Bracing for the repercussions

Amid rising tension in the Middle East, Royal Jordanian draws up a contingency plan and hopes for the best

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By  Massoud Derhally Published  March 30, 2003

|~||~||~|Positive wouldn’t be the right way to describe the atmosphere Royal Jordanian (RJ) has had to operate in during March and April 2003. As we go to press, the war in Iraq poses various scenarios for the airline, possibly threatening its very existence. But the airline isn’t taking any chances. RJ had a strategic plan in place ahead of the outbreak of war, as Arabian Business learned from Samer Majali, the airline’s CEO.

Majali has learned a great deal about the ups and downs of the airline industry and despite a gruelling two years, the chief executive is confident that the national air carrier will ride out the coming storm. “In spite of the continued after effects, at the beginning of last year, of the unfortunate events of 9-11, plus the heavy Israeli incursions which started in March 2002, Royal Jordanian was able to turn things around,” Majali told Arabian Business.

“RJ improved its market share out of Jordan, its traffic and ended up with a result of US $6 million in operating profit and in excess of US$ 500,000 in net profit, a substantial turn around from the results of 2001 where we had an operating loss and a net loss,” he added. The airline ended 2001 with a net loss of US $15 million on turnover of $215 million.

The beginning of 2003 was positive, but the Iraq crisis has changed the situation. The continued uncertainty caused the airline’s reservations to drop 50% network-wide in March 2003 compared to March 2002. “This is a drastic reduction because people, for a variety of reasons, are either cancelling or postponing their travel plans,” Majali says.

But the airline has not thrown the towel in just yet and is trying to minimise the effects of the crisis. RJ has tried to match supply of capacity and frequency with demand, by reducing its operations to match the drop in demand, like many other carriers. “We are trying to increase our maintenance activity, give people leave and training and we are trying to use the reduced level of operation to reduce our costs as much as we can,” explains Majali.

The proximity of Jordan to Iraq makes tourists nervous and businesses jittery. When Iraq invaded Kuwait in 1990 and operation Desert Storm went ahead in 1991, traffic was considerably reduced in and out of the Middle East. Jordan, in particular, was hit, with transport and trade being adversely affected. During the air strikes of 1991, the entire fleet of RJ was grounded for three weeks. It took the airline two years to recover the traffic of pre-Gulf War levels.

As war in Iraq began to loom closer, a lot would depend, he said, on how regions close to the conflict were viewed by the outside world. “If they are declared high-risk areas and the insurance goes up to prohibitive levels, we might have to remove our fleet from outside the high risk area and base it in Athens, Greece, while we continue to operate services in and out of the kingdom with the airplanes that we own, and the government assuming the risk and liability,” Majali said.
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At the time of writing, just as war looked imminent, the airline believed all the region’s airports would remain open with the exception of Baghdad and Kuwait. However, Majali said the designation of airports would probably go from normal to a higher risk level from an insurance point of view. “This means additional premiums will be imposed for aircraft operating into these areas, which may not be affordable and might require these aircraft to be based outside and that will mean flying aircraft that we own without commercial insurance coverage and with government liability coverage,” Majali says.

The situation was certainly heading towards such a scenario, say some. Industry insiders told the daily Al Dustour (March 10) that airline companies operating in Jordan levied a 10%-20 % tax on airline ticket prices as of March 12, 2003. This, said some sources, was a result of the rising cost of fuel, while other informed sources attributed the hike to an increase in insurance because of the pending war on Iraq.

“An increase in airfares on international carriers may not necessarily have much effect on tourism here as the number of foreign tourists is already low, but it will be a different story if it affects tourist traffic from Middle Eastern countries,” said Marwan Khoury, head of the Jordan Tourism Board, as reported by the Jordan Times.

In turbulent times, Royal Jordanian depends on the government to insulate it from external factors. The government of Jordan assumes the liability for the aircraft that RJ owns. “It is the government of Jordan that wants us to maintain services and maybe from a commercial point of view we shouldn’t fly because there is no traffic,” says Majali. “We are really maintaining services in order to connect Jordan with the outside world,” added Majali.

The coming six to eight months for the aviation industry in the Middle East will be trying. To a large extent the severity of any impact depends on the length of the conflict, says Majali.
It depends on, “Whether it will be contained or if it will be spread out and if it will be decisive or a repeat of what happened in 1990-91 where it was indecisive.

“These are the factors that govern the recovery and the resumption of normal traffic growth patterns regionally. Whatever happens, RJ is committed and our main job will be to make sure Jordan is connected with the outside world as much as possible,” Majali says. ||**||

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