Jakarta – The plan by Garuda Indonesia to acquire Pelita Air is an effort to treat a sick state-owned enterprise by sacrificing one that is healthy. As the SOE holding company, Danantara may see this corporate action as consolidation in order to simplify the market. But these words feel more like blanket concealing Garuda's wounds that never heal.

Pelita Air is not part of the problem. The airline owned by Pertamina is growing steadily and its fares are at a sensible level. According to data from the Transportation Ministry, its 2024 on-time performance was 94.3 percent, a standard that many of its competitors have not achieved. It is this type of airline that consumers need: efficient, clean, and not burdened by the past. The question is why has the state decided to swallow a healthy company in order to maintain a major player that has long been struggling?

Garuda and its subsidiaries have long provided examples of policies that paper over the cracks and only delay further chaos. Its cost structure is illogical, governance is poor, and it still has contracts it is obliged to enter into, but there has been no meaningful improvement. Although it received a cash injection of Rp23.67 trillion from Danantara, it is still losing hundreds of millions of dollars and has negative equity. But instead of getting to the root of the problem, the government has switched focus and is looking for a new way out named Pelita Air.

The argument that there is damaging business rivalry between Citilink and Pelita on domestic routes is only a pretext for saying that competition makes the state uncomfortable. However, in an industry rife with monopolies like aviation, competition is the only way of stopping prices rising to crazy levels and service standards falling. After Pelita is swallowed up by this consolidation, state-owned airlines will only be left to compete with Lion Air. A market with little competition will mean high prices and poor service.

A healthy market would force Citilink to make improvements. At present it is in very bad shape. Half its fleet, 32 of 64 airplanes, is grounded. However, it has sufficient capital in the form of full support from the state. Its Rp3.73 trillion aviation fuel debt was paid thanks to funds from Danantara. This Garuda subsidiary should be able to survive without needing the competition to be eliminated. When the losing company is declared the winner, it is the consumers that become victims.

The merger of Pelita Air into the Garuda group will only create a larger entity that still bears the burdens of the past. Without reform of governance, dismantling of the cost structure, and the courage to end rotten contracts, this consolidation will not last long. We will just have to wait for the next cycle before once again it goes knocking on the door of the government asking for additional capital claiming this is to save the national airline.

The government should realize that the term "flag carrier" – considered as a symbol of national identity in the eyes of the world – is no longer relevant. If it becomes a burden on the state, the airline would be better being run by more competent people. Japan Airlines, for example, is now wholly in private hands. KLM is no longer a Dutch government company after its merger with Air France. Meanwhile, British Airways is owned by a Spanish company.

Indonesia has chosen a different path: continue to prop up its flag carrier even if that entails extinguishing Pelita – which means "lamp" – and dimming the competition. In the end, consumers will be left in the dark.

– Read the complete story in Tempo English Magazine

Source: https://en.tempo.co/read/2071204/consolidation-in-aviation-stifles-competitio