Tough targets

The launch of an all economy airline is the latest move by Gulf Air to restore its fortunes; profitability is now being predicted for 2005

  • E-Mail
By  Massoud Derhally Published  February 4, 2003

|~||~||~|Cash strapped regional carrier Gulf Air is launching an all economy class airline in June as part of its restructuring strategy. 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 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.

Another key objective for Hogan is to join an international alliance. “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,” says Hogan. “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. Whilst it is an all economy airline, officials insist that they are not following the example of the so-called ‘no frills’ airlines that have had such an impact in Western markets.

The subsidiary, “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. Cost efficiencies will result from simplified processes and not from reduced customer service experience,” says Hogan.

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.”

Although the airline will be marketing itself to the large Indian expatriate workforce 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 Kuala Lumpur,” says Hogan.

All this takes place as part of a comprehensive turnaround strategy. The airline reported losses of $98 million in 2000 and $139 million in 2001 and just reported a BD42 million (US $111.3 million) loss 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 owners. Qatar, which is trying to develop its own national airline, withdrew from the company in May 2002.
||**|||~||~||~|
The announcement of the all economy airline is just one in a string of announcements that Gulf Air has been making since the arrival of Hogan as CEO in 2002. Gulf Air press releases currently hit journalists’ in-boxes just about every other day.

Various initiatives have been undertaken to try to improve customer service, such as the recruitment of five star chefs, and the airline says it aims to expand its route network. Fareed Al Alawi, vice president of networks, said that Alexandria, Athens, Johannesburg, Salalah and Sydney are candidates to join this year’s summer schedule and destinations in Africa, Asia and the Americas are under consideration for future years.
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 break even 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, a statement that could be seen at odds with the airline’s declared intention to expand its network. “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.

The success of the airline’s turnaround strategy will only be seen over time, but there is an early indication that things may be heading in the right direction. The airline’s 2002 loss of BD42 million was below a projection made in June 2002 that losses would be BD50 million for the year.

Hogan has also been bold enough to make predictions for the next three years, saying that he aims to reduce losses to BD20 million in 2003, to break even in 2004, and make a BD5 million profit during 2005. “I am confident the tough targets we have set can be achieved,” he said.

Hogan made this last comment at Gulf Air’s Worldwide Sales and Marketing Conference in January, a crucial meeting that brought together senior management and worldwide partners to be briefed on the three year recovery plan. That plan, devised by Hogan and fellow management, was endorsed by the airline’s board of directors in December.

“The board gave us exactly what we asked for,” Hogan told the conference. “Now it’s up to everyone in Gulf Air to work together as a team to ensure its implementation and the success of a mandate to run the airline on a commercial basis.”

The audience was also told by John Butler, vice president, sales and marketing, that Gulf Air has this year allocated its ‘biggest ever’ budget to sales and marketing. “2003 will witness one of the biggest, most creative and most exciting campaigns in Gulf Air’s history to consolidate on what we have achieved so quickly in the second half of 2002,” Butler enthused. Ultimately, the proof of the turnaround strategy’s success will lie in the numbers.
||**||

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code