24-Nov-2009 10:24 AM

Gulf Air turnaround plan to save USD2.7 billion in five years; likely short haul focus

Gulf Air, which reportedly expects to generate a loss of USD510 million for 2009 (The Financial Times, 23-Nov-2009), announced the following details of its turnaround strategy, effective through to 2012:

  • Expand operations to 20 new destinations in the Middle East, Africa, Europe and Asia;
  • Suspend operations on up to 15 unprofitable routes;
  • Shut down unprofitable international stations, including Bangalore, Hyderabad and Shanghai;
  • Introduce new product innovations, seating arrangements, in-flight entertainment and other on-board amenities (Gulf News, 23-Nov-2009);
  • Not become “too dependent” on transit passengers, which “already account for 80% of traffic passing through Bahrain,” according to CEO, Samer Majali (ABTN.co.uk, 23-Nov-2009);
  • Fleet composition: To focus on narrow-body aircraft and regional jets, including a number of long-range narrow-body aircraft (Gulf News, 23-Nov-2009);
  • Place further A320 aircraft orders, in addition to 15 A320s already ordered, of which three have already been delivered;
  • Consider plans to sell up to five A340 aircraft (Arabian Business, 23-Nov-200);
  • Enter negotiations with Airbus and Boeing to adjust current orders, which include A320 and A330 aircraft, and a USD6 billion order for 24 B787 aircraft (Dow Jones, 23-Nov-2009);
  • Phase I: Re-align existing network over the next six to 12 months;
  • Phase II: Expand into new markets in the second and third years of the restructuring plan (Arabian Business, 23-Nov-2009);
  • Break-even: By 2012, with Chairman, and Bahrain Mumtalakat Holding Company CEO, Talal Al Zain, stating “If we can do that, I'll dance” (Dow Jones, 23-Nov-2009);
  • Save the Bahraini Government “up to USD2.65 billion in direct support over the next five years,” according to Mr Al Zain (Gulf News, 23-Nov-2009);
  • Employee reduction: “Non-productive employees will also go and we will start identifying them over the weeks and months ahead. We do not have the numbers yet, but those employees who have their heart and soul with the company and wish to be part of its turnaround, will remain and grow with us,” according to Mr Talal Al Zain (Gulf Daily News, 24-Nov-2009);
  • Financial support: Announced plans last week to submit a proposal to the Shura Council for financial support to assist the carrier with its turnaround plan (TradeArabia News Service, 21-Nov-2009).

Gulf Air:We have a clear mandate to build an efficient, commercially sustainable and dynamic airline that effectively serves the people and the economy of Bahrain and represents the Kingdom on the world stage. To achieve this we must re-align Gulf Air to deliver a product that our customers need and want. The airline will become more efficient as we align its cost base with this new strategy, maximizing investment into areas of the business that will offer the best returns whilst reducing cost in those that don't. Gulf Air currently relies on significant Government support, spending far more than it earns. This is clearly unsustainable and the funds could be invested into other important areas of the national economy. We estimate this programme will save the Government of Bahrain up to USD2.65 billion in direct support over the next five years,” Talal Al Zain, Chairman, and Bahrain Mumtalakat Holding Company CEO. Source: Gulf News, 23-Nov-2009.

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