As another Gulf Air CEO has come and gone, the Bahraini government again picks up the task of plotting a new path for the formerly multi-national airline.
The carrier’s board announced on 29-Nov-2012 that it had accepted the resignation of widely respected airline executive, Mr Samer Majali – which he submitted earlier this year – following the appointment of a new Gulf Air board in mid-Nov-2012. Mr Majali will remain in his position until the end of 2012.
And so the troubled and politically muddled airline stumbles onwards with continuing political meddling and no clear direction for its future. With Mr Majali's departure, the prospects for Gulf Air's recovery become even more slender.
In a parallel development, the Bahrain Parliament has also voted to replace the carrier’s entire board as well as wiping out two external consultancy contracts. A new board has been announced, led by the deputy premier and consisting of a mix of Bahraini parliamentarians, advisors to Bahrain’s royal court and representatives from the Bahrain Mumtalakat Holding Company, which has ownership of the carrier.
Politics and economics scupper Gulf Air turnaround
In 2009, Mr Majali arrived at Gulf Air fresh from success at Royal Jordanian with a three-year plan to turn the carrier around. When working at Royal Jordanian, it took him a little more than two years to turn the carrier into a commercially viable airline, spearheading a far-reaching restructuring effort.
Mr Majali eventually orchestrated Royal Jordanian’s entry into oneworld in 2007, making it the first Middle East carrier to join a global allilance. Unfortunately, the situation – commercial and political – facing Gulf Air meant that Mr Majali was not permitted the room to weave the same magic at the Bahraini carrier.
His position at the head of Gulf Air was an unenviable one, arriving as the carrier’s fourth CEO in just three years. The airline was already struggling in a fiercely competitive regional market, with rivals such as Emirates, Qatar Airways and Etihad Airways able to boast newer aircraft and superior networks and products.
It also faced ballooning fuel costs. At the time, the Mumtalakat Company CEO, Talal al-Zain, stated that the airline was an “unacceptable burden on the national economy” and existed only by the grace of government support.
Mr Majali also had to deal with Gulf Air’s status as a political football. The carrier is a major employer of Bahraini nationals and cutbacks at the carrier proved a prickly, almost untouchable, subject. When the carrier’s traffic dipped in 2011, a parliamentary “ad-hoc committee” was set up to investigate it and recommend strategies to ensure its survival.
The airline also faced accusations of mismanagement, fraud and organisational and financial corruption. In Apr-2012 Mr Majali fiercely defended the airline against these accusations.
Gulf Air is monitored by the National Audit Court, which prepares and reports to the King and from there to the Shura Council and Parliament.
As CEO, Mr Majali faced a delicate balancing act in his task of turning the airline into a commercially viable entity. While reshaping the airline in the face of harsh commercial realities of the Gulf’s furiously competitive aviation market, he also had to satisfy the popularly elected Bahraini parliamentarians, the royally appointed Shura Council, the demands of the Mumtalakat Company and the needs of Bahrain’s tourism industry.
The resignation of the CEO and reformation of the board were an almost predictable next step in a dramatic series of shifts for the struggling Bahraini national carrier. Bahrain approved a BHD185 million (USD490 million) bail-out package for the carrier earlier in the year, following on from a BHD400 million (USD1.06 billion) package in 2010.
The latest bail-out was just one-third the size of the funds Gulf Air had been seeking, and it came with the condition of (another) major restructuring for the airline. The carrier will now be downsized further, as part of a plan to cut its losses from BHD95 million (USD252 million) in 2011 to BHD58 million (USD154 million) by 2017.
See related article: Bahrain to continue to back Gulf Air but carrier may emerge radically changed
Long gone are the days of the carrier resolutely sticking to increasingly inaccurate break-even forecasts. The task ahead of the carrier’s new CEO will be somehow to slow the flow of money the carrier has been haemorrhaging.
Staunching the losses will involve the unpopular task of cutting jobs, routes and aircraft. Under a "radical and lasting" shake up, as much as half of the carrier’s existing fleet could be retired and the route network could be reduced to as few as 21 destinations.
Reducing Gulf Air’s workforce will be unpopular both politically and socially in Bahrain. Yet it is essential if realistic change is to occur at the airline. The workforce has already been cut from over 5,000 in 2009 when Mr Majali was appointed, to around 3,800 at present.
To dull the pain of the cuts, most of the proposed 1,800 job losses will come from expatriate staff, with the carrier set on achieving a ‘Bahrainisation’ level of close to 75%, up from 58% at the moment. By comparison Etihad Airways’ ‘Emiratisation’ level is 21%, Emirates’ level is under 15%, as local skills among the small populations are gradually developed.
However Mr Majali does leave Gulf Air with some major achievements under his belt. The airline has tightened up its network and operations and he departs from a carrier that has a better product, improved on-time performance and reliability and lower underlying losses. In 2010, the carrier managed to pull more than BHD50 million (USD133 million) out of its cost base.
Unfortunately, the declared objective of hitting break-even by 2012 was rendered unachievable by the 2010/2011 Arab Spring, which was felt particularly heavily in Bahrain and saw Gulf Air barred from its profitable Iran and Iraq markets.
See related article: Gulf Air and Bahrain Air report improving results in a difficult climate
Mr Majali also recently presided over a major re-work of the carrier’s aircraft orders. The airline traded the 20 A330s it had on order for a combination of A320 and A320neo aircraft, and slashed its Boeing 787 orders from 24 to 12 aircraft. The order re-jig brings with it a reduction of the long-term financial liability of the airline by approximately 50%.
See related article: Gulf Air re-orders fleet acquisitions
Gulf Air faces a galling outlook
Where Gulf Air will head next is far from clear. A successor has yet to be announced, but deputy CEO Maher Salman Al Musallam is the logical successor, at least in the interim. A Bahraini national who has been at the carrier since mid-2010 – joining after 35 years in the Bahraini Air Force – he may also be acceptable in the longer term.
Gulf Air is one of the region’s oldest carriers, but it has become shrunken with age. It still has the "support" of the Bahrain government and the Bahrain Mumtalakat Holding Company, but both are desperate for the carrier to reduce the scale of losses.
Whoever succeeds Mr Majali as CEO faces extraordinary challenges in reducing organisational bloat, rightsizing its fleet and network and confronting the altered commercial reality of Gulf aviation.
Even if that can be achieved, carving out a niche strategy – and implementing it against a background of constant political intervention – will be arguably the biggest challenge. The world has changed so much in the past year alone that the prospects for profitable operation of a traditional flag carrier like Gulf Air are increasingly remote.
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