Step by Step

Gulf Air’s CEO claims that first quarter results show the airline’s recovery is on course

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By  Massoud Derhally Published  May 6, 2003

|~||~||~|Change and efficiency are the buzzwords at the once cash strapped regional carrier Gulf Air. While the last two years have been a roller coaster ride for the aviation industry, and pretty much the same for Gulf Air, the airline is in a state of transformation today. Steering the restructuring process is James Hogan, the Australian who has pledged to turn the airline around in three years.

Since his appointment, Hogan has worked closely with Gulf Air’s three owner countries (Bahrain, UAE, Oman) to reduce losses and maintain a good culture of customer service. Hogan started his re-engineering plan by implementing a redundancy and early retirement plan in the summer of 2002.

The strategy since has been to restore customer confidence. “When we look at the solution, we say the umbrella is to be a first class airline but that’s underpinned by service. If we get the customer equation right the customers will come back,” says Hogan. Behind the scenes, there is ongoing focus on re-engineering the cost base, changing the way the company does business internally and communicating the changes with employees. “If the business has to change for the customer, the company has to change the way it works within,” explains Hogan.

Balancing the books has been key, and so far the owners are firmly backing Hogan. In 2002, the airline’s loss was around US $111 million. The airline also owes $700 million to a bank for past loans to buy aircraft and another $146 million in deferred debt to its three owners. All of this makes the restructuring task seem overwhelming.

But when Hogan took charge of Gulf Air in 2002 and asked the three owning governments for US $238 million they responded in kind with two tranches of US $119.3 million. “As we look at 2003, the key thing to understand is that we set a three year recovery plan. It takes time to rebuild an airline,” says Hogan. “Everything is on track. The injection of funds by the three owning states gave us the funding required to redraw the airline over the next three years.” says Hogan.

Gulf Air has all the ingredients that define a world-class airline, claims Hogan. He points to a strong route network, a rich human resources body, and a load factor annualised at around 70%. “We have to bring the brand alive, and if you look at the period from October 2002 through December 2002 we improved the quality of the revenue so we bought back more first and business class passengers,” he says. “We stopped the decline in yield. Month by month, we have improved the quality of the revenue.”

The company has met its first quarter forecast and estimates that it will meet its first quarter budget even in what it calls “the tough times.” This, says Hogan, means the company will have exceeded its January and February targets. “March will be tough but we will meet our first quarter forecasts. We said we would reduce the loss to BD 20 million this year. We’ll achieve that.”

‘Evolution’ and ‘progressive change’ are how Hogan describes the transition at Gulf Air. Part of that ‘progressive change’ is the implementation of a new logo. The new livery retains the airline’s falcon logo, but the bird is given a more contemporary look. In Hogan’s words, it aims to communicate “a synthesis of bold, modern entrepreneurial principles and traditional Arabian values, in what we believe is a powerful prominent icon for a new era.”

In June 2002, Gulf Air will launch what it says is a value based airline, offering only economy seats, out of Abu Dhabi, with a fleet of six 767s. The driving factor for this has been the presence of 10 million workers from the Indian subcontinent. “Because its one class, it’s less crew, and reduced catering. From a cost point of view, we can be more efficient,” says Hogan. 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.

Cost control, fundamental to any turnaround, is also improving, the CEO claims. “We are focusing on business processes, working hard on the way we source, cutting out waste, putting pressure on receivables and getting money that is owed to us,” says Hogan.

Another key objective for Gulf Air is to join an international alliance. “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,” Hogan says. Pundits believe he is seeking a deal with Star Alliance or One World.

The war in Iraq hasn’t thrown Gulf Air off track. “It’s business as usual. On the first day we didn’t operate to Kuwait but we resumed services. My first focus is that my crew and customers are safe, and that my assets are safe,” says Hogan. “From day one we have not dropped a beat. To me it’s a cycle and by summer it will be business as usual. We’ll meet our objective for this year.”||**||

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