Saturday, February 11, 2012

RJ Clips Its Wings

This is the gist of a news item in; a tad harsh. MENA is a tough neighborhood but Royal Jordanian is a tough airline. This is not the first time or the last time RJ will have to retrench. The airline has survived worse crisis in its 49 years history; the Arab Israeli war in 1967, the 1982 Israeli invasion of Lebanon, the 1987 financial meltdown in Jordan which saw the currency devalued by 50%, the first Gulf War in 1990 and the list goes on and on.

RJ was transformed from a losing government owned airline to become the first Arab airline to join a global alliance, Oneworld in 2007 and the first Arab privatized airline later in the same year. It also embarked on a fleet renewal program replacing its older A310 and A320s with new A319, A320, A321 and A330s. The A340 fleet was refurbished and new seats and AVOD system installed. The airline has 12 B787s on order.

2011 was a particularly tough year; oil prices hovered around $110 a barrel, a deepening Eurozone debt crisis which is still unfolding and political upheaval in the region, the Arab Spring which affected some of the most profitable destinations in the network and caused a drop in incoming tourists.

According to Mr. Hussein Dabbas, RJ's CEO "Despite all the difficulties, the company was able to achieve positive operational results during 2011, as it increased the number of passengers by 6.5 per cent, the operational revenues by 6 per cent, the flying hours and departures by 3 per cent, the seat factor reached 70 per cent." however, fuel prices increased to JOD 293 millions in 2011 from JOD 203 millions in 2010. My estimate is a net loss of $100 millions on a turnover of $1 billion.

The airline is axing 5 destinations and reducing flights during the year as traffic develops. The airline is looking at the fleet requirements. Probably a reduction in the short and medium range fleet by terminating a couple of leases.
There is nothing new in the recovery plan it has been used several times in earlier situations and seems to work. RJ will still be looking at new destinations and opportunities and leveraging its Oneworld membership to its advantage.

MENA is not for the faint hearted but Royal Jordanian is a resilient airline and has been through worse situations before and emerged a stronger organization, I see no reason that they will not this time.

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