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Gulf Air — Golden Falcon continues to fly
July 13, 2014, 3:22 pm
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In February, Kamal Ahmed, the transport minister of the Kingdom of Bahrain, said “no-one wants” the top job at Gulf Air, the country’s flag-carrier. It was a candid admission for a company that, long before the rise of super-connectors Emirates, Etihad and Qatar Airways, had been considered the Middle East’s pre-eminent airline. Several foreign candidates had been offered the job, Mr. Ahmed explained, but all turned it down over fears of political interference.

Given that Gulf Air’s nine-strong board includes four serving ministers plus an advisor to the Crown Prince, they may have had a point. Two decades of near-consistent financial losses will also have dampened their enthusiasm. But someone had to hold the fort, and under the stewardship of acting CEO Maher Al Musallam, who has been in charge for 18 months, Gulf Air appears to be making headway.

That a full-year loss of 95.4m Bahraini dinars ($253m) should be considered progress may seem incredible. But Gulf Air’s 2013 results must be put into context. The airline has not posted a profit since 2004, when it was the flag-carrier not just of Bahrain but also Abu Dhabi and Oman. Qatar had already withdrawn from the four-way alliance, initiating its break-up. In 2012, Gulf Air hemorrhaged 183.8m Bahraini dinars.

Last year, amid calls in parliament for the flag-carrier to be dissolved, Mr. Musallam began aggressively cutting costs: the fleet contracted from 38 to 27 aircraft; the workforce shrunk from 3,800 to 2,750; and 2,000 supplier contracts were renegotiated. Though no elixir, these uncomfortable measures are beginning to bear fruit.

The root cause of Gulf Air’s malaise is well-known. When Qatar and Abu Dhabi withdrew from the venture in 2002 and 2005 respectively, they were not retreating from the regional aviation market. On the contrary, since 1993, Qatar had been scaling up Qatar Airways, while Abu Dhabi was to establish its own flag-carrier, Etihad, a decade later. James Hogan, the airline boss tasked with turning around Gulf Air, would soon be headhunted by Abu Dhabi. Together with Dubai’s Emirates, this new breed of Gulf carriers began transforming their hubs into the default stopovers for intercontinental journeys. As a result, Middle Eastern airlines have more than doubled their share of global traffic to 9 percent over the past decade. Bahrain, however, has not enjoyed the spoils. Gulf Air’s fleet is now one-eighth the size of the one flown by Emirates. When European passengers fly over the Gulf to Asia, they rarely stop in Manama, Bahrain’s capital.

By 2009, Samer Majali, Mr. Musallam’s predecessor, was setting a path for strategic withdrawals. Rather than playing catch-up with its larger, better-funded rivals, Gulf Air would settle for a more modest role as a high-frequency, regional operator plying Middle Eastern markets. One year into the strategy, the Arab Spring swept across the region.

Jittery Europeans stopped travelling to the worst-affected cities–among them, Manama. Bahrain’s government also ordered Gulf Air to withdraw from three key markets–Iran, Iraq and Lebanon–amid fears that foreign Shi’ite militia were stoking sectarian conflict.

It is, then, little wonder that Mr. Musallam shies away from making predictions about profitability. “While it is a frequently asked question, it would be misleading to indicate any timeframe,” he says. The official goal is for the airline to become “economically sustainable”–perhaps a euphemism for manageable losses. Bahrain would not be the first country to convince itself of the indirect economic benefits of propping up a loss-making flag-carrier.

But whatever its long-term prospects, Gulf Air has weathered the challenges of recent years. Parliamentarians appear placated by the effects of the restructuring; frequencies on key routes like Riyadh, Jeddah and Cairo are rising; and last year’s closure of Bahrain Air means there is one fewer competitor to worry about. Gulf Air might consider that simply surviving is an achievement.

 

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