Royal Jordanian, Uncertain Future

Royal Jordanian (RJA) is facing liquidation since its losses have exceeded 75% of its capital. For this reason, the airline has not issued its 2013 financial results or had its share holders general meeting yet. In reality, the government who is the major share holder will not allow its liquidation. It is a matter of national pride and to a certain extent national security. There are talks of restructuring and a government bail out, but this is a hot topic because of the economy and the deficit. It appears like a lot of political jockeying is going on.

The airline was listed in the Amman Stock Exchange in December 2007 and since then it had very mixed results. It sustained losses in 2008 (34.7 M USD), 2011 (81.6 M USD) and 2013 but had moderate profits in 2009 (40.3 M USD), 2010 (13.6 M USD) and 2012 (1.6 M USD).  

In all fairness to Royal Jordanian the geopolitical situation in MENA has not been very favorable and still is not; between fluctuating fuel prices, the Arab Spring, Libya and now ISIL, the airline had to indefinitely suspend lucrative routes like Damascus, Aleppo, Tripoli, Benghazi, Misrata and now Mosul; Cairo, Baghdad and Erbil were suspended on and off for security considerations. RJA also suspended flights over Syria which added almost an hour to an hour forty five minutes to the Beirut flight without an appreciable increase to fares. However, RJA has just announced a code share agreement with Middle East Airlines to start in mid October 2014, allowing RJA to cancel two of its four daily flights. But the most interesting reason cited is the aggressive competition from the Gulf three (Emirates, Etihad and Qatar Airways).

In an attempt to reduce its costs RJA inked code share agreements with Gulf Air, Oman Air and SriLankan to operate Amman to Bahrain, Muscat and Colombo  and has suspended or plan to suspend flights to what it terms as losing routes, like Delhi, Mumbai, Alexandria, Accra, Lagos, Brussels and Milan.

Not withstanding geopolitics, the airline did not react quickly enough. While canceling unprofitable routes is a good thing, overcapacity is not. It leaves part of the fleet idling while still incurring lease and loan payments. Rationalizing staff levels is not be the greatest option in a politically charged country with a very high unemployment rate. 

RJA has already returned 2 A321s and with the B787 deliveries it is planning to rationalize the fleet composition by the end of 2014 to include the following:

B787, 5 operating aircraft;

A340, completely phased out (4 aircraft) ;

A330, 2 operating aircraft down from 3;

A321, 2 operating aircraft down from 4;

A320, 6 operating aircraft down from 7;

A319, 4 operating aircraft, no change;

E195, 4 operating aircraft down from 5;

E175, 3 operating aircraft, and

A310F, 2 operating aircraft, no change.

A net change of 5 passenger aircraft all of them single aisle aircraft, but with a more fuel efficient and modern fleet.

In a nutshell, the airline board and management acted, just like in the old days, like a government entity. This has caused the share price to go down from a high of 4.09 JOD {5.76 US$} on 16 March 2008 to 0.38 JOD {0.53 US$} on 15 September 2014. RJA would have certainly benefited of the equivalent of a Chapter 11.

RJA needs to act in a more agile and proactive manner, after all that was the reason the airline was privatized. The plans for the fleet and route reductions were too late and too little. There is a need to come up with innovative solutions that increase revenue and not only reduce cost. After all, cost reduction is subject to the law of diminishing returns but with revenues, the sky is the limit. 

While RJA may have not lacked leadership, it requires a different kind of leadership. One that not only looks at fleet and routes but one that looks at the management structure and how management approaches risk assessment and especially mitigation. A management that looks at new opportunities for expansion amid the chaos. If this means replacing senior managers, then so be it.

Royal Jordanian has survived for 50 years among the geopolitical chaos; the dilemma today is how to survive and thrive in the same chaos as a publicly listed company. This is a totally different set of rules that RJ may not be yet equipped to handle.

Finally Liberalized ... Aviation In Jordan

On 5th of February 2010 the exclusive right accorded to Royal Jordanian (RJ) in 2002 as the sole scheduled carrier in the country came to an end. A new era of market liberalization came into being.

In 2002 and as part of the government assistance in the privatization effort of RJ, it was agreed:

1. For 4 years RJ will be designated as the only scheduled carrier operating under any of the

bilateral agreements signed by Jordan.

2. For the remaining 2 years the government allowed other Jordanian carriers to operate

scheduled flights on any route not served by RJ and a Charter authority for routes operated by RJ.

As of today, 6th of February 2010, and if a bilateral allows for the designation of a second carrier, they any operator can request scheduled flights authority.

What does that mean to RJ and to the industr? In the short term not much.

However, in the medium and longer term it changes the economic dynamics of aviation in Jordan.

1. Potentially increases competition on existing lucrative routes (Dubai, Beirut, Cairo to name a few

2. It changes the economics of the business plan for existing and start ups alike. How so, it adds

a revenue stream and an option that did not exist before "Scheduled Flights" on routes with

a known economic potential, in a nutshell it makes it easier to start an airline, at least on

paper.

How soon are the existing operators, Jordan Aviation, Royal Falcon Air Services and Transworld Airfreighter Co., ready to take on RJ on its well established routes. The levels of service will have to improve and commercial structures have to be put in place in order to compete with RJ that offers a "One World Alliance" passenger services and extensive connectivity on a fairly new and modern fleet.

Realistically, the effects of this decision will not be felt for a few more years, but it opens real opportunities and competition on a market that has been the exclusive turf of Royal Jordanian since 1963.

In The Image of RJ

I have been closely involved with Gulf Air (GF) since 1996. I went through the years of decline of the airline dealing with maintenance issues.. For years the leadership of the airline was a political issue. We used to joke, every problem with Gulf Air was a diplomatic incident. I saw the airline go from an example of Arab cooperation to the flag carrier of Bahrain. I watched GF maintain a 5 million passengers annual uplft as Emirates, Qatar Airways and others eroded its market share.

Then enters James Hogan who transformed GF into little Ansett. I am not a great fan of the man but he did manage to increase the passenger uplift to 7 millions annually, rebranded the airline new paint scheme, Chef in the Air, Nanny in the Air and Bahrain F1. Then James Hogan bailed out to Etihad, but that is another story. Several CEOs came and went amidst political interference from Parliament, internal turmoil and accusations of corruption.

August 2009 enters Samer Majali, ex CEO of Royal Jordanian. He left RJ with a mid year net profit of 15 Million USD in the worst global recession. He privatised the airline and took it into One World. No small feat.

So, enters the new CEO, and the following events unfold

1. Government declares it can not subsidise GF forever.

2. Iraq operation started a month later (a very lucrative and profitable route)

3. Cut down on several losing routes and reopened new ones

4. A review of the airline structure is done looking at manpower and fleet.

5. A decision made to become more of a Middle East Airline.

6. A decision to sell the 5 A340 owned by the airline.

7. A decision to take delivery of new A320s (20) at the rate of one per month.

8. And lately a decision to lease ERJ170s and look at acquiring up to 10 Regional Jets.

The parallels with Royal Jordanian are so similar. (substitute A340s with A310s and L1011s, EMBRAER ERJ170/190, Iraq operation, route structures)

Gulf Air's legacy should be preserved. Gulf Air has been the dominant carrier in the region for decades and every airline aspired to emulate their 5 Stars service. Further, every airline in the GCC has senior managers who have worked for Gulf Air and contributed to the success of their respective airlines. Similarly every airline in the GCC has several ex Royal Jordanian employees contributing to their success.

Two carriers, different regions may end up with the same model, robust enough to compete with the heavily branded carriers of the Gulf and survive in an ever changing global market.

Autumn

I grew up in Jordan and Autumn was not the colourful season, Spring was the great colourful season. I went to college in Southern California (LA) and there was not an Autumn country either. Then of course the UAE where Autumn is remembered for the cooling down of the weather.

There is nothing like a North American Autumn. My first one was in 1977, I graduated and my sister was going to Bryn Mawr. The whole family was in Philadelphia, it was late September and for the first time I saw the colours of Autumn, such an overwhelming cacophony (I like this word, I know it has to do with sound and not sure it is the right one) of colours.

There were the few remaining greens but then the yellows, browns, oranges, reds and everything in between. I was so thrilled, it has left an everlasting impression, even though I am a colour blue person.

It was not until we moved to Michigan in 2004 that I had the time to take in all these colours, I remember walking with my son from school one after noon, a distance of no more than a mile and a half, and we collected more than 20 leaves of different shades and colours. Imagine, all of that in a mile and half.

Nothing compares to Fall in Michigan it is an experience in the beauty of nature, a true feast for the eyes.