Business

Sriwijaya flew old aircraft and neglected paths to become Indonesia’s No. 3 carrier

Sydney: Starting with just one plane in 2003, Indonesia’s Sriwijaya Air has become the number 3 airline in the country, buoyed by its strategy of acquiring outdated plans at cheap rates and serving routes neglected by competitors.

The mid-market airline, which has few international flights, came to the spotlight when a nearly 27-year-old Boeing 737-500 crashed in the Java Sea on Saturday with 62 people on board.

The Chandra brothers and Hendry Lee, whose family was involved in tin mining and garment making, and their business partners launched Sriwijaya 17 years ago with a single plane flying from their hometown of Pangkal Penang on Bangka Island to the Indonesian capital, Jakarta.

Its focus on second- and third-tier routes has earned it a loyal customer base and helped it capture nearly 10% of its market share behind Lion Air and the national carrier, Garuda Indonesia.

“They had a reasonable business approach,” said an unauthorized industry source to speak publicly of the Sriwijaya founders.

“They are not the bright guys like the many you see running airlines.”

They used a conservative business model to get old plans cheaply instead of leveraging low-cost financing to purchase large fleets of new aircraft such as other fast-growing airlines such as Lion Air, Malaysia’s AirAsia Group Bhd and Vietnam’s VietJet Aviation JSC.

The Sriwijaya fleet and NAM Air regional branch are nearly 20 years old on average – nearly three times older than the Lion Air group, according to Planespotters.net.

Flight data company Cirium said the 737-500 plane involved in the crash was one of only 77 aircraft still in service globally.

Other current operators including the likes of Nigerian Air Peace and SCAT Airlines in Kazakhstan.

Two former Sriwijaya employees told Reuters there were strategic reasons to keep such an old model in service beyond the cost of cheaper purchases.

The smaller 120-seat capacity was more suitable for certain routes such as Jakarta to Pontianak in Borneo that were taken by the plane that crashed on Saturday and the 737-500 could land at airports that were served by the turboprop due to the short runway length. On condition of anonymity.

Sriwijaya did not immediately respond to a request for comment.

Strategy tested

The black boxes of the crashed plane have not been found, so the cause of the accident remains unclear.

Older aircraft can be operated as safely as newer aircraft if properly maintained, although the cost of doing so is higher, as well as operating costs because they are less fuel efficient.

Indonesia’s Ministry of Transport said on Tuesday that the Sriwijaya plane that crashed passed an airworthiness check in December.

Rising maintenance costs and lower fare rates due to intense competition piled up significant debts on Sriwijaya by 2018 in favor of Garuda’s maintenance arm, GMF AeroAsia.

As of September 30, 2020, Sriwijaya and the Non-Aligned Movement owe approximately $ 63 million in unpaid bills to GMF AeroAsia and Garuda has warned of a $ 37.5 million impairment loss owed by Sriwijaya as part of a failed cooperation agreement, according to GMF AeroAsia and Garuda.

Its financial position since the start of the epidemic is unclear, but a Sriwijaya pilot, speaking on condition of anonymity, said that there are salary cuts and cuts in the number of airlines operating during the pandemic, in line with many other companies around the world. .

The pilot added that the airline had been adhering to all training and maintenance requirements throughout the pandemic.

Sriwijaya and NAM together have 34 operational plans and half of them are in service, according to Planespotters.net.

“The question now is whether Sriwijaya, which is already in a weak financial situation, is able to weather this incident because Covid-19 has paralyzed all airlines,” said Shakur Yusef, head of Malaysian aviation consulting firm Endau Analytics.

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