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Gulf Air looks beyond the crisis

Gulf Air looks beyond the crisis

» Interview | Monday, January 2, 2012 • Air News Times
After Samer Majali took over his new position as the Chief Executive Officer of Gulf Air in 2009, he set out a three-phased turnaround plan for the ailing company.

The three-year strategy included a more focused international network in phase one, higher standard of services and developing the fleet and route network in a focused manner in phase two, and a fleet optimisation to support a new approach to flight schedule and route network in phase three.

The unexpected dramatic events in Bahrain and in the region have delayed the breakeven by months.

However, for Samer Majali, the leader with a magnetic personality and energy who was recruited to ensure that Gulf Air was heading in the right direction, the delay should not be perceived as a fatal blow to the much anticipated turnaround.

In an exclusive interview with Gulf News, he elaborated on the latest happenings at Gulf Air.

In November 2009, you announced an ambitious re-structuring strategy to make Gulf Air soar and to ensure its business sustainability. What has been achieved so far and what are the obstacles to its full implementation?


Sameer Majali: We have laid out a strategy in that year and included a detailed plan for funding Gulf Air towards commercial sustainability. This strategy extends until late 2012 and should achieve the much-coveted financial breakeven. Then, under the strategy, we will reach the stage where we do not need any financial support and where our revenues cover our expenses.

Of course, there are other targets within this strategy that include the development of the company's performance in order to have a sustainable business and continue to contribute to Bahrain's national economy and serve people to the best of our capabilities. Our basic duties are obviously to serve Bahrain and our passengers.

There are also goals related to improving the customer experience with better onboard service, staying on the departure and arrival schedule, the renewal of our aircraft and the development of the in-flight entertainment. I mean the development of all aspects related to services and non-financial in any national airline. We also contribute of course to the movement of passengers and air cargo.

In 2010, the results were in the beginning highly positive and I believe we could achieve between 80 and 90 per cent of the objectives we set for that phase.

In 2011, we sought to minimise our losses and bring them to below 100 million Bahraini dinars (Dh974 million) annually. We had planned to bring this figure to almost zero in 2012.

However, we had the unfortunate incidents that hit many Arab countries, including Bahrain, and which had terrible effects on our plans.
 
How did they affect Gulf Air specifically?

There were several reasons. First, there was some reluctance by passengers to fly to the region, especially from Western countries whose authorities put restrictions on their citizens to travel here. In some cases, some countries even wanted to take their nationals from Bahrain.

Second, and again for security reasons, the use of the King Fahad Causeway between Bahrain and Saudi Arabia was restricted. This of course limited the number of passengers who would use Bahrain airport and our company.

A third reason is that the government, and again for security reasons, suspended flights to Iraq, Iran, and Lebanon. Flights to Beirut were resumed in June, but until now we have not received the approval to fly again to Iraq or Iran.

We have already invested a lot in these two markets in addition to the investments in the Kingdom of Saudi Arabia. Iraq, Iran and Saudi Arabia are three key markets for Bahrain. We have lost for the time being the Iraq and Iran markets, but we still have Saudi Arabia. We had invested enormously in the Iran and Iraq markets to the point that we were the only airline from the region operating there. But as we pulled out, other Gulf companies have replaced us, and now even if we do go back, we will need a period of time to restore our edge. We have lost a high number of passengers, and this has resulted in financial losses.

We had plans to launch new Gulf Air destinations in 2012 and 2013, but we had to bring them forth to use the aircraft available and feed into other routes. We worked on a new network, but the financial returns on these new routes do not match those of the routes that have been suspended.
 
What do you say to those who question the merit of launching new routes, especially to African destinations?

Most flights cover their operating costs, but they do not entirely cover the expenses as per our wishes. We hope it will be done soon.

Other objectives in 2011 were to continue investing in new aircraft and to maintain the level of service and on-time schedules, to ensure flights are not cancelled and to address booking issues. All these measures are in constant improvement.

Even during the crisis, the company did not stop to operate on any day to or from Bahrain. It did not cancel any flight for operational or security reasons. We did of course reduce the number of flights for lack of passengers, but did not remove any trip. I mean, we kept Bahrain connected with the world throughout the crisis. With the exception of financial matters, all other issues are getting better. We now look forward to 2012, God willing, to see new improvements and resume our operations in the region. Gulf Air will once again be the top company with the highest number of flights in the region. We have announced that we will launch flights to three destinations in Saudi Arabia that will augment our connections there to seven.
 
You had plans to replace the wide-bodied planes with narrow-bodied planes in order to reduce the operation costs. Are these plans still valid?

Yes, they are still ongoing and they are strategic. The narrow-bodied aircraft will enable a link between Bahrain and many financial centres both in normal and difficult conditions, especially after the negative impact of the suspension of the Iraq and Iran routes.

The normal development is that we resume our flights because the natural situation is to have good relations between neighbours. Our strategy is clear and we are moving forward with it.

We do fly to faraway places in the best interest of Gulf Air and Bahrain. Our flights to Europe are continuing and so are our flights to the Far East. However, our main focus is investing in destinations within a three-hour radius of Bahrain through a highly dense network and secondary destinations.

Smaller planes will help us reduce operating costs without affecting the standards of our services. They will also allow us to expand our routes while providing the highest levels of comfort and values.
 
You said that you have lost two major markets (Iraq and Iran). What are the options available to replace your losses?


For Gulf Air, Saudi Arabia remains the only major market available to us in our region until the suspension of the other markets is lifted.

In 2012, there will be seven destinations for Gulf Air in Saudi Arabia. We did have investments in the Saudi market before, but now we are boosting them. The route to Madinah was launched before the start of the crisis and we keep asking for an increase in our flights to Riyadh and Jeddah so as to serve the growing movement of businessmen and other travellers at all times.
 
Do you face real competition from the low-cost carriers that have emerged in the region, especially that their numbers are increasing?

In fact, we face competition from all companies operating in the region. The status of low-cost carriers in the Arab world is not like that of their counterparts in the rest of the world because they do not have the same model to assist them. Western companies rely on lower fares and the lower fees from operating to airports that are less expensive and that serve the same city.

However, in the Arab world, such alternatives do not exist and there are no alternative same-city airports that would be ready to reduce fees for low-cost carriers.

At the same time, low-cost carriers sell mainly through the internet, maybe up to 70 and 80 per cent of their tickets, as a way to avoid paying commissions to travel agents or to open offices. However, in the Arab world, the use of the internet and credit cards is limited. It is steadily picking up, but overall it is still limited compared with the western world. So the model in the Arab world is not the same as in the Western world that allows low-cost carriers to give a different product, a combination of low prices and low costs at the same time.

What distinguishes Gulf Air from the other airlines, at least in the Gulf?

Gulf Air is the mother of the airlines in the region and most of the companies here are originally from Gulf Air. It is a historical prestige in the region and many people feel something special about the airline, regardless of the difficulties it has sadly experienced. We felt this special cordiality towards Gulf Air in Europe, and witnessed it in Rome where we opened our latest European route. People recall Gulf Air with fondness and when we launched the Rome flight, people were happy that we were there and they showed great interest in the return of the company. Even though our operations are modest compared with other companies, there is a special status in which we are investing.

Another asset we have is the application of the Gulf Air strategy which sets us apart from other companies in the region. We have investments in the region where we have the largest number of connections. Our vast network allows our passengers to choose when they want to fly, so we do not impose a timing on them. When for instance passengers see that Gulf Air has nine flights daily to Dubai, while the competition has only three, there is a great advantage. There is a flight every two hours and the passenger can decide when he or she wants to travel thanks to the numerous options. The right timing is an extra asset that is added to the ease of movement, the distinguished in-flight service and the Gulf Air staff relationships with passengers in general.
 
Do you have plans to open new destinations in European capitals and cities?

There are ideas floating around about bolstering our Europe network. Launching longer-haul routes, to European cities for example, was linked with our expansion in our region. However, as we are falling back slightly in the region, we had to limit our expansion in Europe because each operation feeds into others. We cannot expand in a certain area without expanding in our region and in our underlying market. But in the future, we will invest in any promising market.

Career profile

Samer Majali took office as the Chief Executive Officer of Gulf Air on August 1, 2009. Majali, an aeronautical engineer, holds a Master's degree in Air Transport Management from Cranfield University in the UK and is a Fellow of the UK's Royal Aeronautical Society.

In his 30-year career with Royal Jordanian, he held several positions in various divisions of the company before becoming its President and Chief Executive Officer in 2001. He was credited for transforming the airline into one of the most successful in the region. Under his management, the airline recorded its first net profit.
He held the post until he joined Gulf Air.

Majali served as President of the Arab Air Carriers Organisation (AACO) and Chairman of the International Air Transport Association (IATA) board of governors until June 2009. He is also on the board of several organisations.
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