GULF AIR: Defying the odds

21 November 2005
Spare a thought for Gulf Air president and chief executive officer (CEO) James Hogan. The Australian executive has recently delivered one of the most spectacular company turnarounds in aviation sector history, taking the Gulf-based carrier from the brink of bankruptcy in 2002 to profit in 2004. Yet he must feel like he is back to square one with the imminent departure of a major shareholder forcing him to rip up his business plan, and soaring fuel costs threatening to plunge the airline back into losses.

When Hogan arrived at Gulf Air in May 2002 from Australian domestic carrier Ansett, the challenge facing him was clear. He had to develop and implement a restructuring and turnaround plan for the airline that was losing both money and market share.

In late 2002, Hogan launched Project Falcon, an ambitious three-year business plan to take the carrier back into profit by the end of 2005. As well as a capital injection of $80 million from the company's four shareholders - the governments of Oman, Bahrain, Abu Dhabi and Qatar - the plan involved a major re-engineering of the company's cost base and a drive to grow revenues. Hogan's aim was to halve the losses by the end of 2003, to break even by the end of 2004 and to return the company to profit by the end of 2005.

The plan went even better than expected and in May this year the company announced that it had made a $4 million profit for 2004 - a year ahead of schedule. And that was not all. Revenues were up 23 per cent on 2003 and Gulf Air is expanding its route network and partnerships with other carriers. Gulf Air has also launched Gulf Traveller, a wholly-owned subsidiary providing economy flights to the subcontinent.

Hogan had transformed what was effectively an inefficient public utility into a powerful regional brand with growing revenues and an expanding route network.

The turnaround is all the more remarkable because it came as revenues in the aviation sector collapsed in the wake of the repeated shocks of the 11 September 2001 terrorist attacks in New York and Washington, the SARS virus and the US-led invasion in Iraq. Hogan also had to deal with the departure in December 2002 of Qatar, one of Gulf Air's principal shareholders.

But no sooner had Project Falcon been completed successfully than Hogan and his management team find themselves facing losses again on the back of soaring oil prices.

'Fuel has been a killer for us,' says Hogan. 'It is hurting, and has damaged a lot of the good work that we have done here. Although we have passed the increase on to the customer through surcharges. We still had to fund a $100 million rise in fuel costs in 2004. We were able to achieve this by cutting costs out of the business. But in 2005, the impact will be higher. We are under huge pressure in the third quarter of 2005 and first quarter of 2006.'

'We are carrying out a major cost re-engineering,' he says. 'Our maintenance, which is currently done in-house by Gulf Aviation Maintenance Company (Gamco), is out to tender and will be announced within 30 days. And the removal of Abu Dhabi as a hub gives us a chance to save some costs on our e-ticketing.'

The announcement by Abu Dhabi in September 2005 that it would pull out of the airline in March 2006, leaving the company with just two owners - Oman and Bahrain - has also bumped Hogan's plans.

'The departure of Abu Dhabi was disappointing because it was integral to the airline. But it was not a surprise following the creation of Etihad Airways in 2002,' he says. 'So we have had to adjust but we were prepared for change. In fact, working from two bases is easier than working from three. It means we still have more flexibility than those with one home base, but the set-up is not as complicated as it was with three.'

'We are now meeting with Manama and Muscat to discuss the way forward,'

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