Board of Directors Report
An extremely challenging year, 2020 created for us a steep learning curve. But with our agility to adapt, we have been able to introduce a new normal in air travel. As a result, we successfully sustained peopleto-people connectivity through both of our commercial and logistic services.
Dear Distinguished Shareholders,
The global COVID-19 pandemic turned 2020 into a tough year, if not the toughest, year for all businesses in all industry sectors. The human-to-human transmission nature of the virus meant that people’s mobility and activities had to be restricted to only the most essential level in order to lower the transmission rate. AirAsia Indonesia certainly felt the impacts of last year’s situation, as we will describe in this report. However, it was also during this time that we learned to be more adaptive, innovative, determined in connecting travelers throughout the archipelago and the world. On behalf of the Board of Directors, allow me to take you through our performance in 2020.
2020 Economic Overview
As people’s mobility around the world was restricted, the global economy had also been upended. The global growth was projected to contract between 4% and 4.3%, with slowdown was also experienced by developed countries such as the United States, the European Union region, and Japan.
According to Statistics Indonesia (BPS), Indonesia grew by minus 2.07% throughout 2020. Year-on-year, the growth in quarter IV of 2020 stood at minus 2.19%. This reflected a direct impact of restrictions of activities in all aspects of life, be it work, school, daily household activities, or leisure activities.
Nevertheless, Indonesia has shown signs of improvement. The National Economic Recovery Program (PEN) received substantial funding from the state budget to help the recovery of the most affected sectors. Under PEN, the government among others imposed credit relaxation and increased the realization of state spending, which in the fourth quarter of 2020 reached Rp732.74 trillion, up from the same quarter of the previous year at Rp704.22 trillion. Thanks to government stimulus, household consumption growth improved in the fourth quarter of 2020, at -3.61% (YoY) from -4.05% (YoY) in the previous quarter.
Industry and Business Overview
Industry performance data showed similar impacts. Within the country, BPS showed that 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%, which then improved to minus 13.42% in the fourth quarter. By mode of transportation, air transportation experienced the highest growth contraction to minus 53.81% year-on-year in the fourth quarter of 2020.
Globally, industry data also showed a sharp decline. According to a recent report from the International Air Transport Association (IATA), demand for aviation in the world fell by 65.9% in 2020 compared to 2019. Regionally, the largest decline was recorded in the Asia Pacific region with a contraction of 80.3%. In line with this, the International Civil Aviation Organization (ICAO) also reported a 60% drop in international passenger traffic by 2020, a significant setback that returned demand to 2003 level. In terms of revenue, ICAO noted that the civil aviation sector globally experienced a total revenue decline of USD 370 billion, with the steepest decline in the Asia Pacific region of USD 120 billion.
2020 Strategic Measures
The extraordinary situation in 2020 had to be dealt with equally extraordinary measures. The Company must be able to innovate and leverage all its potentials, while continuing to support the joint efforts to break the chain of transmission of COVID-19.
The Company’s response was adjusted to how the situation developed. In the early days of the pandemic, we demonstrated a strong commitment to providing the best service to the Company’s frequent flyers by offering free unlimited flight change and 2 years credit account and launched promotional programs, such as Unlimited Pass.
In addition, recognizing the significant shift in way of life to digital platforms, we quickly improved our platforms, including the variety of offers provided. We also promoted not only flights with AirAsia airlines, but also flights with other airlines, hotel bookings, SNAP bundles that combine flight and hotel booking, and activities. Furthermore, in October 2020, as part of the AirAsia Group, we supported the launch of a new logo and identity of the airasia.com website which was reintroduced as a super ASEAN app. This confirmed our position as a modern low-cost carrier that is oriented towards digital technology.
In terms of routes, we focused on the domestic market with three key strategies, namely expanding reach to new domestic destinations; developing market share in Sumatra and Kalimantan; and targeting new service users and strengthening market awareness of AAID as a domestic airline. A total of six new routes were opened in 2020, namely Jakarta-Palembang, Jakarta-Pontianak, Jakarta-Pekanbaru, Jakarta-Padang, Jakarta-Medan, and Denpasar-Bandung. We also built further and close cooperation with stakeholders in tourism such as local governments and the Indonesian Hotel and Restaurant Association (PHRI) to boost recovery in this area.
Meanwhile, in terms of services, we are expanding to charter services to transport logistics, such as medical supplies and relief goods. Our chartered flights also served the repatriation of foreign citizens in Indonesia as well as Indonesian citizens in foreign countries, also Charter with one of the companies engaged in Mining. The Company also continued to reassure prospective passengers about the safety of flights during the pandemic by enforcing strict health protocols and making various adjustments to services both at the airport and onboard an aircraft. In line with new travel regulations, where air travelers need to provide evidence of their health, we also cooperate with third parties to provide COVID-19 test facilities at various points to facilitate passengers as well as new technologies to help passengers go through baggage drop and boarding process with minimum contact with our ground staff. These represent our efforts to normalize travel in a ‘new normal’ situation.
On the cost side, the Company took significant steps to rationalize the overall costs and conserve cash. Key initiatives included negotiation with lessors, creditor and vendors in regards to restructuring payment terms, defer aircraft delivery, defer capital spending, reduced marketing spending and suspend discretionary spending including social events.
Conduct advocacy in the national level with related governments, tourism, transportation, health. The Company also carry out advocacy regionally for the interest of AirAsia as a Group.
With the presence of AirAsia representative as Deputy President of ASEAN Tourism Association, this grants access in ASEAN level.
2020 Business Performance
In line with the situation in 2020, the Company recorded a 76% decrease in revenue to Rp1.6 trillion. We saved operating costs by 34% (YoY), and EBITDA was negative at a level of Rp1.2 trillion. The Company also reported an operating loss of Rp2.8 trillion. From the operational side, ASK was down by 71% (YoY) to 3,615 in 2020 compared to 12,629 in 2019 considering that the Company only served 17 domestic routes and 5 international routes compared to 17 domestic and 24 international routes in the previous year.
Our annual load factor fell by 15.4% from 83.6 in 2019 to 68.2 in 2020. Meanwhile, total passengers declined by 73% from 7.97 million passengers in 2019 to 2.15 million passengers in 2020.
Despite the decline, the figures we achieved actually showed improvement from quarter to quarter. Revenues rose to Rp215 billion or by 15.39% from the previous quarter and domestic flights began to recover, especially towards the end of the year. Chartered flight services proved to be a surefire strategy in the midst of the pandemic; since its operation in April, the service has recorded revenues of Rp21 billion, serving domestic and international routes with a composition of 62% and 38% respectively.
Meanwhile, the Unlimited Pass program generated approximately Rp23 billion cash inflow. The opening of new routes also contributed significantly, increasing revenue by 300% and market share gain in the fourth quarter compared to the previous quarter.
We were also widely recognized for the strict health protocols that we put in place. It showed that we were capable of being a superior airline, including in difficult times. In addition, within AirAsia Group, AirAsia Indonesia is one of the three airlines with the best net promoter score (NPS) of 53.
The challenges that we encountered in the midst of the pandemic were undoubtedly related to our ability to bounce back and maintain business continuity.
The ongoing COVID-19 pandemic, with the significant increase in cases especially in several major cities in Indonesia, became our main hindrance in getting our performance back on track. Mobility restrictions in several locations, the lockdown of international borders for nonessential travels, and stringent requirements for air travel contributed to the persistently low demand. This trend continued for the entire year, including during typical peak seasons, namely mid- and end-year holidays.
We needed to build travelers’ trust that they are safe and worked hard to maintain that trust to continue our commercial services. We have continued to closely observe new developments with respect to the pandemic to recognize the best time to gradually resume our services across all of our serviced routes.
Not only that, we had to quickly adapt to the situation, including with the consumer preferences for digital services that increased rapidly during the pandemic. The Indonesian market was also predominantly characterized by business traveling, and in this regard the Company needed to strengthen its presence in non-leisure routes without abandoning its unique advantage as a low-cost, leisureoriented airline that is a leading player in its class.
Overall, future growth projections are optimistic with Indonesia forecasting growth of 4 to 5% by 2021. In terms of industry, IATA projects that air travel trends will focus on the domestic destinations of different countries. This is a welcomed projection, considering that Indonesia has a vast and attractive domestic market with the potential to lead the economic recovery and business sectors. Recovery will also be supported by the success of the vaccine roll-out program by the government.
A recovery signal also came from the Company that officially resumed services on 19 June 2020. This milestone was signified by the return of two domestic and two international routes, namely Jakarta-Denpasar and Jakarta-Medan as well as Surabaya-Kuala Lumpur and Medan-Kuala Lumpur with Airbus A320.
We appreciate the government for keeping domestic flight routes opened, therefore allowing the economy to grow whilst observing health protocols. We are also confident that the travel corridor initiative from the Ministry of Tourism will support the rebound of many related sectors, aviation included.
Moreover, we expect that the use of digital technology is here to stay, therefore the Company has solidified its commitment to continuously improve the quality of operations, services, and quality assurance. Going forward, we will continue our innovative flight ticket and hotel bundling program (SNAP) and further our cooperation with PHRI. As such, we are optimistic that business activities will resume in 2021.
Commitment to Good Corporate Governance
The Company currently has a governance structure consisting of the Corporate Secretary, Internal Audit Unit, Audit Committee, and Nomination and Remuneration Committee. We are committed to ensuring that the GCG units fully exercise their mandate.
Consistent implementation of GCG is also our way of improving accountability. GCG provides a clear framework for us to run a business with integrity, and this provides added value for both stakeholders.
Changes in The Board of Directors
In 2020, there was no change to the composition of the Board of Directors.
Human Capital Management
Even in the middle of a pandemic, the Company remained committed to managing and developing human resources as best as we could. Certainly, the health and safety of our employees were of utmost importance, and we took measures such as work from home where possible, which still applies since it was first introduced in March 2020. The Company also divided our employees into groups A, B, and C and set up schedules so that only one group would access our office at a given time. Certainly, the health and safety of our employees were of utmost importance, and we took measures such as work from home where possible. For our employees who had to serve our customers on the ground, we carried out regular health tests to prevent COVID-19 transmission and strict health protocol practices.
Overall, the focus of our HR development and management was the improvement of employees’ competence, implementation of HR digitization, and increased engagement with employees. We also encouraged the use of online HR management systems, such as AskPAC, systems for recruitment, and systems for employee learning.
We are pleased that HR system digitalization was pioneered quite early on, which put us in a good position in 2020 where we were ready to implement and scale-up system implementation.
INFORMATION TECHNOLOGY DEVELOPMENT
In terms of information technology (IT) in 2020, we strived to implement development activities that we had designed, as we wanted to safeguard the Company’s IT system reliability.
In addition, we also ensured that our systems were always in line with the Company’s vision and mission, had strategic values, and contributed to the achievement of operational objectives.
This was evident from the IT development activities that we managed to complete in 2020. Several results of development supported our service digitalization, such as the Electronic Flight Bag (EFB) implementation for replacing manual flight documentation for the pilots and the contactless/touchless bag tag and boarding pass printing that directly enhanced passengers’ travel convenience.
To break the chain of Covid-19 outbreak during the pandemic, an “e-Crew” app system is provided for Pilots and cabin crews to be used as sign-on prior to any flights. Previously the PC was used located in the Airport.
Moreover, the Company also implements a “FassPos” system for the passengers, which aim at facilitating purchase transaction during the flights.
Commitment to Corporate Social Responsibility
Our commitment to the social and environmental fields is aligned with the Sustainable Development Goals (SDGs). As a group, we are committed to realizing AirAsia’s Sustainability Manifesto which includes eight key initiatives in the areas of Carbon, Energy Consumption, Waste, Water Consumption, Sustainable Tourism, Goods & Services, Governance and Culture.
In addition, we also exercise our responsibility in the fields of human rights, employment and occupational health and safety, fair operation, and consumer rights. With respect to consumer rights, in addition to ensuring passengers’ convenience to adjust their flight schedules, we also facilitated passengers and ensured their health as our priority. To that end, we have applied temperature check using roving technology and made sure that health protocols were followed at all times.
On behalf of the Board of Directors, I would like to express my deepest gratitude to AirAsia Indonesia’s loyal passengers, business partners, government and all stakeholders for their loyalty and support.
I also have to thank the management and employees for their dedication and determination in the middle of such an extraordinarily challenging situation.
Finally, I thank the shareholders and the Board of Commissioners for their advice, which had enabled us to identify strategic steps that were crucial for us to continue painting the sky red.
Jakarta, June 2021
On Behalf of the Board of Commissioners