Gulf Air sees enormous pressure on bottom line

DUBAI — Gulf Air, struggling to make a much-needed turnaround amid intensifying regional competition in addition to the exit of a key partner, yesterday admitted that "there is an enormous pressure on its bottom line," but said it was hopeful of positive trends this year.

By Isaac John (Chief Business Reporter)

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Published: Tue 30 May 2006, 12:04 PM

Last updated: Sat 4 Apr 2015, 1:16 PM

The embattled airline, currently saddled with debts of $500 million and aiming for a crucial recovery after several years in the red, except for 2004, said it saw "unique opportunities for growth and expansion" following a capital injection of $266 million by the governments of Bahrain and Oman —its remaining co-owners after the exit of Abu Dhabi.

"As is the case with other airlines, there is enormous pressure on our bottom line caused by the continuing high cost of fuel. However, we have a strong commitment from our owner states and the opportunity now to leverage the synergies of a simpler, optimised business model. While continuing to operate on a strictly commercial basis, we are confident that we can maintain the positive trends in all key performance indicators in 2006," said Gulf Air President and Chief Executive James Hogan.

Hogan was quoted in recent reports as saying that revenue growth simply cannot keep pace with oil price rises. "Even after budgeted fuel surcharges, we are still facing a deficit of approximately BD80 million in 2006. The cost of fuel remains our greatest challenge," Hogan was quoted.

On how Gulf Air was going to pay back its debt obligation of Dh210 million with Abu Dhabi's pullout now complete, Hogan said: "The amount owing to the Abu Dhabi government, the repayment of which was previously deferred, is a matter to be finalised between the shareholding governments."

Hogan, who has launched Gulf Air's first three-year rescue plan "Falcon" a few years ago, said that with the support of shareholders that are 100 per cent committed to the success of its business, the airline will reinforce its position as a world class service brand with a strong regional network in the Middle East.

He said following the introduction of the second three-year strategic plan — Smart Airline, Successful Business — that makes provision for significant investment in key areas of the business, the airline expects sustained growth over the long term. "The board of directors has endorsed a series of resolutions in support of the new plan and included provision for re-capitalisation of the airline, re-equipment of the fleet, product upgrades and refurbishment of present aircraft, and investment in a range of areas of the business."

He said with the withdrawal of Abu Dhabi, Gulf Air is undergoing its single biggest change ever. "In moving to the two-hub model, Gulf Air will focus on building and strengthening its core regional network. Bahrain and Oman will see significant growth with increases in passenger movements at both hubs, improving connectivity and frequency that give our network its resilience and strength. Expansion to new destinations will be undertaken on a commercial basis in response to market demands. The commencement of services to China is presently under review for 2006."

Asked whether the airline saw any conflict of interest with Oman Air with regard to its two-hub strategy, the official said the carrier has the "unconditional commitment of the Government of Oman. Our strategy going forward is based on their demonstrated support to the success of Gulf Air."

He said the airline has initiated major investments in Oman as a signal of its business commitment, which plays a significant role in the economic development of the country. "The strength of these ties is further demonstrated by the recently signed agreement which makes provision for the establishment of a joint venture maintenance facility in the Sultanate. Working with our maintenance provider SR Technics we will be able offer to 800 employment opportunities for Oman nationals. The establishment of this facility has the potential to generate other businesses and industries downstream."

"We also see our relationship with Oman Air as fundamental and definitive in the way we move forward. At a time when the airline industry is facing so many challenges, it is important that we refine our strategy to work even more closely in achieving synergies and creating economies of scale.

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