Mar 01 2012
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Still waiting for the tide to turn
's high profile troubles are prompting yet another rethink for the airliner in a region of goliath carriers and mega hubs
There is no denying Gulf Air had a torrid time in 2011. Bookings fell by 25 per cent in the first five months of the year as regional unrest spooked foreigners and parliament banned flights to Iran, Iraq and Lebanon - fearful that groups like Hezbollah might antagonise the country's Shia population. Factor in high oil prices, and it is little wonder that Gulf Air 's much-lauded recovery plan, which had targeted profitability by 2013, was aborted in January.
"Its three-year recovery strategy hasn't materialised as intended," Ernest Arvai, co-founder of aviation consultancy Air Insight, explained to The Gulf. "The carrier needs to re-focus on the fundamentals to effectively compete, particularly having fallen behind its competitors in the Gulf, who have been better funded and able to invest in both new aircraft and infrastructure."
Today the airline's home market is restricted to Bahrain, but between 1974 and 2003 Gulf Air was the shared flag carrier of four Gulf states. Qatar was the first to withdraw, followed by Abu Dhabi and then Oman - which, it emerged last month - still owes the airline BD117 million ($310 million).
The aspirations of these regional goliaths are truly daunting. They seek to re-align inter-continental transit traffic away from hubs in Europe, re-defining global air transport by turning the Gulf into the pre-eminent crossroads between East and West. With their state backers pouring billions into assets on the ground and in the air, Bahrain's flag carrier has been well and truly side-lined.
And yet with change comes opportunity. Majali's three-year plan, outlined after he took office in August 2009, made no attempt to claw back Gulf Air 's primacy. Instead, alongside familiar pledges such as boosting fuel efficiency and cutting labour costs, he sought to re-invent Bahrain as a regional hub. The flag carrier would focus on under-served short-haul markets that were of little interest to its larger competitors, while also ring-fencing selected long-haul routes that remained in high demand, such as London Heathrow.
With Emirates, Etihad and Qatar Airways pummelling resources into mass-transportation hubs around the world, Gulf Air would hoover up traffic from less-known secondary bases across the region. Its fleet rapidly evolved to reflect this strategy, with the airline leasing four smaller Embraer 170 and 190 jets, and reducing its order for widebody Boeing 787 Dreamliners from 24 to 16.
But management had not anticipated or factored in pan-Arab political upheaval. The Arab Spring not only sapped inbound and outbound traffic from Manama, but also prompted a government edict that Gulf Air withdraw from three of its key markets. Though flights to Lebanon were restored in June 2011, hitherto profitable sectors in Iran and Iraq remain off-limits. Speaking to the UAE's Gulf News in January, Majali bemoaned how Saudi Arabia is now "the only major market available to us in our region".
Unfortunately, declining market share will be difficult to stem. Qatar Airways wasted little time in adding flights to Shiraz in Iran, while also negotiating a deal to operate domestic routes within the Islamic Republic. In Iraq, a slew of European and Middle Eastern carriers have capitalised on the improved security situation, including Lufthansa, Austrian, Pegasus, Turkish, Emirates, Etihad and flydubai. With the competitive landscape in both countries maturing fast, Gulf Air 's regional hub aspirations have taken a knock.
Nor was political interference an isolated occurrence. The state's clampdown on absenteeism during national strikes last spring saw around 200 Gulf Air workers dismissed, though at least 147 were hastily rehired by Bahrain Mumtalakat Holding Company, the independent sovereign wealth fund that owns the airline. However, elements of the government reportedly took a dim view of this rapprochement, the foreign minister urging his colleagues to boycott the flag carrier.
In such a climate, Gulf Air 's options are limited. The failure of the three-year plan saw Bahrain's cabinet commit to fresh restructuring, with the rather ambiguous aim of reducing the airline's "challenges, commitments and costs". Some have suggested privatising, or even dissolving, the flag carrier. But any replacement would be saddled with the same issues, while lacking brand recognition.
According to Arvai, the regional hub strategy remains the most viable solution. " Gulf Air needs to eliminate several loss making routes and re-focus its attention on profitable markets," he said, singling out opportunities in Saudi Arabia. Three new routes to the country - Gassim, Yanbu and Taif - have already been added, giving the airline a higher market share than its rivals. It also last month announced an additional 11 weekly flights to Riyadh and Jeddah. Elsewhere, securing feed-in traffic through global codeshare agreements should help it develop a "high-quality shuttle service between major business centres in the Gulf.
Further fleet modifications are necessary too. Majali has said he may substitute some widebodies with smaller jets, and Arvai called the Bombardier CSeries an "ideal" entrant. Cancelling some of Gulf Air 's 20 Airbus A330 orders would free up funding, but the remaining Dreamliner orders are likely to be safeguarded. Arvai described them as the "right size" for Bahrain's long-haul market, as opposed to the gigantic Airbus A380s favoured in the mega-hubs.February's $80 million loan from Dubai's Mashreq Bank suggests that investors still have faith in the troubled carrier. " Gulf Air can come back," Arvai concluded. "But in the interim it must cull unprofitable routes, adopt best practices to cut costs, and re-focus on the traditional friendliness and hospitality of the Bahraini people - regaining its momentum and restoring profitability."
© The Gulf 2012
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