Carriers vie for Kuwait supremacy

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George Cooper and Stefan Pichler are two vastly different chief executives, running two completely different airlines. But Cooper's Wataniya Airways and Pichler's Jazeera Airways have something in common - they both are competing fiercely in Kuwait, a small but dynamic market which only a few years ago was dominated by a now ailing government-owned flag carrier.

Jazeera, a four-year-old low-cost carrier which added significant capacity in its home market earlier this year after dropping its Dubai hub, recently surpassed Kuwait Airways as the largest operator at Kuwait International Airport. It now serves 26 destinations from Kuwait City with a fleet of 10 Airbus A320s.

Wataniya, a full-service carrier with an unusually large business class cabin, launched services in January. It currently serves eight destinations from its Kuwait City base with four A320s.

Cooper says Wataniya's launch and Jazeera's expansion this year has resulted in an over 30% spike in capacity at Kuwait International. This has sparked a fare war, resulting in lower yields for all three of the country's carriers. While this and Kuwait's growing economy have stimulated some growth in traffic, Cooper says passenger traffic is only up 9% year-over-year. "There's a lot more seats chasing a few more passengers. There are no easy markets and a lot of airlines we compete with are government funded and have different agendas than we might have," he says.

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Pichler says Kuwait, which only has a population of three million, clearly cannot support three carriers. "There will be consolidation," Pichler says, arguing Jazeera is in the best position as it is the only profitable Kuwaiti carrier. Jazeera posted a KD760,000 profit ($3 million) in the third quarter after losing KD2.2 million in the first half. Kuwait Airways has been steadily in the red in recent years while Wataniya lost KD6 million in its first six months of operations.

Cooper says Wataniya is on course to meet its target of profitability within three years but acknowledges long-term planning is difficult given the uncertain future of Kuwait Airways. "We're just beginning now to think about what we should do in 2011 and beyond. There are quite a few options for us. But a big swing factor for us is what does happen in that Kuwait local market. Nobody can tell.It's out of our hands," Cooper says.

Kuwait Airways, which has nearly 6,000 employees although it only operates about 20 aircraft, is scheduled to be corporatised early next year as a pre-cursor to possible privatisation. But after recent failed attempts to restructure and privatise the flag carrier, Cooper and Pichler are sceptical the current privatisation plans will be carried out."They were going to be privatised but it now turns out it's from one pocket of the government to another. [Kuwait Investment Authority] will take a big chunk of Kuwait Airways and apparently run it in a more commercial way. Time will tell," Cooper says.

Wataniya is leasing three more A320s next year, using the extra capacity to add frequencies on existing routes and open a few new destinations. Cooper says the board will likely decide early next year on a fleet and network expansion plan for 2011 and beyond. "In the end it (Kuwait Airway's planned privatisation) is kind of background noise and you've got to get on with what you are doing and establishing your clientele," he says.

He adds the airline is focusedon the Kuwaiti market and is not looking at opening hubs elsewhere or operating any fifth freedom routes: "We are very targeted on the Kuwait national market. It's growing nicely."Neither does Wataniya have aspirations to be a"mega carrier". Instead it will be a relatively small niche carrier, focusing on the business market.

Watniya's A320s are configured with 96 economyand 24 first class seats. The aircraft has in-flight mobile connectivity services from OnAir and first class features a full in-flight entertainment product with individual screens. Cooper says the first class product is a key part of its offering:"You have to have it if you are going to compete for the kind of clientele we are pursuing."

Jazeera, which has 30 aircraft on order, has a different strategy. Pichler, the former Virgin Blue chief commercial officer who took the helm in the summer, says being "a multi-hub operator" and "a multi-sector operator" are two key pillars to Jazeera's business plan. The latter means Jazeera is actively pursuing all sectors of the market, including leisure and government/business traffic. It has a flexible business class cabin which can quickly be adjusted using a movable curtain and trays that can be placed over the middle seats.

Pichler says Jazeera is now 100%-focused on Kuwait, having dropped its Dubai hub earlier this year, but is "currently investigating two new bases" in the Middle East/North Africa region. He says this time Jazeera is only looking outside the six Gulf Cooperation Council countries because the latter is oversaturated with over half of the region's seats but only 30% of the region's population.

Jazeera is also now looking at signing up as a launch tenant at Dubai's new Al-Maktoum International Airport, which opened mid-2010. But Pichler stresses Al-Maktoum will only be a "virtual hub" with several potential fifth-freedom routes, but no aicraft or crew base.

It is currently scheduled to take one more aircraft in 2010. Pichler says it will look accelerating its delivery schedule or leasing in extra aircraft if demand picks up, but for now market conditions to not warrant rapid expansion. "We've taken a conservative approach," he says. "In the current market environment it's smart to be cautious. We want to be profitable."