Published in May 2016 issue
“The term ‘Persian Gulf carrier’ doesn’t have to mean a huge mass-market operation. Oman Air does it differently and quite convincingly…
Landing at Muscat International Airport (MCT) is a strange mix of experiences. These days, all aircraft land on a new runway, close to the waters of the Arabian Sea; but then they taxi endlessly, failing to dock at the shining, brand-new terminal building that stands between the new and the old runways. The terminal, which looks ready to receive passengers, was supposed to open in 2013, but didn’t.
By Andreas Spaeth
Flights are still handled at the small, old terminal, and they are not docked at airbridges, because there are none. Instead, gangways are attached to the aircraft, and travelers step outside into the often oppressive heat and humidity before taking bused to the arrivals building. And this building hasn’t changed much since it opened in 1973.
It’s quite a deja-vu for Oman Air CEO Paul Gregorowitsch, the 59-year-old Dutch airline executive who served as the Chief Operational Officer (COO) of Air Berlin (AB) in Germany from 2011 to 2013, before taking the top job in Muscat in August 2014. Air Berlin’s major challenge was—and still is—the unopened new Berlin Brandenburg International Airport (BER), which was due to come online in 2012, but is now slated for late 2017. That also happens to be the revised target date for the new Muscat facility, which was delayed for much the same reasons as BER: being only partly finished, having insufficient installations in the terminal interiors, and facing hiccups with contractors.
But Gregorowitsch insists: “We don’t have the same delay here as in Berlin. It’s supposed to be a delay of a maximum three to four years while, in Berlin, we are talking about at least seven.” In a region in which other gargantuan projects become realities virtually overnight, Oman is taking its time.
In this, as in many other things, Oman is doing things differently.
That is also true of Oman Air (WY), a very different kind of Gulf airline, engaged in nothing like the rushed expansionism of its aggressive peers at Dubai, Abu Dhabi, or Doha.
THE OPPOSITE FACE OF THE GULF
Oman Air has taken over the role of national carrier for this desert state, which is more than a fifth bigger in area than the United Kingdom but home to only 2.5 million people. Nothing here reminds the visitor of Dubai or Qatar, the nearby buzzing hot spots of frenetic building activities and relentless growth. Oman, in fact, is the total opposite to everything those iconic destinations stand for, having only recently opened itself up to the outside world.
“In 1974, when Gulf Air (GF) started to opérate here, Oman was difficult to get into,” remembers Peter Hill, a Briton who worked for GF, Emirates (EK), and SriLankan (UL) before becoming CEO of Oman Air in July 2008, preceding the current CEO. “In the 1970s, Muscat was a walled city the gates of which closed from nine in the evening until next morning,” he recalls.
“Things here are done more prudently, on more solid ground and planning, in a more sustainable manner,” says a local manager at Oman Air. Belgian Patrick Rotsaert, a former Chief Officer Flight Operations for the carrier, observes: “Everything is here to make it happen, everybody is enthusiastic, there is no ego here like in other countries, even the government acts that way.”
Even though Oman Air looks back at almost two decades of activity, things have only recently become more significant for it. Officially established in 1970 as Oman Aviation Services, the carrier started operations as Oman Air in 1993 and, in 1994, it boasted a fleet comprising a single de Havilland Canada Twin Otter, four ex KLM (KL) Fokker F27s and two leased Boeing 737-300s, with which it operated regional and domestic services only. The latter were mostly charters for oil companies, shuttling workers to the oilfields—still an important business for the carrier.
Since 1973, Gulf Air had been the joint national carrier of Bahrain, Abu Dhabi, Qatar, and Oman (Airways, October 2015), their governments having taken over the share originally held by BOAC (Airways, April-June 2015). In recent years, however, GF has fallen back to being just Bahrain’s flag carrier; the other governments having pulled out to pursue their own airline ventures. Abu Dhabi and Qatar both established their own carriers—Etihad (EY) and Qatar Airways (QR)—which quickly rose to intercontinental status, turning their respective hubs into major global travel crossroads (Airways, March 2014).
Typically, Oman took much longer to contemplate its next step before finally announcing, in May 2007, the country’s withdrawal from Gulf Air. Just before doing so, the Omani government recapitalized Oman Air, the state’s stake rising from 33% to 80%. It was now official policy to develop Oman Air into an intercontinental carrier suited to serve the Sultanate’s needs. By April 2007, the airline had already announced an order for three A330-300s and two A330-200s. On November 26, 2007, it launched flights to London-Gatwick (LGW) and Bangkok- Suvarnabhumi (BKK), initially with two ex-TAP Portugal (TP) Airbus A310s, which did not offer a high cabin standard.
When Hill came in as CEO, his task was to créate something that was unheard of in the frantic race to outgrow the airline next door that was taking place among Gulf carriers: A so-called boutique carrier with a tailor-made offering to match the image of Oman as an exclusive, authentic, high-end destination.
“Oman will never be a mass market, it will never be cheap, but always offer value for money,” Hill said during his term as CEO. “Our role is to promote travel to and from Oman. It is not our main objective to move people from West to East via Muscat and just to fill up the aircraft like that.”
Oman Air does, in fact, have a unique offering for westward outbound travel, leaving its hub at midday. European carriers serving Muscat only see it as a fringe destination, appearing at ungodly hours and flying to Europe via intermediate stops. Oman Air also wanted to make itself known for a worldclass cabin product that giants like Emirates, always struggling with product upgrades due to their ever-increasing fleets, would equally find hard to match. Because Oman Air’s fleet is small, its cabin products seem to be more consistent. Tim Clark, President of Emirates, duly asks: “They have a nice offering, but how are they ever going to become profitable with such amenities?”
As a state rich in natural resources, Oman is not in the aviation business for a quick return on investment. But with the recent fall in oil prices— as severe as 70%—and national income becoming heavily reduced, the government is being forced to act.
“Significant reductions in public expenditure are required,” the airline’s Deputy Chairman Maitha Bint Saif Bin Majid Mahruqi told the carrier’s annual staff conference in January 2016. “That means an imminent end to the government’s financial support of Oman Air, requiring urgency in a rapid transition towards profitability.”
TURNING INTO PROFITABILITY
Having been in the black for years until 2007, the switch from a regional to an intercontinental carrier with major investments, at a time at which fuel prices where at an all time high, has taken its toll: since 2008, Oman Air has been chalking up losses. In 2014, the loss was equivalent to US$249 million. The government subsidies dropped from US$338 million in 2014 to US$140 million in 2015; and that is planned to drop further to US $104 million in 2016.
“I expect to reach the break-even point by late 2017,” Gregorowitsch told Airways. “We have to try to become a normal airline, operating independently financially.” To achieve this, the carrier has implemented a ‘Shape and Size’ program aimed at generating savings as well as productivity and efficiency gains worth over €240 million in the three years running up to 2017.
According to the deputy chairman, the program is making “good progress”. The loss per passenger was reduced by 42% in 2015, mostly due to the drop in fuel prices. The airline expects to bring that reduction up to 45% in 2016, as Oman Air gets its production costs and onboard offerings more in line with the rest of the industry.
“I am trying to get away a bit from this stamp of ‘boutique airline’ that my predecessor introduced,” said Gregorowisch, while insisting that his airline can offer a more personal approach than the giants next door. This step back can be seen in the latest onboard offerings.
Since Oman Air introduced the A330 in late 2009 (it has 10 in the fleet today), the carrier was probably one of the best bets for a luxury product sold at a reasonable price, with the roomiest Business Class suite found anywhere. Today, the airline has three A330s with a three-class cabin configuration deployed to offer First Class on its Muscat-London Heathrow (LHR) flights only. The other longhaul destinations in Europe and Southeast Asia are served with two-class cabins. Before the latest product revision, the individual First and Business Class pods looked fairly similar, with six mini suites in First consisting of an 82-inch (208cm) long, fullflat bed within and a pitch of 87 inches (221cm).
However, the real sensation is the Business Class product, one of the most luxurious offerings in the industry: installed in a 1-2-1, four abreast configuration, those seats convert into full-flat, 77.5-inch (197cm) long beds, and offer almost as much space and privacy as First Class. Even Economy passengers enjoy a generous 34-inch (86.4cm) pitch with footrests and a sophisticated entertainment system at each seat.
The carrier’s two new Boeing 787-8s, which entered the fleet in the fall of 2015, introduced a significantly different Business Class product and layout, mostly due to the wider cabin diameter. Now in a 2-2-2 configuration, the seats offer a 90 inch (229cm) pitch, but don’t feel as wide and as private anymore, as there no longer are singlewindow suites. In Economy, the pitch has shrunk to 31 inches (78.7cm). The 500 or so IFE options are more limited than, for example, those featured by Emirates’ ICE system, which offers over 750 channels of entertainment. Oman Air pioneered live satellite TV on board its A330s and adopted Internet access early on. Allowing voice calls on cellphones while in the air was also long unique to Oman Air. These days, only a few A330s still have four news channel live TV feeds; going forward, those are being discontinued. In the future, the CEO said, passengers wanting to watch live TV feeds will have to do so through an Internet connection on their mobile devices.
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STAGED GROWTH PLANS
Although Oman Air is a fast-growing airline, it is on a different level from the Big Three Gulf carriers. Having exceeded the 2-million-passenger threshold for the first time in 2009—carrying 2.3 million passengers with its 21-aircraft fleet— passenger volume more than doubled to 5.1 million in 2014. Last year, the airline transported about 6.8 million customers on its 40-aircraft fleet, according to the CEO.
“In 2016, we expect to fly about 7 million people while, in 2020, it will be 10 million we carry on our fleet, which will have grown to 70 aircraft,” Gregorowitsch said.
In terms of network growth, Oman Air is fairly conservative. It doesn’t tout new far-flung destinations every other month. The flights to London-Heathrow and Bangkok—the longest sectors in the network, with flight times of six to seven and seven to eight hours respectively—are also the ones with highest demand to and from Oman. At press time, the airline announced a deal with Kenya Airways (KQ) for a single slot pair at LHR for $75 million, beating the $60 million record paid by American Airlines (AA) to Scandinavian Airlines in 2015.
Unlike LHR, which handles a large percentage of foreign travelers to and from Oman, Bangkok sees almost exclusively Omani passengers, who travel to Thailand for both leisure and medical tourism. For the time being, Oman Air is focusing more on regional routes such as India. It plans to start direct flights to India from Salalah, in the South of Oman.
“We serve 19 cities on the Indian subcontinent, 11 in India alone, and we are increasing frequencies and connectivity through Muscat,” the CEO said. Even before the new airport terminal opens, there will be a significant increase in undertwo- hour transfer options in Muscat. For example, Oman Air is a preferred carrier for European tourists heading to the Maldives. It also offers a rare one-stop connection to the Indian Ocean island of Zanzibar, a former Omani colony since transferred to Tanzania. Dar es Salaam is served on the same flight, these being the only African destinations in the carrier’s network.
“Iran will be developing into an important new market, where we will introduce new routes in 2016,” Gregorowitsch said.
Staff numbers are growing accordingly. The airline now has a total workforce of 6,700 employees. By 2017, staff count is to grow to 7,500. Compared with other Gulf carriers, nationalization of staff is a top priority. “62% of all our employees are already Omani nationals,” the CEO said. In mid- 2015, 252 out of 526 total Pilots were locals, but ‘Omanization’ is more difficult among cabin crew. Whereas almost all male Flight Attendants (FA) are Omanis, only a few of the women are local.
“They have a more open-minded mentality compared to the 1970s and 1980s. We are trying to attract local females, and we are seeing good numbers,” says Usama Nasser Al-Kharusi, a senior manager in Cabin Crew Operation.
“Female FAs were not the norm here in the Gulf. That was a problem. And there is also a shortage of local Captains, we are not able to produce them fast enough,” said Rotsaert. One obstacle to hiring more Omani women for the Cabin Crews is the fact that it is not customary for local girls to learn how to swim, a prerequisite for any FA. Also, some women have religious objections to serving alcohol.
“In total, we have staff members originating from 91 nations, while Etihad employs people coming from 140 different countries,” the CEO said. Only a few bigger Arabian carriers, like Royal Jordanian (RJ) for example, are trying to employ mostly locals. From a passenger’s viewpoint, the flair is much different and distinct from that found in the typical multinational cabins of the other Gulf carriers.
THE CONSISTENCY CHALLENGE
Still, as observed when flying different legs on Oman Air, maintaining service consistency both on the ground and in the air seems not to be an easy task for the airline. Cabin service quality, even in long-haul Business Class, can range from erratic to excellent, depending on individual crew members. At check-in at the Premium- Class facility at Muscat airport, the agent doesn’t utter a single word while handing out boarding passes, while there is not a single international newspaper to be found in the superb Muscat lounge; this is in contrast to Emirates or Qatar Airways, which own sophisticated facilities to print the actual papers of the day for their Premium customers from satellite links.
In terms of fleet development, Oman Air is clearly streamlining its diversity. A mix of 45 narrow- and 25 wide-bodies is the formula for 2020.
“All our narrow-bodies will be Boeing 737s, the wide-bodies a mix of Airbus A330s and Boeing 787s,” Gregorowitsch said. The airline just disposed of its only two turboprops ATR 42-500s as well as of its four Embraer ERJ-175s, which were sold to Fuji Dream Airlines in Japan. “Maintaining a small fleet with just four aircraft was incredibly expensive” Gregorowitsch groaned.
Oman Air has 20 Boeing 737 MAXs on order, due to arrive from 2017. The 18 Boeing 737-800s will remain as the backbone of the narrow-body fleet and five 737- 900ERs will mostly be used on Indian routes. Oman Air gained two Boeing 787-8s in 2015, and expects eight Boeing 787-9s starting from 2017. Three of the -9s will be equipped with a three-class cabin, including First Class, while the rest of the Dreamliners will get a two-class configuration. As Oman Air has a policy to fly its aircraft for no more than 10 years, in 2018 a decision will be made on how to replace its A330 fleet.
“It will be either the Airbus A350 or the A330neo,” Gregorowitsch said.
He might no longer be in office by then, but Oman Air will surely have established itself as the Gulf carrier that does things differently.