have taken wise measures as a central bank to maintain the level of inflation, currency exchange rate, and investments.
INDUSTRY AND BUSINESS REVIEW
The 2019 slowdown was also felt by the aviation industry. The International Air Transport Association (IATA) recognized a tough business climate during the year due to geopolitical tension and lower growth performance.
In terms of business competition and the need to meet market demands, several challenges were notable. With respect to technology development, there was great demand for airline companies to implement digital transformation, utilize big data, and create personalized experience that is more exciting for customers. Rapid technology development does allow airlines to operate more efficiently, maximize profitability, and innovate in ways that we could not have done in the past. However, an all-round transformation will require readiness on both mindset and resource to invest.
The industry also faced national challenges aside from global ones. In Indonesia, the aviation sector encountered increased ticket fares and higher demand to improve safety and security following flight accidents and incident of an aircraft being used to smuggle luxury goods. This means the industry had to work even harder to maintain the trust of its customers. The industry was also affected by currency volatility and its impact to airlines’ operating costs, particularly when it came to fuel. Fuel is always the largest cost component for airlines, followed with aircraft lease and maintenance costs.
Global and national challenges, directly or otherwise, affected air travels. While the number of foreign visitors grew by 1.88% to 16.11 million from 15.81 million in 2018, the number of domestic travelers dipped by 18.54% from 94.1 million to 76.7 million people.
STRATEGIC MEASURES IN 2019
In light of the above situation and aim at bolstering profitability, maintaining competitiveness, and ensuring sound cashflows, the Company took various strategic measures throughout 2019.
In terms of capacity, we expanded our fleet to 28 aircrafts per December 2019. We also opened fourteen new routes of Jakarta-Lombok, Jakarta- Semarang, Jakarta-Sorong, Jakarta-Belitung, Denpasar-Kertajati, Denpasar-Labuan Bajo, Denpasar-Lombok, Lombok-Yogyakarta, Lombok- Surabaya and Surabaya-Kertajati for domestic routes, while for international routes, there are Jakarta-Johor Baru, Belitung-Kuala Lumpur, Lombok-Perth dan Potianak-Kuala Lumpur. New hub was set up, namely in Lombok. The routes and hubs were aligned with the Company’s focus to expand domestic routes and support Indonesia’s tourism industry. Currently, 41% or 17 out of 41 service routes are for domestic route. To that end, we have been working closely with Indonesia’s Ministry of Tourism and local government in Indonesia.
In terms of operational seamlessness between domestic and international flights, in 2019 we moved all international flights from Terminal 3 to Terminal 2 Soekarno Hatta International Airport. This decision facilitated the movement of our Allstars as well as guests.
On marketing, we decided to focus our efforts on AirAsia.com platform, web and mobile. This way, prospective customers could receive best-price guarantee and our exclusive offers that they would not find in any other platform. Striving to create better customer experience, we also innovated with our services to be closer with the millennial population as our main target market.
BUSINESS PERFORMANCE IN 2019
The effectiveness of the Company’s strategies was evident from our business and operating performance for 2019. We posted a load factor of 84% in 2019, increased by 2 percentage points (ppt) as a result of high growth in capacity of 49% year-on-year while passengers carried grew strongly at 52.10% compared to previous year. Revenue Passenger Kilometres (RPK) grew by 46% during the year in line with the growth in Available Seat Kilometres (ASK). Additionally, our operational effectiveness that we reached by centralizing our domestic and international flights in Soekarno Hatta Airport resulted in 8% increase of ontime performance to 81%
On the number of passengers, the Company carried a total of 7.97 million passengers in 2019, or up 52.10% year-on-year on the back of strong connectivity and presence in Southeast Asia. Meanwhile, as a result of our focus on internal online platform as a primary marketing channel, AirAsia.com currently contributed 55% of domestic flights and 67% of international flights to total revenues.
Our financial performance is another reason for us to be pleased with. Operating revenues rose by 58.5% to Rp6.71 trillion. Meanwhile, liabilities decreased by 33.90% to Rp2.41 trillion in 2019 from Rp3.65 trillion in 2018. Subsequently, the Company reported profit from operations of Rp113.94 million from net loss recorded in 2018.
We are pleased that our performance was widely recognized. Aside from being number one on Skytrax’s list of best LCC, we also received Planet Tourism Award 2019 and a Certificate from the Governor of West Nusa Tenggara for our contribution to developing air connectivity in Lombok. In line with this report’s theme, we are proud to say that we have become “More Than Just An Airline” for our loyal customers.
As for business challenges, operating-wise, we had to face fuel price hike and ensure robust cost management. In addition, several new airports started operation last year and we had to divide resources, which eventually led to more costs. There was also a regulation that requires airlines to serve low-demand routes to create equitable access to air travel services.
As mentioned earlier, we and other airlines had to grapple with a period of increased ticket fares, which affected seat demand especially during peak seasons. Competition-wise, some of our competitors expanded their services to international routes in Australia, Malaysia, China, and to Jeddah using bigger aircrafts. We also recognized competition coming from other modes of transport; as road and railway infrastructure improved, some travellers were enticed to use land route for intercity traveling, especially in Java. BPS data also showed an increase of 8.02% in train passengers to 37 million from 2018 to 2019 in Java, excluding greater areas of Jakarta. Nevertheless, we believed in our connectivity and service convenience, which would keep the Company as a leading choice of transport and player.
2019 was concluded with an optimistic nod that 2020 would bring better growth bolstered primarily by major emerging countries. The aviation industry shared this optimism and predicted that it was going to witness more passengers and more competitive LCCs with innovative business models.
However, the optimism was halted with Covid-19 outbreak, which started to affect other countries around the world in early 2020. The disease, now declared as a global pandemic by the World Health Organization (WHO), has disrupted global travels and trade. Negative growth, at least in the first half of 2020, appears to be inevitable.
It is perhaps too early to say when will the world start to recover, but we still believe in Indonesia’s potential as an investment and tourism destination. The domestic market also stays attractive thanks to the growth of the middle class and the young population who are now characterized as “smart travellers”. Expansion of domestic routes in 2020 will clearly boost our capacity, and competitive fares will stimulate demand.
COMMITMENT TO GOOD CORPORATE GOVERNANCE
Consistent corporate governance implementation has been proven effective in improving the Company’s accountability and regulatory compliance. Compliance also helps decreasing business risks and provides discipline in our business management.
For stakeholders, the implementation of corporate governance principles is an added value. An accountable, transparent business increases stakeholders’ trust, which means we get the support needed in taking strategic actions to overcome business challenges.
To ensure quality governance, the Company has in place a corporate governance structure that consists of a Corporate Secretary, Internal Audit Unit, Audit Committee, and Nomination and Remuneration Committee. We have also appointed Independent Commissioner and make sure all units follow their mandates.
CHANGE TO BOD COMPOSITION
In 2019, the composition of the Board of Directors did not change.
HUMAN RESOURCE DEVELO PMENT
Digitalization is often equated with process streamlining and as changing human resource needs. However, more than that, the digital era also creates new jobs that demand different skill sets. To that end, for us, human resource remains vital.
Bringing our idea into practice, in 2019 the Company improved its HR management system into a more integrated system. In 2019, we also focused on intensifying Go Digital and One AirAsia program implementation. Human resource process and data management digitalization aims to accelerate business process and support decision-making; digitalization encompasses HR management function, employee attendance recording system, recruitment, and talent management.
We also continue to develop the skills of our employees through training and education programs, both mandatory and elective. In the event that we assign our employees in a training program, our decision would be made based on a gap analysis between the employee’s current skills and the skills demanded of his/her position and level. In 2019, the Company allocated a total of Rp24 billion for 172 programs with a total of 74,158 training hours.
INFORMATION TECHNOLOGY DEVELOPMENT
The Company’s ICT Department ensured that our IT initiatives are consistent with our operational objectives, namely improving ICT service quality across all Company’s locations, minimizing risk failure in ICT project implementation, to provide unified and sustainable solutions, and ensure all solutions are consistent with our road map as well as the regulations.
We also realize that our technology adoption exposes us to new vulnerabilities in terms of system and data security. To address that, we are committed to applying the best security system. Aside from implementing ISO/IEC 27002 on Information Security Control, we have also evaluated our security adequacy for infrastructure and new information systems, security technology development, adequacy company’s information protection, and adequacy of security controls by conducting activities such as system penetration testing and vulnerability assessment.
On IT development, in 2019 we introduced the AVA chatbot, short for AirAsia Virtual Allstars, an update to website and mobile app. So far, the app has a problem resolution rate of 72%. AVA is also able to handle 25,000 chats at any one time.
AVA complements the IT development initiatives of past years and is certainly in line with our efforts to offer better, more practical, and more efficient services. Therefore, we will be able to answer the demands of our customers regardless of time and geographic boundaries.
COMMITMENT TO CORPORATE SOCIAL RESPONSIBILITY
While we have our business targets to meet, we want to stay committed to our responsibility as part of Indonesia and the global community. We are dedicated to our corporate social responsibility and we follow the “AirAsia’s Sustainability Manifesto” issued by the AirAsia Group. This manifesto covers carbon emission reduction, energy-saving, reduction of plastic wastes, reduction of water use, promotion of environmentally friendly tourism, use of ethically sourced goods and services, promotion of diverse and inclusive environment, and adopting sustainability as the seventh Allstars Value.
The Manifesto is AirAsia’s way of translating the Sustainable Development Goals (SDGs). We have strived to make the manifesto a reality and are proud to be able to demonstrate tangible results. In terms of carbon emission, the Company recorded carbon intensity of 71.82 gCO2/RPK in 2019, or close to industry average of 75,00 gCO2/RPK. Our carbon intensity decreased by 15.2% from previous year’s emission ratio and we are 7% to 8% higher than IATA’s recommended level. We have also developed absorption wells and participated in the International Beach Cleaning Day.
Not only environmental programs, we also recorded zero accident thanks to our safety programs. For the community, we participated in distributing aid packages to those impacted by the earthquake in Lombok and tsunami in Palu and Banten. Moreover, we are also excited to welcome JourneyD, or Journey for Development, initiated with the provincial government of West Nusa Tenggara. The program, among others, aims to build local community potentials to develop eco- and cultural-based tourism that at the same time promotes local heritage and environmental preservation. JourneyD was organized for the first time in Thailand in 2014 and has been a recognized by the United Nations Development Programme because of its relevance with 12 out of 17 SDGs. We sincerely hope that with our commitment the Jou
On behalf of the Board of Directors, I would like to express my highest appreciation to all customers, business partners, and the government as well as our stakeholders for their loyalty and support.
I wish to convey our appreciation to the management and employees; their support and dedication are vital to the Company’s growth and ability in delivering the best services to our customers.
Finally, I would like to express our appreciation to the shareholders and the Board of Commissioners for their trust and guidance throughout 2019. The strategic steps we took throughout the year were possible because of their role and support.
Going forward, I believe we will continue to deliver our best performance and be at the forefront of every challenge.
Jakarta, April 2020
On Behalf of the Board of Commissioners