For every Emirates,
there’s a Bahrain Air. Last week, after spending five years manfully
battling against mammoth headwinds, the carrier was finally forced into
voluntary liquidation. It’s bad news for the carrier’s 300 staff, who
will find it tough to find new jobs in the same industry, as rival Gulf
Air is also paring back its staff.
CEO Richard Nuttall – who is,
by all accounts, an immensely likeable guy – must have had one of the
toughest jobs in the Gulf in recent years. In an interview with Arabian
Business last year, he described 2011 as ‘spectacularly uninteresting’
in terms of growth.
That remark was something of an
understatement. The term perfect storm has become a cliché, but for
Bahrain Air, the last two years have seen huge obstacles thrown in its
path. Airlines worldwide have been forced to pare back their operations
or merge; the biggest news in the industry right now is the $11bn merger
between US Airways and American Airlines’ parent, which will create the
world’s largest carrier.
Expensive fuel and an uncertain
economic outlook have affected most airlines’ balance sheets; the
situation was far worse for Bahrain Air given the ‘Arab Spring effect’
on most of its routes, plus the unrest at home. And if that were not
enough, the carrier – which marketed itself as somewhere between a
low-cost and a full-service airline – also faced competition at home
from state-backed Gulf Air, as well as what appears to be a pretty
intransigent attitude from the Ministry of Transport.
But the
real question has to be whether Bahrain – with a population of only 1.3m
– ever needed a second airline in the first place. Even at the time
that Bahrain Air launched in 2008 – which in itself was unfortunate
timing – rival Gulf Air was on its third CEO in two years and battling
desperately to stay competitive against fast-expanding Emirates, Etihad
and co. By the end of 2008, it was losing money hand over fist – at
around half a billion dollars a year – and acting as a major drag on the
results of its owner, sovereign wealth fund Mumtalakat. Bahrain Air was
left with the crumbs from Gulf Air’s table in terms of routes; its
traffic rights were such that it could only fly to destinations that its
larger rival had written off as unworthy.
All airlines make a
loss in the first few years of operation and Bahrain Air was no
exception. But the difficulties the carrier faced were such that there
was no way that shareholders could see when the balance sheet was going
to improve. While Gulf Air lapped up government funding, Bahrain Air
couldn’t raise financing from the banks. And while Gulf Air is still
flying despite losses in the hundreds of millions of dollars, Bahrain
Air is finished due to debts of tens of millions.
While there was
some talk of a merger last year, I’m not sure the idea was ever
seriously considered by Gulf Air. The state-owned carrier didn’t need
Bahrain Air’s planes (which were leased anyway), or its staff, and the
only routes that the smaller airline had were those which Gulf Air
didn’t want.
The most successful carriers in this region have
been those that fulfil a national need, and have some degree of support –
in whatever form that may come – at the governmental level.
Unfortunately Bahrain Air had neither. Air Arabia is the rare exception,
which is why it’s tough to underrate the achievements of CEO Adel Ali.
When we asked Ali last year what advice he would give anyone wishing to
set up an airline, his candid response was: “In a nutshell, don’t do
it.” And as Richard Branson once famously said: “If you want to be a
millionaire, start with a billion dollars and launch a new airline”.
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