MEED: How has the first quarter of 2010 been for Oman Air and how badly affected was the airline by the globalrecession?

Peter Hill: The first quarter of 2010 was satisfactory for Oman Air. We saw an increase in passenger traffic from 442,000 to 717,000. We had a healthy capacity utilisation, while yields were under significant pressure.

In 2009, profitability at Oman Air was impacted as a result of the downturn and also due to the fact we introduced significant additional capacity and launched many new routes.

Oman Air’s capital was recently increased by 67 per cent. What does this mean for the airline?

The recent increase in capital adds significant value to Oman Air. It will enable the airline to cope with [negative] operating and capital cash flows that are natural for any airline investing in new aircraft and routes.

In what is expected to be a challenging year, Oman Air recently increased its authorised capital to RO500m ($1.3bn) from RO300m, amid plans to add eight new destinations. But, the future is looking optimistic for Oman Air – we have been building capacity for tomorrow’s business.

What are the biggest challenges facing Oman Air?

With ever-increasing competition and the global economy slowly coming out recession, the aviation industry has major challenges ahead.

Many airlines across the world are still seeing losses on their balance sheets. Travel and freight declined and carriers worldwide experienced severe economic challenges. However, despite the recession when most airlines have been cutting their operational costs, Oman Air is pursuing its expansion plans. With new destinations and the introduction of the new A330 aircraft, Oman Air cargo too surged ahead, posting an impressive result.

How difficult is it to operate in the Gulf’s competitive airline market?

We consider ourselves a boutique airline with our strategic pillars of distinctiveness and innovation. We want to be a sustainable airline focused on travel to and from Oman. This will differentiate from other carriers in the region; also the less congested environment at Muscat airport will help Oman Air attract transfer traffic.

We have a solid business base here, we believe, and great potential for the coming years. Oman Air is well placed to become a different product and to challenge the Middle East’s top airlines. After all, we are offering our luxury product at regular rates.

How important are the upgrades of Oman’s airports to the airline’s operation and future growth? 

The upgrades of the airports at Muscat and Salalah – and also the new regional airports that will link other regions with Muscat – are part of a larger plan to develop several airports to meet increasing
travel demand.

This offers significant business opportunities for Oman Air, hence the decision was taken for further fleet expansion to add capacity.

The addition of state-of-the-art wide-bodies will boost Oman Air’s long-haul plans, and regional jets will develop local services within Oman.

The development of domestic airports will help us promote internal tourism, build up local connections and shorten distances for local communities.

How do you expect the airline to perform financially this year?

We had an operating loss of about $165m in 2009. In 2010, our expectation is to contain the losses to about the same levels, even with significantly higher capacity; this is due to the full year impact of aircraft acquired in 2009 and the new routes launched.

While new routes and additional capacity will continue to strain financial results in the coming two to three years until the routes mature, greater awareness of the Oman Air product, will help us reduce our losses gradually, with the group reaching break-even in 2014 and a turn into profitability thereafter.