feature

AV I AT I O N

Oman Air

Playing the long game

It may be losing money today, but Oman Air is playing the
long-term game towards profitability

by Martin Rivers
thegulf@tradearabia.net

s a mid-sized airline in
the ultra-competitive Gulf
aviation market, you
might expect Oman Air
to welcome any hurdles
thrown in the way of its larger competitors in the UAE and Qatar. Efforts by
the US airline industry to clip the wings
of the big three Gulf carriers - Dubais
Emirates Airline, Abu Dhabis Etihad
Airways and Qatar Airways - should in
theory give Omans flag-carrier breathing space to catch up with its rivals.
The Muscat-based airline was not
mentioned in the now-infamous
55-page dossier released by US
lobbyists in March, which urged
Washington to block further expansion
by the big three. Bilateral agreements
that give those airlines unfettered
access to America should be nullified,

the campaign argues, because of

anti-competitive subsidies bestowed by
the governments of the UAE and Qatar.
While Oman Air is equally dependent
on state aid, it does not fly to any
US cities and has no plans to do so.
Protectionist measures blocking its
growth would therefore be superfluous.
But with his eye firmly on the
long-game for Omans aviation sector,
Paul Gregorowitsch, Oman Airs chief
executive, is in no mood to take
potshots at his Gulf neighbours. To the
contrary, he sees any attempt to impose
traffic restrictions as anathema to the
health of the wider industry.
Bottom line, I sympathise with
the attitude and the position of the
[big three] Gulf carriers. I am against
protectionism, he told The Gulf during
the annual general meeting of the
International Air Transport Association
(IATA), an industry trade group, in
Miami in June. Like every airline in

Bottom line,
I sympathise
with the
attitude and
the position of
the [big three] Gulf carriers.
I am against protectionism
Paul Gregorowitsch, Oman Air

Europe in the past, they are building

themselves up while they are supported by the government.
I think that some other governments,
for instance in Europe, should look
at how the combined efforts made in
the Middle East are strengthening and
supporting national carriers If you
look at how Qatar, how Emirates, how
Oman are developing their infrastructure, how they are putting their hands

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the gulf | July 2015

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feature
8 together and investing in new airports,
taking care of customers instead of
enforcing fines on them - these things
could actually make European competition more fair too.
Access to America may not be an
issue for Oman Air, but Gregorowitsch
is keen to highlight his struggle with
protectionism elsewhere. To the west,
France has refused the flag-carrier
permission to lift frequencies on its
four-times weekly Paris service,
despite evidence of latent demand
on the route. If Im not allowed to
go to daily frequencies in France, I
feel discriminated against, the chief
executive complains. To the east, traffic
restrictions in India undermine the
airlines regional hub model, limiting
the number of seats it can offer to one
of the worlds fastest-growing markets
despite burgeoning demand among
migrant labourers - many of whom,
ironically, draw their salaries from
Omani companies.
Oman Air today serves 11 points in
India with a combined total of more
than 100 weekly flights. Goa became the
latest addition to the network in April,
and has already proved popular with
European holidaymakers who connect
via Muscat. Pointing to average seat
occupancy rates of 95 per cent across
the Indian network, Gregorowitsch
says he is eager to grow frequencies,
up-gauge aircraft and add new points
such as Kolkata. But his ability to do
so hinges on New Delhis appetite for
liberalisation.
We are trying to negotiate with the
Indian government to see if we can
agree a more liberal regime between
the two countries, he confirms. With
prime minister Modi there is absolutely
the understanding that this [planned
expansion by Oman Air] is not affecting
the Indian economy negatively, but it
can stimulate further growth and bring
more prosperity Oman is planning
huge further construction work, so we
are employing a lot of Indians.
Success in the talks would deepen
Oman Airs reach into what is
already its largest overseas market,
but Gregorowitsch is casting his net
much wider. He wants the 48-point
network to reach 75 destinations by
2020, with Asia driving much of the
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AV I AT I O N

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AV I AT I O N

We should not pre-empt

a larger process, where
His Majesty [Sultan
Qaboos bin Said] has
been very instrumental
to bring the US and Iran
together. The moment
sanctions are lifted, it
will be an open market.
And the relationship
between Oman and Iran
has always been very
strong and constructive

If I tried to save costs

by cutting jobs, and
by preventing young
Omanis from starting a
career, and building up
knowledge and experience,
the government would
never support that
Paul Gregorowitsch

Paul Gregorowitsch

growth. Recent months have seen route

launches to Singapore, Manila in the
Philippines, and Jakarta in Indonesia.
The Bangladeshi capital Dhaka will be
the next addition in August, while Bali
in Indonesia, Seoul in South Korea,
and Shanghai in China are also under
evaluation.
The strategy for other continents
is more conservative. North America
and Australia are not considered viable
markets, the chief executive says, as
current demand levels cannot support
the high fixed costs of deploying
widebody aircraft on such long sectors.
Passengers must instead connect
with codeshare partners like KLM in
Amsterdam, and Garuda in Jakarta. For
Sub-Saharan Africa, Oman Air has no
plans to grow beyond its two existing
services to Dar es Salaam and Zanzibar
in Tanzania.
Europe is meanwhile ripe for
expansion, albeit initially only through
higher frequencies. The airlines six
European points - London, Paris,
Frankfurt, Zurich, Munich and Milan
- are all major hubs in their own
right, meaning that many Muscatbound passengers start their journeys
elsewhere on the continent. By
strengthening these trunk routes and
monitoring points of origin, Oman Air
can identify future targets for nonstop
connectivity.
Closer to home, it is Iran that stands

Muscat International Airport is the subject of a major capacity expansion

out as the most under-served market

in the flag-carriers regional network,
benefiting from just one daily service
to Tehran. That is no accident. Iran
is of course highly interesting, but we
still have the embargo, Gregorowitsch
says, referring to US sanctions against
the Islamic Republic that have been in
force since the 1990s, but that could be
lifted this summer if nuclear negotiations make headway. Unless and until
there is a breakthrough, the chief
executive stresses, Oman Air will tread
carefully.
We should not pre-empt a larger
process, where His Majesty [Sultan
Qaboos bin Said] has been very instrumental to bring the US and Iran together, he explains. We do not want
to disturb that [process] as long as
sanctions are still there The moment
that [sanctions regime] is lifted, it will
be an open market. And the relationship between Oman and Iran has
always been very strong and constructive.
July 2015 | the gulf

Whether in the Middle East, Asia

or Europe, expansion of the network
will strengthen passenger flows
through Muscat and should, over time,
boost the commercial performance of
individual routes. To that extent Oman
is borrowing a page from the big three
Gulf carriers playbooks - building a
hub-and-spoke network fuelled by
East-to-West connecting traffic - but
it is doing so on a smaller scale and
with a greater focus on the domestic
market. Unlike the UAE and Qatar,
Oman boasts vast territories with plush
natural landscape and four UNESCO
World Heritage Sites. Tourism, particularly high-end eco-tourism, has the
potential to set Oman apart from its
bustling neighbours to the north.
In the short-term, however, expanding
the network comes with a hefty price
tag. Oman Air has sunk more than
$1.1 billion into the red over the past
four years. The flag-carrier launched
an efficiency programme, Shape and
the gulf | July 2015

Size, in January and is still aiming for

break-even by 2017, but Gregorowitsch
is pragmatic about the target.
If I tried to save costs by cutting
jobs, and by preventing young Omanis
from starting a career, and building
up knowledge and experience, the
government would never support
that, he insists, citing his mandate
to lift Omanisation levels from 61 per
cent to 70 per cent of the workforce.
Another point: I should support the
infrastructure in Oman. A lot has been
invested in new airports [such as]
Salalah, Sohar, Duqm If I would
try to achieve profitability by cutting
those investments, that would never be
allowed. And it would also be stupid,
because it would be short-sighted.
Everything in Oman is built for the
longer-term. So if that means that
[the break-even target of] 2017 has
to become 2018, there will be full
understanding by the government.
Nevertheless, I keep the target, and we

are all working hard to get it done by

2017.
Rather than imposing swingeing cuts
to meet an arbitrary deadline, Oman
Air is investing in its assets - airports,
aircraft and human capital - to lay
the groundwork for a stronger future.
Shape and Size has notched up some
savings, but Gregorowitsch believes
that true cost-competitiveness will
only come with scale. We have one
marketing manager whether we have
18 aircraft or 50 aircraft, he notes.
Productivity improves [as we grow],
and also the scale to negotiate better
deals with your suppliers. Thats the
path we are following with more than
23 projects.
In light of this strategy, it was no
surprise when Oman Air disclosed an
order for 20 next-generation Boeing
737 MAXs in March, simultaneously
upgrading its 787 commitment to 10
units. The 39-strong fleet is forecast
to reach 70 aircraft by 2020. Muscat
International Airport will, meanwhile,
double its annual capacity to 12 million
passengers in 2017.
Such figures may pale in comparison
to the Gulfs mega-hubs - Dubai World
Central will eventually accommodate 200 million passengers, and
its home carrier has orders for 277
aircraft - but Oman never claimed to
be following the same script. Muscat
is mainly concerned with reducing its
dependence on dwindling oil reserves.
Nurturing a flag-carrier that can
mobilise its citizens is one way of
achieving this.
It may be losing money today, but
Oman Air is part of a shrewd and
measured long-game. <
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