ANALYSIS: Gulf Air restructuring strong on rhetoric, weak on detail

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Gulf Air's decision to withdraw another six aircraft from service - four Airbus A330s and two A319s - has brought the Bahraini flag carrier to its targeted fleet size of 26 aircraft. Further changes are assured, with management setting out a requirement for up to 16 Boeing 787s and 24 A320s. But continuous board changes and lukewarm political support mean that few concrete details have emerged about the airline's restructuring plan.

One certainty is that both the fleet and the route network will continue to shrink, as Gulf Air cedes market share to its dominant neighbours in the United Arab Emirates and Qatar. The airline completed its retirement of two Embraer 190s in January, having previously placed four A340s and two A321s in storage. The fleet now comprises 16 A320s, six A330s and four A321s.

Route development was severely disrupted by the 2011 Arab Spring, but a wider contraction of the network has continued independently of regional civil unrest.

Last year saw the withdrawal of Rome, Milan, Copenhagen and Athens from Gulf Air's European network. The airline's stated aim of axing unprofitable long-haul services and strengthening its regional footprint entailed preserving just a handful of intercontinental hubs. In Europe, this centred on flights to London, Paris and Frankfurt - but even these routes have been trimmed. ASK capacity on the Bahrain-London route fell by almost 10% year-on-year in March 2013.


European network in April 2013, with cancelled routes disconnected. Source: Innovata Flightmaps Analytics

A similar picture emerged in Asia, with Gulf Air cancelling services to Colombo, Dhaka and Kathmandu so far this year. That comes alongside the previous cancellation of Kuala Lumpur, cementing the carrier's focus on key markets in the Indian sub-continent. Its only Asian services outside of India, Pakistan and Nepal are now Bangkok and Manila. The airline's limited north and east African footprint fared better last year, despite the withdrawal of Nairobi.

Notwithstanding long-haul tweaks, it is the core Middle Eastern market which will ultimately determine Gulf Air's success. The cancellation of its A330 orders and a scaled back commitment to the 787 underscores its shift in focus to high-frequency regional services. But a long-awaited Bombardier CSeries order has failed to materialise, and holes in the network have persisted long after the 2011 Arab Spring uprisings.

Gulf Air was forced to withdraw from Iran, Iraq and Lebanon during the civil unrest, with parliament fearful that foreign Shi'ite groups would enflame violence in Manama. Flights to Beirut were restored quickly, but it was not until September 2012 that the Iraqi cities of Baghdad and Najaf were reinstated. Erbil in the north and Basra in the south remain absent. The planned resumption of Iranian flights in October 2012 was then scuppered by an apparent dispute between the Bahraini and Iranian CAAs.


MidEast network in April 2013, with cancelled routes disconnected. Source: Innovata Flightmaps Analytics 

Routes to Saudi Arabia have also been cut, along with Yemen and Syria. But the Saudi market could ultimately prove to be Gulf Air's saviour. Saudi civil aviation authority GACA has selected Gulf Air and Qatar Airways to operate domestic services on a cabotage basis, continuing efforts to overturn the near-monopoly enjoyed by flag carrier Saudia. But private Saudi carrier Nas Air insists domestic services will be unprofitable until the kingdom's fare cap is revoked, so neither Qatar nor Gulf Air seem bullish on their prospects.

Despite immense challenges with the route network, Gulf Air claimed to have cut costs by 12% in 2011. It says ongoing restructuring will reduce outgoings by a further 24% this year.

Previous chief executive Samer Majali pointed to cost savings of 25.5 million dinar ($67.7 million) in 2011 against revenues of 405 million dinar. His subsequent departure precipitated a shake-up of the board, with deputy prime minister Khaled bin Abdulla Al Khalifa joining as chairman. He promised to make "tough decisions and choices" to put the government's latest cash injection of 185 million dinar to good use. But with Gulf Air believed to have lost 190 million dinar in 2011 alone, the latest plan remains strong on rhetoric and weak on detail.

Cutting the workforce is one positive - if politically sensitive - direction in which Gulf Air appears to be moving. The carrier slashed its workforce by 6% in January 2013, bringing its staffing reductions to 15% since the latest restructuring drive started. The layoffs contributed to a 34% reduction in year-on-year losses in the first month of the year, the airline says. But they have also angered unions, who claim up to one-third of the 4,000-strong workforce is being axed. They are lobbying to protect Bahraini jobs at the expense of expatriate workers.

Having undergone several restructuring efforts in recent years - none of which appear to have delivered significant gains - the prospects for Gulf Air's latest initiative are hazy. Clarity on the fleet changes; progress in talks with Iranian and Saudi Arabian authorities; and co-operation by staff will all be vital to turning the corner.

Additional reporting by Olivier Bonnassies