Oman Air plans to re-enter the long-haul market, after shareholders approved a recapitalisation which will hand the Omani government a majority stake in the carrier.

The capital increase from RO13.28 million ($34.5 million) to RO50 million will be undertaken through a share issue placed with the government, taking its stake of about one-third to more than 80%.

Muscat-based Oman Air used to operate long-haul Airbus A310s but for the past five years has concentrated on regional services in partnership with Bahrain-based Gulf Air, which expanded its Muscat hub in 2005 after dropping its Abu Dhabi hub.

Changes in ownership at Gulf Air - the airline is now equally shared between Oman and Bahrain - have raised the strategic importance of Muscat, and the sultanate is keen to ensure that Oman Air remains competitive. It also views the carrier as an asset for developing Oman's tourism potential.

"With the government policy towards endorsing tourism it has appreciatively expressed eagerness to fully support the company so as to implement its future operational plans," says Oman Air chief executive Ziad Al-Haremi, pointing out that limited capital has held back the airline's expansion.

"Consequently the board of directors is convinced that the government is the most apposite partner to augment the company's share capital."

Oman Air plans to acquire long-haul aircraft with 230 to 240 seats. The airline nearly trebled full-year profits to RO2.9 million last year, but Al-Haremi says the cost of acquiring such aircraft could result in the airline making financial losses at least for the next five years. The carrier transported 1.23 million passengers last year, a rise of 8%.

With Oman Air's decision to develop its own long-haul network, which would probably concentrate on Asia-Pacific destinations, questions have emerged over the Omani Government's commitment to Gulf Air. Qatar and Abu Dhabi earlier withdrew as owners in Gulf Air to focus on their own national airlines. But Gulf Air has indicated that it is not concerned by the Omani strategy. The airline, which is presently chaired by Oman's transport minister, states that its relationship with Oman Air is "very good" and that both airlines benefit from their partnership.

Oman is probably in less of a position than Qatar or Abu Dhabi to break from Gulf Air, says a source close to the airline, adding that such a move could take years to become effective. "We have not become aware of any move to withdraw from Gulf Air," the source says.

Source: Airline Business