GCC Insights: Gulf Air has been slow in responding to challenges

Regional carrier Gulf Air has experienced plenty of turbulence recently, culminating in the pullout of one of its founding shareholders.

Also, the carrier has been reporting losses for the last few years, all the more making a major restructuring indispensable.

The governments of Bah-rain, Qatar, Oman and Abu Dhabi founded Gulf Air in 1950. Yet, in late May, the carrier suffered a major blow after Qatar decided to withdraw from the firm.

The Qatari decision was made during a board meeting in Abu Dhabi. Apparently, Qatar's anger stemmed from the continued dismal performance of the carrier and repeated demands from shareholders for capital injection. The management requested $272 million from the shareholders, as part of efforts to help turn around the troubled carrier.

Both Oman and Qatar rejected the move, but the former eventually opted to remain. The governments of Bahrain, Oman and Abu Dhabi agreed to immediately inject Dh300 million ($82 million) and to freeze sovereign debts worth $146 million.

Worse yet, Gulf Air has accumulated debts worth $800 million. The company has yet to deal with the legal and other implications of Qatar's pullout and find ways to compensate the Doha government for its 25 per cent stake.

In 2000, Gulf Air recorded a loss of $98 million on revenue of nearly $1 billion partly blamed on higher fuel charges.

The figures for 2001 have not been published but market analysts were pessimistic on the back of financial losses incurred by the airline industry in the aftermath of the September 11th attack on the U.S. Unofficial estimates put last year's loss at a hefty $123 million but a smaller loss is projected for 2002.

In May, the board appointed James Hogan, former head of defunct Australian carrier Ansett, as the Gulf Air's new chief executive. By end of August, he was due to submit to the board a restructuring plan addressing current problems and future options.

In return, chairman Sheikh Hamdan bin Mubarak Al Nahayan, who is also chairman of the Abu Dhabi Civil Aviation Department, has hinted that the board would consider injecting more cash into the company in case a viable plan is put together.

Hogan expects the company to make profit within three years. As part of efforts to trim costs in 2002, Gulf Air said it would reduce its fleet to 26 from 30 aircraft and to lay off 450 employees. Also, he pledged to restore market confidence in Gulf Air and recover lost opportunities.

Hogan has developed three core values that will drive the new Gulf Air - passion, pride and profit.

Moreover, he wants to alter the public perception that the airline is too bureaucratic
The current workforce is put at 4,900; of these, 3,400 are employed in Bahrain, where the company is based, and the balance 1,500 scattered around other stations.

Some 1,400 local Bahrainis work for Gulf Air - recently some employees who fear being fired held a news conference arguing that reducing workforce is not the solution.

They fixed existing problems on poor planning and management failure to adapt to changing market conditions. While acknowledging the need to reduce workforce, Hogan promised to train more Gulf nationals for executive positions.

Undoubtedly, the company has failed to adapt to the market entry of Oman Air and Qatar Airways and above all Dubai-based Emirates airline - all the three had taken market share from Gulf Air.

Moreover, it has been slow in settling other problems, notably reaching financial settlements with families of the crash victims of GF072 in August 2000 off the coast of Bahrain.

For years, Gulf Air had been suffering from overstaffing, out of control costs and having too many unprofitable routes. To continue flying, the carrier needs to streamline its operations, in order to be fit rather than fat.