Board of Commissioners Report
The Company’s business strategies were proven effective in driving the Company’s performance over the prior year. These were implemented by temporarily suspending the scheduled flight operations and gradually resuming scheduled flights on 9 domestic routes and 1 international route until the end of the year, subscription promotion programs in collaboration with the Group, charter and cargo service development, and other initiatives. The Board of Commissioners considers the Board of Directors’ business projections for the Company to be realistic and positive regarding the Company’s future growth. AirAsia Indonesia’s position as the best-in-class airline can also be maintained through enhancement of service quality fostered by professional human resources.
Dear Distinguished Shareholders,
Praises to God Almighty for allowing AirAsia Indonesia to conclude a challenging year, affected by the various impacts of the ongoing Covid-19 pandemic, with solid performance compared to the prior year. The initiatives and innovations taken by the Board of Directors made it possible for the Company to retain its position as the bestin-class and lay the foundation to capture future business opportunities.
2021 Economic Overview
Compared to the previous year, the global economy in 2021 indicated improvements. This was encouraged by substantial fiscal and monetary incentives implemented by governments in numerous countries. Relaxed mobility restrictions and the opening of international borders also contributed to the economic revival.
In 2021, according to the World Bank, the global economy grew by 5.5%, which was a significant improvement over 2020, when it had contracted by 3.3%. Along with the recovery of the global economy, the prices of energy commodities such as coal, oil, and gas, as well as food commodities such as CPO and wheat, have risen substantially due to high demand and limited supply. The increase in fuel prices contributes to the rise in airline operating expenses.
Even though the global economy is on the mend, it continued to face threats of Covid-19 sub-virus mutations, inflation, supply chain disruptions, and geopolitical tensions in a number of places, all of which could derail future progress.
The data from the Central Statistics Agency (BPS) stated that Indonesia’s economy began to rebound in 2021 with a growth rate of 3.69%, compared to a contraction rate of 2.07% in 2020. The majority of economic expansion was supported by household spending and investment.
Indonesia’s economy also benefitted from the growing prices of energy and food commodities, resulting in a trade surplus. As a producer of commodities such as coal, Indonesia benefitted greatly from the rise in commodity prices on the international market.
As the pandemic began to be brought under control and the economy recovered, the government lifted restrictions on individual travel and reopened previously restricted tourist destinations.
According to data from the Ministry of Tourism and Creative Economy as well as BPS, the number of tourists visiting Indonesia decreased by 61.57% from 4.05 million in 2020 to 1.56 million in 2021. The decrease was caused by mobility restrictions that were put in place in response to Covid-19 outbreak. In spite of a general decline, the figure exhibited an upward trend towards the conclusion of the year.
Industry and Business Overview
The reopening of international borders and the ease of movement as a result of the decline in the number of daily cases of Covid-19 worldwide had a favourable effect on the performance of the aviation industry in 2021, which was superior to that of the previous year although still below pre-pandemic levels.
The International Air Transport Association (IATA) reported that flight demand, as measured by passenger revenue kilometres (RPK), climbed by 79.5% annually, compared to a decline of 65.9% in 2020. Aviation capacity increased by 45,5% annually, as measured by available seat kilometres (ASK), which was greater than the decline of 56,5% in 2020. The passenger load factor (PLF) increased by 13.7% in 2021 compared to 2020, when it fell by 17.8%.
In Indonesia, the aviation industry indicated similar signs of improvement. The number of passengers arriving at several major airports, such as the Soekarno Hatta airport in Jakarta, which is the busiest airport, increased in 2021 compared to the previous year. This development cannot be separated from laxed mobility of travellers as a result of increased vaccination coverage and a decline in the number of Covid-19 cases.
In addition to the increase in passenger traffic, freight and charter aircraft activities also thrived. This was due to large-scale events in Indonesia, such as the National Sports Week (PON) in Papua, and the rise in e-commerce transactions that necessitate air transport.
BPS data stated that the transportation and warehousing industry sectors expanded by 3.24% annually in 2021 compared to 2020, when it declined by 15.05%. In 2021, the growth contraction in air transportation subsector narrowed to 8% from 53.1% in the previous year. This is certainly a hopeful sign for the air transport industry’s comeback the following year.
Performance Assessment on the Board of Directors
Despite high expectations, the aviation industry did not expand as rapidly as anticipated in 2021. This was due to the spread of new Covid-19 variants, such as Delta and Omicron, which resulted in the Indonesian government closing airports in an effort to manage the pandemic. Under such a difficult circumstance, the Board of Commissioners commended the efforts of the Board of Directors to ensure the Company’s business continuity.
Implementation of the Company’s business strategies, which focused on domestic routes by serving 9 domestic routes and 1 international route by the end of the year, subscription promotion programs in collaboration with the Group, charter and cargo service development, and other initiatives, were proven effective to improve the Company’s performance over the prior year. The Company still reported losses, but the amount decreased. In 2021, the Company booked net loss of Rp2.34 trillion, decreased by 15.13% from Rp2.75 trillion in 2020.
The revenue declined by 61.14% to Rp626.00 billion, compared to Rp1,610.97 billion in the previous year. This decline was attributable to a decline in passenger revenue, which comprised seat sales and other ancillary income such as baggage, flight services, F&B services, and ground handling. The decline in passenger revenues also resulted by the pandemic, which has caused travellers to hold non-essential air travels. Additionally, traveling was also curbed by the temporary suspension/hibernation of scheduled flights, especially at the peak of Covid-19 spread in Indonesia, which negatively impacted the Company’s income.
In contrast to the decline in passenger revenue, freight and charter business surged. In 2021, transport business revenue reached Rp75.03 billion, increasing 23.23% from Rp60.89 billion in 2020. In 2021, charter revenue reached Rp70.58 billion, a substantial rise of 229.86% from the previous year’s Rp21.40 billion.
The Board of Commissioners determined that the Board of Directors had successfully implemented an efficiency program, as evidenced by a 48.01% decrease in operating expenses from Rp4.41 trillion in 2020 to Rp2.50 trillion in 2021.
The Board of Commissioners also supported the Board of Director’s efforts to aid the government in combating the pandemic by instituting strict health rules and implementing flight eligibility criteria for customers in compliance with government regulations. Moreover, in line with the appropriate regulations, all AirAsia Indonesia staff and crew have also received two-stage vaccines.
Assessment on Business Prospects
Indonesia’s economic recovery is projected to continue in 2022 due to enhanced pandemic control and increasing vaccination coverage. As the tourism industry recovers, the number air passengers are also expected to grow. Should the easing of mobility continue, the Indonesia National Air Carriers Association (INACA) is confident about the civil aviation industry’s growth in Indonesia.
Indicative of the tourism industry’s revival is the Government of Indonesia ‘s commitment, through the Ministry of Tourism and Creative Economy, to increase the number of international tourists to the country to between 1.8 million and 3.6 million in 2022.
The Board of Commissioners concurs with the Board of Directors’ business outlook assessment for the Company, with an emphasis on domestic aircraft routes while waiting for the re-opening of international borders. Increased cooperation within the tourism industry ecosystem will bring positive impacts to the future of AirAsia Indonesia’s business. The extension of domestic routes, such as those in Sumatra and Kalimantan, can expand the company’s operations.
Similarly, for international routes, the Company favours those that yield the greatest return. ASEAN Unlimited (now SUPER+), which offers flights to ASEAN and Indonesia destinations for an entire year, will also boost the number of aircraft passengers. In addition, the optimization of super apps that give travel and hotel packages, in addition to flying possibilities with any airline, will provide customers with enhanced flexibility.
In addition to providing regular commercial flights, the Company will expand its cargo and charter services, which have been shown to be the source of additional revenues at a time when passenger revenue declined. This is a particularly appropriate direction to take, considering the growth in e-commerce business that requires air cargo to speed up the distribution of goods. In addition, charter services are potential to support large-scale events and meet the requirements of specific market sectors.
The Board of Commissioners considers the Board of Directors’ business projections for the Company to be realistic and positive regarding the company’s future growth. AirAsia Indonesia’s position as the best-in-class airline can also be maintained through enhancing service quality and investing in professional individuals.
Commitment to Corporate Governance
The Board of Commissioners’ exercise of oversight is guided by the Board of Commissioners’ Charter (BOC Charter). In addition, the Board of Commissioners provides the Board of Directors with advice and suggestions for the operations of the Company, including advice on good corporate governance management.
In carrying out its duties and responsibilities, the Board of Commissioners is assisted by two committees: the Audit Committee and the Nomination and Remuneration Committee. Throughout 2021, the two committees executed their respective responsibilities according to the governance principles and the Company’s objectives. This assessment is based on quarterly reports, comments, and recommendations on matters within the purview of the Board of Commissioners’ oversight responsibilities, as well as the performance of the Audit Committee and the Nomination and Remuneration Committee.
Changes in the Composition of the Board of Commissioners
Pursuant to the resolution of the Extraordinary General Meeting of Shareholders (EGMS) in 2021, the Company changed the composition of the Board of Commissioners in 2021. The EGMS approved Mr. Pin Harris’ resignation as a member of the Company’s Board of Commissioners. We express our utmost gratitude to Mr. Pin Harris during his tenure with the Company and wish him the best in the future.
Appreciation and Conclusion
We would like to convey our appreciation to the shareholders who have entrusted the Board of Directors with the responsibility of overseeing the company’s business management. We extend our appreciation to the Board of Directors, management, and all employees who have worked diligently and for their focus on overcoming obstacles, allowing the Company to mitigate challenges and deliver stronger results. We also express our gratitude to the government and loyal passengers of AirAsia Indonesia for their support. We look forward to continuing our close relationship in the future.
Jakarta, May 2022
On Behalf of the Board of Commissioners
KAMARUDIN BIN MERANUN