In the last week two governments in the Middle East have declared their desire to sell their national carriers within a relatively short period, about one year. Well it ain’t gonna happen.

Gulf Air goes on sale

Twenty days after Mumtalakat (the investment arm of the Kingdom of Bahrain) returned the ownership of Gulf Air to the government, citing that an airline is a strategic asset that will yield very little return. The government on 25 February 2010 announced its intention to privatize the airline within one year. Well, I don’t think it will happen. Although Bahrain Air is not a major threat, carriers in the region are. Gulf Air has a few advantages:

1. It has a restructuring plan and a vision of where it is heading
2. It has a fleet renewal plan which is in progress
3. It has several code sharing agreements within the region and as far afield as North America.

On the other hand it has definite problems and disadvantages:

1. Allegation of corruption within the airline
2. No record of profitability
3. A very disruptive labor union
4. A potentially explosive geopolitical situation

Image courtesy of rakzp on Flickr

Kuwait Airways on sale – Buy 1, Get 1 Free?

On 28 August 2007 the Government of Kuwait canceled a $3 Billions order for 19 aircraft from Airbus and Boeing that was arranged by Arab Leasing and Finance Co. (ALAFCO) because of pressure from Parliament. On 1 January 2008 the government announced it plans to privatize the airline and that was reiterated again on 25 January 2010. Kuwait Airways is a different proposition.

1. The airline has no announced restructuring or fleet renewal plans, but there are always talk of consultants recommendations, how relevant are these no one knows.
2. The airline has regional stiff competition from Jazeera Airways and Wataniya Airways. Although Kuwait Airways have the monopoly on long range flights, these have always been very low yield.
3. No track record of profitability since the Gulf War in 1990

Why the selling frenzy is a bad idea

Investors will not rush to buy into Gulf Air or Kuwait airways without resolving some of the issues above. This is a politically charged high risk region and we are still in recession so, one year of profitability will not be sufficient to raise public confidence. Both Royal Jordanian and Air Arabia could not launch an IPO until after a few years of profitability.

Local issues with Parliament and/or labor unions have to be resolved. Both airlines have to prove that they are capable of sustaining profitable growth over a reasonable period.

Gulf Air a better bet than Kuwait Airways?

Between the two airlines, Gulf Air stands a better chance of being privatized, not in one year but in the foreseeable future. It has a CEO with a proven record and a government that appears to have the political will to go ahead. Gulf Air always had a better brand recognition than Kuwait Airways.

For starters, Gulf Air has always been associated with Bahrain which was the center of ooo shore banking in the 70s and 80s and had a long history of being one of the 5 Star Airlines of the region, way before Emirates, Etihad or Qatar Airways came into being. Gulf Air worked on its brand during James Hogan’s days, a new paint scheme and interiors, nannies and chefs in the air and through its sponsorship of the F1 racing in Bahrain.

On the other hand Kuwait Airways never had that brand recognition and it appears to have never recovered from the 1990 Gulf War.

So, what do you think? Which airline would you bet your money on, given a choice? In fact, would you even recommend that these airlines be sold in the first place? Let’s discuss in comments and over on Twitter (@simpliflying)

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The MENA region airlines bucked the global trend in 2009. It was the only region that had an increase in traffic and had the loss forecast dropped by 50% to half a billion. The region saw an increase in flights and in destinations.

2010 promises to be an exciting year for the region. Airlines in all segments are competing for a leading position.

Emirates facing the crunch?

Emirates remain the leader of the pack, with a brand that, by far has no rival not only in the region but globally. So far Emirates has shown a financial ability to finance its expansion without burdening Dubai. The problem Emirates might face is a tightening of credit due to Dubai World’s and by extension Dubai’s problems. And as previously mentioned on SimpliFlying, even a merger between Emirates and Etihad cannot be absolutely ruled out.

Etihad and Qatar Airways expanding?

Etihad and Qatar Airways are both embarking on an expansion spree, supported by oil revenues of their respective governments, a viable means as long as oil prices hold at their current levels. Needless to say both carriers have not turned any profit yet. On a service level and as a brand both are offering services that in some cases not only rival Emirates, but exceeds it.

Royal Jordanian merging?

Royal Jordanian, the first Arab Carrier to join an alliance (One World) and the second Arab Carrier to privatize and be listed in the Amman Stock Exchange, is floating the idea of a merger with another regional airline or European airline by mid 2010 as the means of sustaining growth. This may be easier said than done since the Government’s approval is crucial (holds 39.5% of the stock) and the other problem is finding an airline that is compatible with the RJA brand displayed in their new A319, A320 and A321 fleets in terms of cabin and IFE.

Gulf Air going regional?

Gulf Air is looking to restructure and reinvent itself as a regional carrier as opposed to an Emirates or Etihad clone. For that they have employed Royal Jordanian’s ex CEO, the same person that lead RJA to profitability, privatization and into an alliance. GFA has already made its first review and as a result returned the Leased B777 back to Jet Airways and confirmed a 20 A320 orders from Airbus with a delivery rate of one aircraft a month. A sticking point is the union that opposes any Bahrain nationals staff cuts. The union has thwarted several restructuring plans in the last 10 years.

Oman Air re-inventing itself?

Oman Air has lead the region with an new First, Business and Economy seating plus connectivity on their A330 fleet with a Thales IFE and Higher bandwidth SwiftBroadband platform to deliver GSM/GPRS and WLAN via OnAir., launching a new campaign of “The Change is Here” .

The LCC onslaught?

On the LCC front as Air Arabia launches its second international hub (Alexandria-Egypt) in 2010, it faces stiff competition from FlyDubai and a reemerging RAK Airways. In Kuwait Jazeera Airways departed form the LCC model and is offering Business Class similar to Bahrain Air.  This sector is facing competition not only from within but from other Legacy regional airlines.

These are a few of the issues facing the region’s airlines and promises an even more exciting year.

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