With privatisation delayed, Kuwait Airways gets just what it doesn't need - more competition
Further delays to the privatisation of Kuwait Airways are providing expansion opportunities for the small country's other carriers.
The Kuwaiti government in January finally approved legislation that clears the way for the ailing flag carrier's privatisation. But the legislation requires an extensive evaluation of the carrier's assets, meaning the privatisation will likely not take place until the second half of 2009.
In the meantime, plans to renew Kuwait Airways' ageing fleet are on ice and the airline is leaderless. Managing director Barak Al-Sabeeh resigned along with the entire board late last year after the government refused to support his plan for a quick privatisation, which he thought was needed to revitalise Kuwait Airways and make it competitive.
Al-Sabeeh was only on the job since September, when managing director Sheikh Talal Al-Sabah and his board resigned, again over a clash with the government. Al-Sabah's proposal to buy 19 new aircraft was rejected and the carrier will now likely have to settle for an aircraft refurbishment project.
Kuwait Airways, which has been struggling to fend off competition from larger Gulf carriers, also now faces the prospect of more competition at home. Kuwait National Airlines is preparing to launch services in January 2009 and will be the country's third carrier after Kuwait Airways and Jazeera Airways, a low-cost carrier which launched in late 2005.
KNA managing director and chairman Abdul Salam Al Bahar says the new carrier will focus on the top end of the market with Airbus A320s in an unusually roomy two-class 126-seat configuration. "We do not envisage launching with routes that do not already exist," he says. "Our strategy will be to gain market presence on those routes where premium class seats capacity currently offered by existing carriers is insufficient. We will gain the passengers by the convenience of our schedule, high frequency and a premium service concept in our luxuriously configured Airbus A320s."
KNA has already leased three new A320s for delivery in 2009 and is now looking to acquire additional A320s for 2010 and beyond. It plans to grow its fleet by three to five aircraft per year and eventually take on widebodies. "The initial phase of our business plan calls for a narrowbody point-to-point operation from Kuwait. However, we know that we will be operating in a market that over the past four years has grown over 15% per annum. Therefore it is conceivable that we will consider widebody aircraft in the future," Al-Bahar says.
The government awarded KNA a license back in 2005 and in early 2006 it raised over $180 million in a public offering. But Al Bahar says it took longer than expected to secure suitable aircraft
Jazeera's head start has allowed it to quickly capture 11% of the fast-growing market, based on departures at Kuwait International airport (see chart). Jazeera currently only operates six A320s but has big expansion plans, having placed an order late last year for 30 additional A320s which will give it a fleet of 40 aircraft by 2014. To finance the growth Jazeera doubled its capital to $73 million late last year.
Three carriers for a country of three million may seem unsustainable but Al Bahar does not think so: "Kuwait not only displays healthy economic growth of over 10% GDP each year, it also has extremely favourable demographic texture with almost half of the population under 30 years of age. In addition, the large expatriate population stimulates traffic on its own. To that you may add the religious traffic and visiting friends and relatives.
"We believe that each of the three existing airlines in Kuwait will cater to its own market segment. KNA will fill the need for the Kuwaiti carrier that will provide premium class service to demanding travellers who are keen on frequency, punctuality and on-board product."