Royal Jordanian aims to be Middle East's top airline

 - November 30, 2009, 4:49 AM

Royal Jordanian Airlines’ new president and chief executive, Hussein Dabbas, is maintaining the carrier’s long-held ambition to become the Middle East’s airline of choice. After 30 years in the airline’s marketing and sales organization, Dabbas brings contrasting experience to that of his predecessor, Samer Majali, an aeronautical engineer who left Royal Jordanian abruptly four months ago to lead troubled Bahrain carrier Gulf Air.

Majali developed frequent regional schedules using Embraer E175s and E195s and Airbus narrowbodies to feed long-haul A310 and A340 flights through its Amman base to combat competition from new flagcarriers in the Gulf. Operating medium- and long-range flights principally to Europe and North America, Royal Jordanian has essentially dropped flights to Asia and uses the Amman hub to feed more than 50 points across the Middle East and the Gulf.

Majali turned the business around financially, then led the carrier into privatization and into a global airline alliance (Oneworld)–both firsts for an Arab carrier. The successful initial public offering raised about $230 million for the Jordanian government’s release of 71 percent of the company. The two accomplishments made 2007 a pivotal year, said Majali before departing at the end of July.

Previously, the airline attempted to use Amman as a transit point for east-west travelers, much as Dubai-based Emirates is doing today. Under Majali’s strategy, Royal Jordanian used its five Embraer 195s and two 175s to increase flights to major points in the region, such as Beirut and Cairo, transiting long-haul passengers. Today, the airline operates few eastbound long-haul flights, having previously lost money on them because of low-yielding fares.

Royal Jordanian chairman Nasser Lozi emphasized that Dabbas’ appointment signals the airline’s eagerness to continue its strategy for “development and comprehensive progress.” Throughout this decade the airline pursued a policy of modernizing its fleet, developing its route network and improving its information systems.

Dabbas, who holds a master’s degree in international management and marketing and a bachelor of science degree in business administration, has held several commercial and marketing positions at Royal Jordanian. Earlier this month in Amman, he told AIN he found his first 90 or so days in the hot seat “very educational.” Majali left him a “solid” airline, he said, with all technical matters in place and all major decisions made--such as orders for the Boeing 787, which has left him free to concentrate on commercial areas of the airline where his expertise lies.

For the first nine months of 2009, Royal Jordanian increased gross profits by almost 90 percent, from about $30 million to $58 million. Net profit was $36 million, compared with a $5.4 million net loss in the same period of last year. The airline reported that the profits were driven by 50 percent lower fuel prices and continued efforts to reduce operational costs by 20 percent and capacity (available seat-miles per kilometer) by 4 percent.

Operating revenue fell 16 percent, from $755 million to $637 million, attributed to a 3-percent decrease in passenger numbers, a 32-percent drop in cargo and reduced fares that led to a 14-percent drop in passenger yield.

The lower passenger traffic led to a drop in load factor of six percentage points to 67 percent. Overall load factors, which also take cargo business into account, fell six points to 49 percent. Dabbas inherited a five-year plan, promulgated in 2007, which he adjusts as necessary. For example, Royal Jordanian has increased flight frequencies in many cases, reporting a 5- percent increase in departures and a 4-percent gain in hours flown. (During 2008, the airline carried 2.7 million passengers, an increase of 14.1 percent over the previous year.)

How has Royal Jordanian set about cutting costs by 20 percent this year? A major contribution has come from the lower price of fuel, which the airline doesn’t currently hedge because of the market’s uncertainty. The airline also has been working hard to manage capacity by matching seat numbers to traffic demand in order to raise load factors. Some aircraft maintenance has been brought forward, most obviously for aircraft that otherwise might be candidates for parking until the market picks up.

According to Dabbas, inconsequential purchases have been deferred, including incidental overhead expenses, while there is a freeze on new employment, with only replacements being recruited. Employees also are being encouraged to make conference calls rather than fly to meetings—presumably, not a practice that the airline would like its customers to adopt.

As the current global economic recession has deepened over the past year or more, Royal Jordanian has progressively reduced its predictions for imminent airline growth. Its 2009 budget, set in September last year, assumed 8 to 9 percent growth, which was revised to 5 percent within two months. By December 2008, the figure was down to 3 percent and this year the airline has concluded that it could finish the period with 2 percent negative growth.

Dabbas said reports of plans to merge with another carrier within two years have taken certain remarks out of context. Royal Jordanian is keeping its options open and there are no merger proposals, but while it is enjoying the benefits of its membership in the Oneworld alliance, he conceded that if it needs a stronger alliance in the Middle East or other markets it “is open to suggestions.” But in any such deal, the airline would seek to retain its flagcarrier status and would need a partner whose business complemented its own.