BUSINESS TRAVELLER, FEATURED

Travel Plans

Commerce-magazine.com spoke to airline executives and a hotel chief at Arabian Travel Market about what the future holds for their respective businesses. Our first interview is with Stefan Pichler, CEO of Jazeera Airways.

What are the plans for the second half of 2010?
Pichler: We have launched a modified and new strategy for the fiscal year 2010. We have four pillars of this strategy; the first is capacity containment, which means spreading the risk and reducing frequencies in markets we were overexposed and adding frequencies in other markets, so there is room for improvement.

The second is we are working on a product to improve our yields and have seen some promising results in the first three months of this year, so we are hoping to enhance that further based on the distribution of capacity.

The next stage is enlarging our sales, which started with online and calls, but now we are distributing by GDS (global distribution system – a worldwide booking system for all travel-related products such as airline tickets and hotels), which started in April, and we are also trying to grab a bigger share of the travel trade market.

It will be three or four years before we have 40-50 per cent of our turnover via travel trade in this part of the world. We are also simplifying our fare structure with only one economy class fare, so we have very attractive fares in the market to hopefully help us gain market share. The last pillar is cost dealership and we have the cheapest unit costs in the region; it’s a day-to-day exercise to keep this cost leadership position.

You mentioned overexposure, so which markets were you referring to?
Pichler: In general we had a lot of capacity in the last year in some of the GCC markets, with a lot of competition and we have reduced our exposure there. But it’s the capacity in the Middle East, non-GCC markets which is what it is all about.

What impact has the $28.5 million loss Jazeera reported for the year to March 31, 2010 had on the airline?
Pichler: The loss is mostly due to restructuring the airline because we started 2009 with two hubs in Kuwait and Dubai and then had to get out of the hub in Dubai as we did not have the traffic rights we had before. We couldn’t fly to other countries where we wanted to fly, so the retrenchment to a single hub led to restructuring.

What is the expected financial performance for 2010?
Pichler: We are striving to have a significantly better financial performance this year.

How badly have low-cost carriers been hit by the economic downturn?
Pichler: Low-cost carriers can offer lower fares because they have lower costs, so when customers try to save money when travelling with airlines, they look at the budget and we are able to accommodate travel needs for the lower end. So, low-cost airlines are the winners of this current market situation.

What’s your take on the outlook for budget carriers in this region?
Pichler: Right now, low-cost carriers in this part of the world account for about 5 per cent of the market and I am pretty sure in the next three years it will grow up to 15 per cent or further. A lot of the markets are pretty regulated, but there is no Open Skies (unrestricted services to other countries) so that restricts growth. One of the drivers is Open Skies and a deregulated Dubai. I hope we get there in the short-to-medium term, which will enhance growth.

What restrictions does not having Open Skies place on Jazeera Airways?
Pichler: If you look around the map between the GCC there is Open Skies, but there are also a lot of restrictions in the Middle East and non-GCC countries. Historically all the markets were restricted and then they open up when governments understand deregulation of air travel brings more benefits in terms of GDP growth than the benefit of protecting the national carrier. When this has sunk in markets will open up.

What’s the latest on plans to sell 200 million Jazeera shares to increase the airline’s share capital?
Pichler: We bought an aircraft leasing company (Sahaab Aircraft Leasing for KD25.6 million) in February and in order to make this acquisition and have a well-funded balance sheet we have to increase our capital. Now, this works in Kuwait with a decree from the Amir, so we will have that in time and then it’s done. If you look at our shares after we announced that up until now, they have been rising so our shareholders buy into our story.

So you expect the stakeholders are satisfied with the proposal?
Pichler: The company’s long-term development is essential and, therefore, all the stakeholders in the airline should be happy. We have made the acquisition and we just have to maintain a sound debt-to-equity ratio and funding as an airline, and that’s what we’ll do.

Dubai Airports says it is trying to tempt airlines operating from Dubai’s existing airport to relocate to Al Maktoum International either this year or next. What would persuade you to move?
Pichler: We have had a lot of talks with the airport guys and told them whenever we can fly from Al Maktoum to where ever we want to fly then we are in. When they give us unrestricted air traffic rights from Al Maktoum we are in. That was our proposal and it still is.

Please click on the next page for an interview with Richard Vaughan, divisional senior vice president commercial operations worldwide, Emirates Airline.

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