A revitalised Gulf Air is recording significant growth in passengers and cargo as it continues to strengthen its position as a commercially viable and sustainable global airline, says president and chief executive James Hogan.
The airline is set to announce significant investments in fleet re-equipment replacing its Boeing 767s with either Boeing 787s or Airbus 320 or 340s to further enhance its platform for growth and expand its route network, says Hogan, who is bowing out on a high note after more than four years at the helm.
Hogan, who is expected to leave by the end of the year, is looking to secure the deal for new aircraft during the summer whilst his ambitious programme of re-engineering the airline that began when he took the helm of an ailing Gulf Air in May 2002 continues apace.
“The fleet tender process is in its final stages and it depends on the deal but we hope to sign an MOU for wide-body aircraft to replace the nine Boeing 767s in the next few months and the refurbishment of the Airbus A340s is well under way,” says Hogan.
In May 2006, Gulf Air also received the green light for $375 million of funding from its stakeholders underlying the vital importance of the airline to Bahrain and Oman.
Over the past four years Gulf Air has certainly reinvented itself in terms of a much better product and enhanced services and more polished brand awareness, and is recording significant increases in passengers and cargo.
Hogan has built a sustainable commercial platform delivering consistently world-class products with Gulf Air clearly differentiating itself whilst creating brand loyalty.
Recently, Gulf Air received the coveted Skytrax award for inflight services, as the best airline for onboard catering for the third consecutive year.
From day one his ‘no nonsense’ business practices were in evidence as his blueprints for change, fully backed by successive Gulf Air boards, began the journey to establish ‘root and branch’, a transparent commercial platform and a new organisation. Since 2002, when the first phase of the turnaround Project Falcon began, a more dynamic and entrepreneurial culture has emerged, consolidating the intrinsic strengths of Gulf Air’s regional and international route network.
Impressively customer-driven, the airline is constantly realigning the commercial platform and looking at costs and structures in a transparent way. Hogan has also spearheaded the implementation of robust business processes with tough fiscal discipline intensively applying strict cost controls in day-to-day operations.
He brought accountability, responsibility and transparency to Gulf Air’s commercial operations, creating a culture of empowerment. Every aspect of operations from debt servicing, to leasing, cash flow and revenues has been examined and is under constant review with key performance indicators reflecting a strengthening commercial platform.
Since day one, Hogan has been committed to making Gulf Air not only a source of national pride to its stakeholders but also a commercial airline with financials available for all to see. Without the hike in fuel costs, its impressive turnaround would be reflected in black rather than facing a deficit, he says.
“We have been given the ability to raise cash to offset our exposure to fuel rises and to go to the market and create a new hedging programme. In 2002, fuel costs were 12 per cent of my costs, today they are about 31 per cent and rising.”
Hogan concedes that rising fuel costs put a huge pressure on the airline with revenue growth unable to keep pace with fuel price increases. Nevertheless, Gulf Air is dealing with this impact whilst maintaining its network and flight operations better than many other carriers.
“Globally, it is clear that the industry will have to take increasingly stringent measures to address fuel costs. We are looking at a range of options to mitigate these additional costs. We are already seeing a more consistent application of fuel surcharges in all our markets. Elsewhere, carriers are cancelling unprofitable routes, optimising schedules and frequencies and delaying aircraft orders,” says Hogan.
Since the withdrawal of the Abu Dhabi government, Gulf Air has been implementing its two-hub ‘Smart Airline, Successful Business’ strategy. This covers a network strategy restructuring its operational platform over the next three years to build on the success of Project Falcon. Despite the change in ownership, the airline retains 50 flights a week in and out of Abu Dhabi with direct and onward connections and Hogan says positive results are already emerging as Gulf Air realigns its business platform.
A new two-hub strategy over Muscat and Bahrain will result in significant cost reductions and bring major improvements to the key operational indicators, including punctuality, as it will give greater fleet flexibility and an even more effective set of connections. “The positive effects of our transition to a two-hub model are already in evidence, not only in passenger numbers and stronger performance at our two hub airports, but also in improved efficiencies. I believe we will also see significant cost reductions coming through in the figures as we reduce operational complexity in the next few months,” says Hogan.
‘Smart Airline, Successful Business’ includes provision for recapitalisation of the airline, re-equipment of the fleet, product upgrades and refurbishment of present aircraft, and investment in a range of areas of the business.
“Bahrain and Oman Board members have agreed to the recapitalisation of the airline, allowing for the investment in new aircraft and other infrastructure to take Gulf Air forward. But we will continue to take every decision on a sound commercial basis,” he says.
In terms of key performance indicators as Gulf Air enters the busy summer period, Hogan is confident of a continuing upward trend to meet his commercial expectations. “During the first three months of the year, seat factor increased to 73 per cent, reflecting a 6.3 per cent increase in premium passengers and a strong increase in Haj traffic. Unit revenue for the same period rose 6.6 per cent over 2005.
Gulf Air passenger traffic at Bahrain International Airport in the first quarter showed a 24 per cent increase year on year, while there was a 20 per cent increase at Seeb International Airport for the first three months of the year,” he says.
“Gulf Air already contributes significantly to the GDP of Bahrain and Oman and we believe we can deliver even great contributions, thanks to the support of our owners. It is their vision and commitment that has allowed us to create one of the world’s top 10 airlines brands,” says Hogan, who will only leave once a smooth transition of power has been achieved, possibly by the end of this year.
“Gulf Air is in great shape. I feel I have done everything I can do to turn things around. I came to do a job and that job has been completed,” he says.
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