The collapse of Bahrain Air in February was yet another grim milestone in the kingdoms faltering efforts to reform its civil aviation sector. With flag carrier Gulf Air having narrowly averted its own closure last autumn, doubts are growing about the long-term contribution that Bahrain can make to a regional sector now dominated by mega-hubs in the United Arab Emirates (UAE) and Qatar.
Bahrain Air, a low-cost carrier servicing routes across the Middle East and South Asia, filed for voluntary liquidation on 12 February. Announcing its closure after just five years in business, the airline heaped criticism on Bahraini transport minister Kamal Ahmed, whom it accused of having a conflict of interest due to his parallel role on the board of Gulf Air. It also reiterated criticism of the governments alleged failure to provide compensation for difficulties encountered during the Arab Spring.
The company sustained considerable financial losses as a result of the unstable political and security situation in Bahrain, the statement read, in reference to violence on the streets of Manama at the height of the 2011 protests. This unrest did not merely precipitate a short-term slump in bookings. It also prompted the government to ground all flights to Iran, Iraq and Lebanon, amid concerns that overseas groups might seek to inflame civil unrest among Bahrains Shiite majority.
Despite the Royal Decree number 18 for 2011 Article 5/10 which states that all affected parties will be fairly compensated, the airline, despite making official claims, has received no compensation, Bahrain Airs statement noted.
Though the Arab Spring had imposed a heavy financial burden on the airline, it was in fact showing signs of recovery. In the second quarter of 2012, Bahrain Airs passenger numbers pointed to a 57 per cent year-on-year improvement. Load factor, a measure of seat occupancy, also bounced by 19 percentage points to reach 78 per cent a respectable figure in line with most European low-cost carriers.
But speaking to The Gulf immediately prior to the airlines liquidation, chief executive Richard Nuttall said that intervention by the government was rendering this turnaround irrelevant. His complaints centred on two concurrent moves by the transport ministry the demand for up-front payment of outstanding departure taxes, and the simultaneous grounding of the airlines most profitable routes.
The ministry of transportation decided that, if they were going to keep supporting us with traffic rights, they wanted to be paid what we owed them historically for departure taxes in a lump sum, Nuttall explained. They stopped approving extra flights in peak seasons...and then with the beginning of the IATA winter schedule they disapproved a whole load of flying that we were doing. Perhaps 30 per cent of our flying was reduced.
Nuttall declined to be drawn on whether he believes that Gulf Air which is thought to have lost around $5 billion since 2009 has been subject to equally stringent demands from the transport ministry. Theres no doubt that Gulf Air is being handled as a national airline, he said, without elaborating.
But on the matter of route restrictions, the chief executive was more forthcoming. In the months prior to its grounding, Bahrain Air had operated services to 14 destinations from its two hubs in Bahrain and Dammam, Saudi Arabia. A significant proportion of these routes had their traffic rights curtailed in the run-up to the business failure, which hamstrung the airline by cutting off access to revenue that it sorely needed to meet the ministrys tax demands.
Trivandrum in India was one such destination. The Bahraini Civil Aviation Authority (CAA) initially reduced traffic rights from seven to four flights per week. But in a further deterioration, the Indian CAA said it was unable to grant any rights at all until bilateral talks with Bahrain had taken place. And the Bahrain CAA will not have those talks until we sort things out with them, Nuttall said. So effectively they stopped us flying to Trivandrum.
Flights to Dhaka in Bangladesh were also grounded completely. Khartoum in Sudan and Kathmandu in Nepal were restricted to twice weekly, while Amman, Jordan and Beirut, Lebanon were limited to four times weekly. The airlines second hub in Dammam was effectively closed down by the Bahraini CAA, Nuttall said, and the authorities were refusing to grant approvals for charter flying. In this part of the world you have a number of mini peaks, which is when you make your money, Nuttall said, referring to events such as the Hajj pilgrimage. It stops us taking advantage of those mini peaks.
In this environment, it is no surprise that Bahrain Air could not repay its BD1.7 million ($4.5 million) tax bill. The airline was therefore unable to secure an air operators certificate beyond March, and was left with no choice but to throw in the towel.
The shareholders of the company have spared no effort to support the airline financially since its inception and to support the airline and Bahrain through the unrest in 2011, the liquidation statement read. The airline has also spared no effort to negotiate a solution with the minister of transportation, who is also an active board member of Gulf Air. However, he has shown no inclination to provide a meaningful solution.
In a final dig at the transport minister, Bahrain Air estimated that Ahmeds actions cost the airline revenue of BD4.5 million during its final three months. This underscored Nuttalls claim that Bahrain Air had been meeting its dues to suppliers since last May. Everything was up to date, but we still had hanging over us this debt going back to 2011, he said.
Bahrain Air was not alone in encountering troubles during the Arab Spring. Gulf Air also had its flights to Iran, Iraq and Lebanon suspended at the height of the troubles. While both carriers were allowed back to Lebanon within months, Nuttall noted that when Iraq opened up [in September 2012], Gulf Airs flights were allowed, but ours were not Iraq was very important to us. Iranian services have yet to resume, despite an attempted re-launch in October.
For Gulf Air, the Arab Spring was just the latest in a long line of headaches. The airline has struggled to redefine itself in the years following the break-up of its former coalition. Once the shared flag carrier of Bahrain, Qatar, the UAE and Oman, it has receded into the shadows amid rapid expansion by Dubais Emirates Airline, Abu Dhabis Etihad Airways and Qatar Airways.
The latest restructuring plan envisages cost savings of 24 per cent within 12 months, but publicly disclosed documents are short on detail. Gulf Airs board was reshuffled in November, following parliaments approval of a BD185 million funding package. A previous request for BD664 million was refused. With deputy prime minister Shaikh Khalid bin Abdulla al Khalifa now steering the airline as chairman, parliament is expected keep a tight rein on the carrier.
Although Gulf Airs challenges are immense, there are signs that the government recognises the need for change. The contraction of the route network has continued into 2013, with management most recently pulling the plug on flights to Colombo, Dhaka and Kathmandu. That followed the abandonment of numerous European destinations last year including Athens, Rome and Milan which allowed Gulf Air to focus on high-frequency regional routes, plus a handful of vital intercontinental links such as London Heathrow Airport.
The fleet is also evolving to reflect this new, more modest role within Gulf civil aviation. A previous order for 20 widebody Airbus A330s has been scrapped in favour of smaller A320s, which are better suited to short-haul services. The airline will still take delivery of some long-haul Boeing 787 Dreamliners, but its commitment has fallen from 24 to as few as 12 units.
While these changes underscore Shaikh Khalids promise to keep the airline afloat he describes it as a key national infrastructure asset that is integral to the kingdoms evolving business requirements turning around the business will not be easy. Two previous restructuring efforts failed in recent years, and it is questionable whether Bahrain Airs demise will significantly help the flag carrier.
Describing cooperation between two separate national carriers as an optimal situation for the kingdom, Nuttall emphasised that Bahrain Air and Gulf Air have distinct product offerings that target very different market segments.
We are best suited to those routes that are driven by cost, he argued, noting that Bahrain Airs no-frills A320s have 20 per cent more seats than the same type in Gulf Airs fleet. We are much better suited to higher density markets, where you also have an element of labour traffic and VFR [visiting friends and relatives], such as the Indian subcontinent But in Bahrain there is also a considerable business population high net-worth individuals that require a premium product and that lends itself to Gulf Airs brand.
Speaking just 48 hours before Bahrain Airs shareholders closed the business, Nuttall reiterated his call for an open dialogue between the two carriers. Theres a future out there that says one day we should be able to work together, and that will be better for Bahrain, he told The Gulf. But his optimism was ultimately misplaced, and Gulf Air must now meet the needs of all travellers within the kingdom.
