Gulf Air and Kuwait Airways up for sale – do the brands stand a chance?
This guest article is written by Oussama Salah, who is an aviation expert based in Abu Dhabi, UAE. Being a Jordanian who flies around the region a lot and works in the sector, he shares his thoughts how the proposed sale of two Gulf carriers may or may note be a good idea.
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:
- It has a restructuring plan and a vision of where it is heading
- It has a fleet renewal plan which is in progress
- 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:
- Allegation of corruption within the airline
- No record of profitability
- A very disruptive labor union
- 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.
- 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.
- 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.
- 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)