“Privatisation may be the only solution”
It is less than a year since Kuwait Airways Corporation (KAC) celebrated its golden jubilee, announcing that it had flown 50 million passengers in half a century of international operations.
Regular commercial aviation for what was originally known as Kuwait National Airways started in March 1954, when two Dakota DC3 aircraft began operating the fledgling airline’s first regular routes between Basra and Kuwait. Even before, from the early 1930s, commercial aircraft had regularly touched down on a desert strip before the major airport was built at Al Nozha in 1947.
Nevertheless, these jubilee celebrations were somewhat muted having arrived during a period of continuing uncertainty as a result of delays from Kuwait’s National Assembly in approving the airline’s financial results for the last seven years. This had placed a huge financial burden on Kuwait Airways’ balance sheet, creating strategic paralysis as to the future direction of the airline.
The big question over the last decade has always been defining the role that Kuwait Airways should play both as the national flag carrier and as a strictly commercial operation during a period of increasing competition from newly-licensed carriers in the domestic market and from international carriers.
This period of financial uncertainty ceased in June 2005 following the release by the National Assembly of the airline’s final accounts, ushering in a bright new period of stability and expansion. The constitution of Kuwait Airways states that all losses had to be compensated by the government, as a wholly-government owned airline. Only now could the airline move forward with real conviction and spearhead its ambitious plans for expansion while examining, once again, the deeper question of privatisation.
Sheikh Talal Mubarak Abdulla Al Ahmad Al Sabah, chairman and managing director of Kuwait Airways, has been the eternal optimist throughout this uncertain period, applying a wealth of experience and a pragmatic approach to dealing with changes outside his control. As well as recalling the dark days following the 1990 invasion when, as commercial director, his airline literally had all its physical assets taken by force, Sheikh Talal is now contemplating a new corporate identity for a revitalised and commercially-run Kuwait Airways.
“I am still smiling and have never given up and I remain optimistic for the future of Kuwait Airways. The release of the final accounts marks a clear line providing a mandate for the airline to be run on a commercial basis. And I well remember rebuilding Kuwait Airways from ground zero having lost all our assets, even our fax machines, let alone our aircraft,” recalled Sheikh Talal.
Historically, Kuwait Airways has long been one of the pioneering airlines of the region and a source of great pride to Kuwait in the creation of the modern state. The airline continued to fly the national flag across the world as a symbol of hope even after the Iraqi invasion and occupation.
According to Sheikh Talal, Kuwait Airways lost around 86 per cent of all its assets during the occupation. As a result, the re-equipping and modernisation of the fleet was extremely costly and many of the financial problems date back to 1990 and the debt mountain that Kuwait Airways had to accept to rebuild its operations and services. Debts peaked at $1.4 billion as the airline replaced its aircraft and aviation assets at a time of sharply reduced revenues and cash flow.
Yet, under Sheikh Talal, the airline has aggressively tackled its costs and embarked on a network rationalisation strategy. This year, the massive debt mountain has been reduced to $50 million by utilising cash brought in from record revenues of $800 million. But dramatic increases in fuel costs have also forced Kuwait Airways to look into other means of cost reduction such as early retirement schemes and increasing productivity levels. The airline is working closely with Lufthansa Consulting and has now removed seven non-profitable routes from the network.
Sheikh Talal is committed to positioning Kuwait Airways on the international competitive map with ambitious plans that include the radical transformation of its home base at Kuwait International Airport into a regional financial, commercial and services hub. Kuwait Airways will also defend its market share to regain its historic position as a leading Middle East carrier.
Sheikh Talal is a veteran of the airline industry having joined Kuwait Airways in 1977 spending his entire working life rising through the ranks. As well as his distinguished career in Kuwait Airways, he is also a strong advocate for the region’s aviation industry as a member in specialised committees through several regional and international organisations. He said it is no secret that the corporation faced several obstacles as a result of suspending the final accounts for this period of seven years, which is considered a precedent that no other government entity has ever encountered since the establishment of the National Assembly.
Even before then, Sheikh Talal has been actively pursuing a strategy of transforming the airline into a leaner and more commercially-driven organisation, intensifying cost-cutting and rationalisation everywhere both across the network and through staff redundancies, whilst maintaining rigorous standards of safety and operations.
“Too many projects were blocked as a result of these previous financial constraints and the corporation suffered negatively because of this situation,” he said. “With the $700 million cleared, Kuwait Airways is now able to settle loans and improve the airline’s products and services including seat upgrades and address the replacement of aircraft purchased in the early 1990s. We are now considering the entire fleet, possibly as one family of aircraft in two size configurations in the medium- to long-range categories. In addition, funds will be used to upgrade systems and improve products for our customers.” Sheikh Talal is reticent to reveal which manufacturer he might select, but confides that he would be visiting Boeing “quite soon” to discuss options as well as hold discussions with other manufacturers.
“We are still frustrated in running Kuwait Airways as the decision as to whether the airline is privatised into a commercial organisation is due for discussion in the National Assembly later this year,” he said. “Nevertheless, we are planning to increase our fleet from the existing 17 to up to 25 planes. We have firm expansion plans in place over the next decade and specifically for the short-term over the next three years.”
He continued: “In recent months, we have encountered two major negative factors against our balance sheet. Fuel prices have risen steeply and we have to make unpredicted provision for these increases. As a government entity we receive no special privileges and these fuel costs rises create a substantial deficit. There is also a double standard operating in that Kuwait Airways must always operate within a strict commercial environment and yet situations are imposed upon the airline which are non-commercial. But overall, the situation is positive and we are seeing things moving back to normal in terms of passenger and cargo traffic. There is more weekend travel across the region and from southern Iraq with Kuwait acting as a hub and increasing cargo volumes and special freighter traffic is increasingly apparent. We do not compare Kuwait Airways to other carriers but seek to improve our product and part of our vision is to improve the airport facilities. In this, we will depend on ourselves and seek to finance significant expansion internally.”
Sheikh Talal is convinced that a radical transformation of the airline is needed, whether it is a public or private organisation. “If we prefer government ownership we should receive the same privileges and to an extent, if we were strictly commercial, then we might have become bankrupt. Political indulgence is not helping and privatisation may be the only solution. Whatever happens, Kuwait Airways cannot live in this situation and must have the same playing field as other commercial operators in order to act as a competitive organisation,” he said.
“We do not under-estimate the challenges from the new competition such as Jazeera Airways and other carriers as the impact could be severe although we see the market as growing with competition. Earlier this year, we introduced new First Class and Business services and we are introducing some additional long-haul routes and entering into alliances and code sharing agreements. From April 2006, we will have daily flights to New York and will increase our Middle East destinations to Cairo, Jeddah, Beirut as well as the Far East including Jakarta, Colombo, Bangkok and Manila. New routes being planned include Canada, and China with Beijing and Shanghai under consideration.”
Sheikh Talal joined Kuwait Airways after graduating from Kuwait University, joining as a research officer on the commercial side. Quite soon he was dealing with International Air Transport Association (IATA) matters, formalising tariffs and bilateral agreements. Within a decade became commercial director and by 1999, the director general. Last year, at the age of 50, became its chairman and managing director.
For a man that lives and breathes Kuwait Airways there is little time for relaxation, although he sometimes manages quality time with his young family that includes three boys and two girls. “I am not judgemental about what has happened in recent years and consider myself adaptive to change. I do not always go with the flow, but prefer to keep swimming in the direction that I have set,” concluded Sheikh Talal.