Board of Commissioners Report
During a difficult year, we witnessed how AirAsia Indonesia was able to bounce back and return to providing services to its valuable, loyal passengers. With various business initiatives in the pipeline, we are confident the Company will return stronger and better.
Dear Valued Shareholders,
We finally concluded 2020. Despite the tremendous challenges caused by the COVID-19 pandemic, we are grateful that AirAsia Indonesia is able to survive and has gradually returned to serve its loyal passengers throughout Indonesia. We are fully aware that the road to recovery and return to normal will take time, but we are confident that the Company will be able to rise even stronger.
2020 Economic Overview
It has been widely reported how the COVID-19 pandemic in 2020 caused a major shock to the global economic system. Due to the virus’ high rate of transmission, the World Health Organization (WHO) recorded a total of 114 million positive cases around March 2021, up from about 75 million cases at the end of 2020. Life in all sectors was halted abruptly and this was immediately felt in the tourism sector, as evident from data of the Statistics Indonesia (BPS) that showed 88.45% (YoY) decrease in the number of foreign visitors to Indonesia in the fourth quarter of 2020.
Indonesia’s economy also grew negatively for two consecutive quarters in 2020, despite showing improvement, namely -5.32% (YoY) in the second quarter and -3.49% YoY in the third quarter, and bounced to -2.19% (YoY) in the fourth quarter of 2020. Overall, during the year, Indonesia grew by -2.07%. In spite of the growth contraction, Indonesia indeed fared better than some of its trading partners, such as Singapore that contracted by 3.8% and the European Union that contracted by 4.8%.
In addition, inflation was maintained at a healthy level and Indonesia slowly showed signs of improvement. Through the National Economic Recovery Program (PEN), the government increased the realization of state spending, which reached Rp732.74 trillion in the fourth quarter of 2020.
Business and Industry Analysis
Air travel in 2020 plunged sharply and caused a severe shock to the industry. This was reflected from significant declines across all indicators, such as the 65.9% decrease in passenger kilometer revenue (RPK) according to the International Air Transport Association (IATA) and a USD 370 billion decrease of the civil aviation industry globally according to a report by the International Civil Aviation Organization (ICAO).
In Indonesia, the number of domestic departures had decreased since March 2020, with the largest declines experienced by Soekarno-Hatta airport in Jakarta, Juanda international airport in Surabaya, and Sultan Hasanuddin airport in Makassar, by 71.4%, 61%, and 70.8%, respectively. The lowest drop occurred in the second quarter of 2020, before the figures picked up starting August 2020, marked by Indonesia’s 15 busiest airports recording an average of 419 departures per day compared to only 345 flights per day during the government-imposed large-scale social restrictions.
Furthermore, the transportation and warehousing sectors experienced the largest growth contraction compared to other industrial sectors, especially in the second quarter of 2020 when growth stood at minus 30.80%. By mode of transportation, air transportation experienced the highest growth contraction to minus 53.81% year-on-year in the fourth quarter of 2020.
BOD Performance Assessment
During this extremely difficult situation, we appreciate the strategic decisions taken by the Board of Directors in order to maintain business continuity. This includes the decision to hibernate services on 1 April 2020, which gave the Company time to rethink its recovery strategy. Prior to that, in March 2020, the Company started to apply remote working, combined with scheduled on-site work to protect the health and safety of the employees and their family members.
On 19 June 2020, the Company resumed its commercial passenger services and immediately recorded a significant increase in ticket bookings. The Board of Directors also wisely identified AirAsia Indonesia’s opportunities to be more present on business travel routes and took the initiative to provide chartered services to transport goods, medical personnel, and repatriation of both foreign nationals and Indonesian citizens. In addition, the Company also strengthened its position on leisure routes by building cooperation with various stakeholders, such as digital ticket sales channels and local governments in various tourist destinations. Nearing the end of 2020, the Company also launched an innovative program for BIG Members in Indonesia, namely AirAsia Unlimited Pass, which offered the unique opportunity for its holder to explore Indonesian destinations by purchasing a one-time pass.
The rapidly growing digital lifestyle in 2020 demanded the Company to be agile to keep up. Through its synergy with AirAsia Group, the Company continued to improve its electronic services, such as AVA chatbots, relaunched airasia.com sites as an ASEAN super application, and installed new technologies to enable passengers’ safe check-in and boarding process. The Company also continued to expand by opening a total of six new routes.
We noticed how the Board of Directors was able to implement business decisions by encouraging health protocol standards from international agencies and the government. In addition to implementing strict health protocols for employees and cabin crew, the Company also opened COVID-19 testing facilities in dozens of locations to ease passengers who needed to get a fit-to-fly certificate. The Company also showed its commitment to passengers by allowing easy reimbursement or cancellation process of travel schedules. We fully support the Board of Directors’ measures that consistently prioritized customer satisfaction.
Further, the Company made sure it also addresses cost strategies to maintain overall efficiency and cash flows. These include restructuring payments, defer discretionary spending, and defer capital spending.
Due to the extraordinarily challenging situation, the Company reported operating losses of Rp2.8 trillion and revenues fell by 76% to Rp1.6 trillion. In terms of total route served, per December 2020 the Company 22 routes, consisting of 17 domestic and 5 international routes. The total routes declined compared to 41 routes served per December 2019, which consisted of 17 domestic and 24 international routes. This impacted the ASK level which contracted by 71% (YoY) to 3,615 in 2020. Meanwhile, the annual load factor decreased by 15.4% to 68.2% compared to the same period last year and the number of passengers reached 2.15 million people, or a decrease of 73%.
However, the decline in performance was caused by a health crisis that was beyond the control of all parties. We truly believe these results did not reflect the true power and potential of the Company and we believe AirAsia Indonesia was and is still the best airline in its class for passengers. This is evident from the recognitions the Company achieved through AirAsia Group during the pandemic, such as a from Brand Finance in April 2020, which announced AirAsia as one of the brands that were well-posed to get through the COVID-19 crisis, and being the only low-cost airline in ASEAN that achieved this recognition. Furthermore, towards the end of the year, AirAsia was named Asia’s Best Low Cost Airline for the eighth consecutive time at the World Travel Awards. Moreover, the Unlimited Pass strategy was proven successful and generated around Rp23 billion. Another success came from the opening of new routes that contributed to increased revenue of 300%.
A View on Business Outlook
The implementation of vaccination program in Indonesia is one of the positive signals for economic and industrial growth. AirAsia has also started vaccination for its Allstars in Indonesia as part of the government’s second phase vaccination that targets public service providers. The Company can use this as a momentum to continue providing air connectivity services that the people need.
Aside from vaccination, Indonesia is also confident that it can grow up to four to five percent by 2021, supported by the country’s vast and highly attractive domestic market. We agree the domestic market can be the engine of economic and business recovery, in line with IATA’s trend projection, where commercial flights will be predominantly short-haul and domestic in upcoming years.
As such, we consider that the Board of Directors’ choice to focus on national routes is the right strategy to achieve recovery momentum. Moreover, as part of PEN, the government is also committed to reviving the tourism sector with a focus on five priority destinations, namely Lake Toba, Borobudur, Mandalika, Labuan Bajo, and Likupang. The attractions of these five destinations, accompanied by returning trust and ability of passengers to travel, will have a positive impact on the development of the civil aviation business in the future.
Commitment to Good Corporate Governance
In difficult times, good corporate governance helps the Company to remain accountable, transparent, and compliant. In line with this, the Board of Commissioners always complies with all regulations, such as the Code of Ethics, Governance Implementation Guidelines, and The Board of Commissioners’ Charter.
We are also committed to providing good oversight, appropriate advice, and strategic direction for the Company’s business continuity. We observe that the same commitment has been demonstrated by the Board of Directors, which in the implementation of duties strive to apply the principles of good governance.
Through good corporate governance practices, we are confident that the Company can grow in the coming years and continue to be the strongest player in its class.
Changes in the Board of Commissioners’ Composition
In 2020, there was no changes made to the composition of the Board of Commissioners.
In conclusion, we extend our deepest appreciation to our shareholders and stakeholders, as well as our highest gratitude to the Board of Directors, management, and our employees in Indonesia for their hard work and perseverance during the difficult time. We are also grateful to the Indonesian government for quickly taking recovery policies, and to the passengers who continue to trust the Company’s services. Thank you for flying with AirAsia Indonesia.
Jakarta, June 2021
On Behalf of the Board of Commissioners
KAMARUDIN BIN MERANUN