Gulf Air launches an all economy airline

Cash strapped regional carrier Gulf Air is launching an all economy class airline in June as part of its restructuring strategy, company officials told Arabian Business.

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By  Massoud Derhally Published  January 7, 2003

Cash strapped regional carrier Gulf Air is launching an all economy class airline in June as part of its restructuring strategy, company officials told Arabian Business.

If all goes well, the airline, which has sustained heavy losses over the last decade, should return to profitability by 2005, Gulf Air president and chief executive James Hogan told Arabian Business.

“We are also looking at different segments and travel characteristics of the region. That’s why we are creating an all economy leisure subsidiary,” said Hogan. “The brief is to bring Gulf Air over the next three years back to a position as a leading airline in the Middle East. With the recovery programme we have spent a lot of time looking at our positioning in the global market and that’s why I am very keen to join one of the global alliances. I believe Gulf Air is a natural fit for one of the global alliances. We can strengthen our offering to the customer [by] joining one of the alliances.”

The new airline is targeting the large expatriate community in the United Arab Emirates and will base its operations in Abu Dhabi. The potential market is huge. For example, the six Gulf States and neighbouring Iraq, Yemen and Iran have an estimated 10 million workers from the Indian subcontinent.

While it is an all economy airline, the new subsidiary will not compromise quality of service. It “will operate as part of the Gulf Air family under a new brand, and is set to provide a customer proposition that is second-to-none with competitive costs combined with an efficient service for its targeted customers,” said Hogan. “Cost efficiencies will result from simplified processes and NOT from reduced customer service experience,” he added.

The new business is also not expected to place a drain on already stretched resources. “We are not acquiring new aircraft. We are utilising six of our existing Boeing 767s,” said Hogan. “As in any business we are looking at our assets and seeing how can we apply them to achieve the best return for the business and more importantly understanding the customer dynamics.”

Although, the airline will be marketing itself to the large Indian expatriate force in the Gulf, Hogan believes that there is room to tap other prospective customers. “I also have the ability to target the religious market and the true leisure destinations such as Kula Lumpur,” said Hogan.

In December 2002, Gulf Air announced plans to grow both its fleet and destinations after it got assurance for US$240 million from its three state owners; the United Arab Emirates, Bahrain and Oman.

In 2000, the airline reported losses of $98 million and $139 million in 2001 and is likely to post a $111.4 million in losses for 2002. Gulf Air owes $700 million to a bank for past loans to buy aircraft and another $146 million in deferred debt to its three state owners. Consecutive losses lead to Qatar withdrawing from the venture in May 2002.

Despite the losses Fareed Al Alawi, vice president of networks at Gulf Air, said the new airline in Abu Dhabi, “will cut our losses by half for 2003 from 2002 and we should breakeven or be profitable in three years.”

When asked to provide an estimate of the projected revenue from the new airline, Hogan declined but went on to say that he did not rule out any scaling down of operations in the future. “At the end of each quarter we will review our route network and if we believe the network contribution is not there we will pull off a route,” said Hogan. “The brief I have been given by the three earning states is rebuild the airline on commercial grounds — fly where you need to fly to improve the business.”

"Essential to the turnaround process is earning the loyalty and commitment of the communities within our network to support Gulf Air as their preferred airline. This also extends to the soon-to-be-launched new full service all economy class airline. We will achieve this by providing consistently exceptional customer services – whether on the ground or in the air," added Hogan.

The inaugural flight of the new airline will be in June 2003. Gulf Air plans to expand to 60 aircraft by 2009.

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