By Joanne Bladd, arabianbusiness.com
Samer Majali wants to set the record straight. Contrary to media speculation, Gulf Air, Bahrain’s embattled flagship carrier, is not in merger talks with International Airlines Group.
But that’s not to say that if the super-airline – the result of a $7.5 billion merger between British Airways and Spain’s Iberia – comes calling, Majali wouldn’t be prepared to listen.
“Of course it’s not off the table,” he says briskly. “It’s very important for us to maintain the Gulf Air brand and the name, but anything beyond that…” He shrugs. “The BA/Iberia deal is a good example. Both airlines will maintain their brand as they go forward, but cooperate on everything else. Potential exists in that particular area to move ahead.”
It’s rare to hear a Gulf airline moot the idea of a merger. It’s even rarer when the carrier is state-backed. But Gulf Air is not the unfettered success story usually seen among local airlines.
For a start, it posted a $502.9 million loss last year – equal to haemorrhaging more than a million dollars a day. In the last twelve months, it’s lost 20 percent of its staff in a company-wide costs cull and it continues to take a battering at the hands of rival Gulf titans Etihad and Emirates. (Emirates, by comparison, chalked up a net profit of $925 million for the first six months of its current financial year, ending 30th September 2010).
Yet Majali seems positively chipper; jacket unbuttoned and friendly in manner. “Look, this is a long-term programme,” he says. “We hope to be a value-for-money airline; providing the maximum value to Bahrain with the least possible price tag.”
Jordanian-born Majali is nothing if not determined. In just over a year at the top of Gulf Air – he is the carrier’s fourth CEO in as many years – he has had a stormy ride. From the aftershocks of the H1N1 outbreak, to a downturn that tore the heart from the aviation industry, to an ash cloud crisis that left grounded airlines bleeding cash; the hits just keep on coming.
“I know,” he winces. “We obviously started in the worse part, in a global depression. Then there was the H1N1 virus and everything else that the world could throw at us. It’s not easy.”
It wasn’t always this way. A decade ago, Gulf Air was the biggest bird in the region’s skies, a prize jointly owned by Bahrain, Oman, Abu Dhabi and Qatar.
But since the advent of Emirates, Etihad, Qatar Airways and Oman Air, Bahrain has been left in sole control of the beleaguered carrier, and profits have tanked. In 2007, the airline admitted to losing $1 million a day.
It has burned through CEOs nearly as fast. James Hogan’s shock exit in 2006 for rival airline Etihad led to the appointment of André Dosé as CEO in April 2007.
The Swiss-born aviation veteran was quick to outline an $825 million overhaul of Gulf Air, scrapping routes to Dublin, Johannesburg and Singapore, among others. He lasted just over a year.
His replacement, Bjorn Naf, clung on for two years, before resigning in 2009 in the face of catcalls and criticism from Bahraini politicians, incensed at the airline’s unstemmed losses.
It was against this background that Majali was headhunted, poached from his role as the CEO of Royal Jordanian where he had been busily morphing $700 million debts into a profitable, privatised airline. Unsurprisingly, Gulf Air bosses were confident they’d found their man.
Never one to turn down a challenge, Majali, the son of a former Prime Minister of Jordan, was installed as CEO in August 2009. He inherited a bloated, staid carrier and lost no time in making changes.
In the months since, he’s hacked out around 1000 jobs – 4200 staff, down from 5200 – slashed costs and set the airline back on a sounder financial footing. Now, following nearly a decade of losses, how long until he can drag Gulf Air back into the black?
“The plan is to essentially move from a $500 million loss in 2009 to a zero loss in 2012, cutting the losses by one third over a year. The target [this year] is a $300 million loss rather than a $500 million loss,” he says firmly.
Admittedly, creeping fuel prices aren’t helping. “They’ve gone up by about 33 percent which is impacting our results. But the first half is on track,” he says. “By 2012 we want to be as close to a break-even situation as we can be.”
This, however, will require some radical cuts. Majali has previously said that as many as ten of Gulf Air’s leaky routes could be frozen or scrapped in the next two years, to make room for better-yielding destinations. First in line for the axe are Gulf Air’s far-flung destinations; part of plan to bow out of the hotly competitive long-haul market and reposition the carrier as – first and foremost – a regional operator.
“We’ll be considering the long-range transit traffic that we bring in from Europe to the Gulf, and beyond into the Far East,” he says. “That traffic is very low yield. It’s big volumes but there is intense competition and we are just not getting the revenue out of the traffic. It’s the biggest bleed for us.”
Instead, Gulf Air will splash its cash on serving cities within a few hours’ flying from Bahrain. The carrier is already eyeing fresh routes into Africa, Europe and the former Soviet Union, in a bid to stamp its claim on their emerging economies.
“We are investing heavily in the region and beyond, within a three-hour radius. Then we’re opening up some new routes into Europe, Africa, areas like Azerbaijan – new economies that are currently underserved,” he says, adding that he has already increased the frequency of cities within the carrier’s target zone.
It’s a strategy that will demand a drastic rethink of Gulf Air’s pending plane orders, worth a reported $11 billion. Gulf Air, which flew close to six million passengers last year, has seven Airbus A320s on order, as well as 20 Airbus A330s and 24 Boeing 787s – both widebody aircraft that sit badly with the carrier’s new short-haul focus.
The airline is now in talks with Boeing and Airbus to push forward the delivery dates of smaller planes – which are easier to fill and less financially risky – while delaying those of widebody models.
“On the Airbus front, we’ve delayed some of the wide body orders and brought forward the A320 orders from 2012/13 to 2011. And we’ve increased the order,” Majali says. “The A330s – we’re still in discussions over delivery dates, but obviously they won’t be delivered in 2012.
Our Boeing 787s were supposed to be delivered in 2016, but are delayed to 2019 so nothing has changed.”
In a slowed market, the order overhaul must have been a blow to manufacturers keen to ramp up sales of their bigger planes, which carry hefty margins when sold in bulk.
“Both Boeing and Airbus have actually been very cooperative,” Majali says. “Both of them have benefitted a lot from the good times, and they are there to help us out of a difficult situation in the less good times. We haven’t reached final agreement yet, but hopefully that will come soon.”
Majali has arguably the toughest job in Gulf aviation, in turning Bahrain’s trophy asset into a money-making airline.
The airline, which recently turned 60, must jostle against some of the world’s most successful carriers in Etihad and Emirates, and do so with an almost ten-year record of losses.
Does Majali think he can do it? “The brand has a long history,” he says slowly. “We’re just celebrating our 60 years’ anniversary, as the oldest carrier in the Gulf region; and it’s a very good history. I think that could be leveraged very much in the future.”
Gulf Air CEO re-elected to IATA’s board of governors
Gulf Air CEO Samer Majali has been re-elected for a second term as a member of the Board of Governors of International Air Transport Association (IATA) – the global airline industry’s representative body. His appointment, announced at the 66th IATA Annual General Meeting and World Air Transport Summit in Berlin, secures his position on the board of the governors until 2012.
He will be joining thirty CEOs elected from three hundred airlines around the world including Glenn Tilton, president and CEO of United Airlines, Jean-Cyril Spinetta, chairman of Air France and Chew Choon Seng CEO of Singapore Airlines.
In his capacity as a member of the governors board, Majali will represent the interests of the association and its member airlines, especially in the Middle East.
“It is a great honour to represent the airlines in the region and serve on IATA’s Board of Governors once again,” he comments.
“As a member of the governing board, I will be working closely with the IATA representatives to address the challenges faced by the industry, through harnessing the collective knowledge and wisdom among other members of the board, so that the global aviation community can benefit from it.”