Exclusive Interview: Oman Air CEO Peter Hill

How the aviation veteran turned around Oman's national carrier.


Oman Air CEO Peter Hill Interviewed By Robeel Haq

Following the announcement that Peter Hill will retire from his position as chief executive officer of Oman Air in September, there has been endless speculation about his replacement. The latest media reports have mooted British Midlands International CEO Wolfgang Prock-Schauer as the favoured candidate, and since an official confirmation is imminent, it’s unsurprising that Hill himself is reluctant to discuss the matter. “My lips are sealed,” he laughs. “I know a few people have been shortlisted and an announcement will soon be made to end the speculation. I’m sure the choice will be good for Oman Air and whoever is eventually selected, hopefully they will lead the airline to breakeven in the near future.”

It’s been three years since Hill took over the reigns at Oman Air, hand-picked to manage the biggest transformation in the national carrier’s history. His appointment was well-received at the time, with over 50 years of experience in the aviation industry, including management roles at British Overseas Airways Corporation (now British Airways), Gulf Air, Emirates Airline and SriLankan Airways. “Originally I planned to stay a couple of years and then retire, although I was convinced to stay on for another 12 months,” he states. “From the start, I knew that Oman Air had a lot of potential and that’s what attracted me to the position. I never actually applied; they came and found me, which was very flattering. At the same time, I knew this would be a challenging job. We were the last of the Gulf airlines to seriously look at changing our business model, with competition from three very successful carriers, Emirates, Etihad and Qatar Airways. We could never take them on, they are far too big and established, and so we had to carve our own niche in the market.”

Shortly after his appointment, Hill outlined a five-year strategy that he believed would support Oman Air in achieving breakeven as a “luxury boutique airline”, with a revised business model, complete rebranding and multi-billion dollar investments in fleet developments. “We commenced the strategy in 2008, when Oman Air was half its current size, with two leased aircraft that operated on long-haul flights to Gatwick, as well as several Boeing 737NGs. We had a strong reputation as a regional player that focused on the transportation of labour around various markets in the GCC and India subcontinent,” he reflects. “It was important to keep those markets, as they’re our bread and butter, but we also wanted to expand the network into longer-haul markets outside of the region, which was a balancing act of sorts.” Amongst the routes that have been introduced in the past 18 months are Milan, Kathmandu, Dammam, Kuala Lumpur and Lahore, while Moscow is scheduled for a November start. “Oman’s population is growing, and it’s a young population, so they will be passengers of the future and lead to strong outbound tourism. Plus we have increasing potential in the business market, with the development of new industries, which also bodes well for the airline,” he states. “Because our network has expanded so aggressively, I do not expect a large number of new destinations in the next couple of years. Instead, we will fine tune our existing destinations, schedules and routes more efficiently, in order to improve the yields.”

Over the past three years, Hill has also continued his mission to further develop Oman as a tourism hub and he’s willing to admit that progress has been frustratingly slow. “We’ve been very successful in transporting passengers through Muscat airport, although there is some way to go in getting people to recognise the benefits and opportunities of visiting Oman, which is a very unique country,” he stresses. “It takes a combined effort by all stakeholders in the country’s ambassadorship to effectively promote Oman. If you look at other countries that have recently succeeded in tourism development, such as India, Malaysia and even Sri Lanka, it’s because the message has been consistent from the tourism board, hoteliers, tour operators and of course the national airline. All of these stakeholders have created one voice, but if there are multiple voices, as we have in Oman, then the message is fragmented and lacks the punch.” With recent changes in the country’s ministry of tourism, plus with a new CEO and board of directors at Oman Air, Hill is hopeful about further progress after he leaves the airline. “They can use the platform that we have built and tell the world about Oman. I’m not talking about mass tourism, because Oman needs more sophisticated, well-travelled tourists to appreciate its beauty,” he adds.

As the topic is evidently close to his heart, it’s impossible to ignore the impact that recent unrest in the Middle East and North Africa, including Oman, must have had on tourism numbers, especially for Oman Air. “Lets be realistic, it’s not been a great year for GCC countries in terms of their attractiveness to international travellers. There has been a lot of bad publicity, which is understandable. I think Oman has weathered the storm quite well, although a stigma is still attached to the region at the moment and that will take a little while to disappear. Until stability returns, we must use this period for regrouping and working out how we will take the message forward,” adds Hill. “In terms of Oman Air specifically, the impact was not huge. As I mentioned, we are not carrying a large number of visitors into Oman, which is a downside, but in this case it also proved an upside, because if we were bringing a lot of tourists into this country, the impact would have been bigger. Of course, our volumes were down on Egypt flights and to some extent, Lebanon too. Oman Air does not serve Syria or North Africa, so the fallout in these destinations has been avoided.”

In addition to a route expansion as part of the five-year development plan, Oman Air decided that fleet revisions were also a necessity, along with the rebranding of its corporate logo and the uniform of employees. While the Boeing 737 has maintained its well-earned title as the carrier’s workhorse, it has been supplemented by a couple of additional aircraft models from Airbus and Embraer. “To date, we have introduced seven of the wider-body Airbus A330 into our fleet, which are operated on medium-to-long haul flights and have added a totally new dimension to the airline,” says Hill. “More recently, we have also introduced a number of Embraer 175s too, which are basically supplementing the 737s on thinner routes. For example, we fly to Dubai four or five times a day, but demand will fluctuate depending on factors such as departure times. By putting a 70-odd-seater on some of these flights, we can still operate profitably, because we only need around 40 to 45 passengers to cross breakeven. On the other hand, if we had that number on a 737, we would lose our shirts.”

Since receiving the first of its seven Airbus A330s in September 2009, Oman Air has attracted a favourable response from passengers, especially with its four abreast 1-2-1 layout in business class, which was recently named the world’s best business class airline seat at the 2011 World Airline Awards in Paris. “We went overboard on the A330s in terms of comfort levels and people have been very surprised at the standard of quality on offer. This is not something that passengers would normally associate with Oman Air of the past, but it’s very much a part of our future vision for the airline,” states Hill. “In fact, this presents an interesting challenge, because we will have to refurbish the interiors of our 737s now to match the benchmark of the A330s as well as the Embraer 175s. That’s our next work in progress.”

As part of the 737 revamp, a couple of older models are approaching their 10th year of service and will be phased out of the fleet, while new models are scheduled for delivery between 2013 and 2015. “Some of the upcoming 737s will be replacement aircraft, while others will be expansion aircraft,” clarifies Hill. “The existing models are anything from 1.5 years old to 8 years old, excluding the ones that are being phased out, and these will be refurbished inside. We are looking at new colour schemes and maybe even new seating arrangements. One option is the introduction of all-economy services, because demand for business class in some of the subcontinent markets is low, so that should be reflected with seat utilisation. I expect around four or five of those aircraft will have all-economy arrangements.”

In contrast, Hill has other plans for flights to Dar Es Salam, Zanzibar and the forthcoming Moscow route, where demand exists for both business and economy class, but not in enough numbers of utilise the A330. “These routes are around four or five hours long and will be served with the 737, although the existing seats do not match the required standard, especially in business class,” he admits. “As a result, we are looking at different arrangements and could even replace the existing economy seats with modern, light weight seating. Not only would this achieve the comfort factor, but we can install more of these seats into the plane. That’s the name of the game, I’m afraid. We need to be creative in providing that level of comfort, while also making money out of the route.”

Looking ahead, Oman Air has a limited number of aircraft deliveries in the pipeline, although there is still potential for fresh orders. “All the A330s from our order have been received, but who knows about the future, it’s a great aircraft that is enjoying more popularity today than ever before. We still have some 737s on order and there are options on the Embraer 175, so we will be looking for repeat orders in the future,” states Hill. “And then there is the delayed Boeing 787, which was originally expected this year but has since been deferred to the second half of 2014. Of course, there has been talk of compensation for the delay, so Oman Air will benefit from that. In a way, this has worked to our favour, as taking on another fleet of additional wide-body aircraft within a relatively short time span is a huge challenge, which we might want to defer for a while. We will have to see how they get implemented in the future, it’s a matter for the new CEO, but we are committed and will be watching its forthcoming entry into service with launch customers.”

With fleet and route developments in full swing, does Hill believe that Oman Air has remained on track to achieve its much-awaited breakeven? “When you re-establish the product, introduce new aircraft and make various other investments, the return is not immediate, and that is the reason we implemented a five-year plan in the first place. It’s a dynamic strategy with a long-term vision that will probably be updated as we progress. We are largely on track, the losses we made in the first two years have been published in our annual report and I think we projected the highest loss in year three due to aircraft and route investments, although the figures are basically what we forecast or maybe 3% less,” he explains. “We didn’t expect fuel prices to increase so much, so we are suffering as a result of that, in addition to the early fallout of traffic in the region between February and April this year, which is now coming back. We had an excellent month in June and a good month in July, if you make a comparison to the same period last year, our passenger revenue has increased by 36%. So despite all the challenges, we should be on track to meet our 2011 targets. And over the next couple of years, I expect the airline will continue on the road to profitability. Depending on events in the region, we could get there in 2014 or maybe 2015.”

Of course, by that time, Hill will be miles away from the corporate life, with plans to settle in Sri Lanka with his wife. “I am riding off into the sunset,” he laughs. “We have a lot of friends in Sri Lanka, a nice house, and a foundation that we sponsor. Without a doubt, I am leaving with fond memories, having achieved more than I originally expected in a short timeframe. It feels great that I can handover the airline on a solid platform to my successor.”

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