Saturday, October 27, 2012

Gulf Air At A Crossroads

Earlier this month the Government of Bahrain announced a 185 millions BD (490 millions USD) injection into Gulf Air. Any fund allocations by the airline have to be approved by the government prior to disbursement. Earlier in May the parliament rejected a 664 millions BD (1.76 billions USD) financial package for Gulf Air.

Gulf Air has been affected by political instability in the country for almost the last two years and the suspension of flights to Lebanon, Iraq and Iran in March 2011 which are among the most popular and profitable. Beirut has been reinstated since June 2012 and Iraq flights resumed in September/October 2012 while flights to Iran planned for October had to be suspended indefinitely due to the lack of clearances from the Iran government. The Arab Spring contributed to a reduction of air travel to Egypt and Syria and other countries. Rising fuel prices added to the financial pressures.

The proposed bailout will come with a deep restructuring and downsizing of the airline, but that is nothing new and a few years back such plans were opposed by the labor unions.
In 2009 the Trade Union opposed a 272 reduction of Bahraini staff until an agreement was reached. However, the current plan calls for halving the workforce from 3800 to 1800 and the fleet from 39 to 20 aircraft. Amid the uncertainty, staff are leaving to other airlines in the region. The Trade Union affirmed in a statement prior to Eid Al Adha that no restructuring of the workforce or fleet should affect the staff employment interests and rights (Click for more). This is not a numbers game, if the airline fails to retain qualified staff, it will be very hard to operate efficiently and productively to effect a change.

Similarly in 2009, the new CEO declared that Gulf Air will not compete with the Global airlines of the region and it will concentrate on the region, Europe, Africa and Asia. Now the airline may have to reduce its flights to Europe to only two destinations London and Paris, curtail its expansion into Africa and concentrate more on MENA and India. It already has a code share with Royal Jordanian, whereas all flights between Amman and Bahrain are operated by Gulf Air and of course Gulf Air is a contender for the third Air Operator Licence in Saudi Arabia. A license, if awarded to Gulf Air may ease its fleet downsizing by diverting some aircraft to the new airline.

Senior management in Gulf Air understand that bail outs are not sustainable and restructuring is a necessity, however there maybe a lack of understanding among politicians of the social, political and economical impact of this restructuring.

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