Oman Air sets sights high

Oman Air, the Sultanate’s flagship national carrier, has its sights firmly set on new routes and fleet expansion as it aims to muscle in on rival Gulf airlines’ share of the skies. But the top priority right now, stresses CEO Peter Hill, is to clear the airline’s debts and turn a profit.

Oman Air, which is 99 percent government-owned, is looking to reposition itself from a regional carrier to a truly international airline and established brand on the aviation scene. There was a 28 percent increase in capacity in 2009 with the addition of 10 aircraft, including six 737s, while more planes are on order, including six Boeing 787 Dreamliners. And in 2009, passenger numbers hit 2.4 million – a 19 percent jump over the previous year. As well as this, eight new destinations are earmarked for 2010, including Kuala Lumpur, Kathmandu, Lahore and Milan. The softly spoken and affable Englishman Peter Hill has been at the controls of Oman Air since the summer of 2008, after being the head of Sri Lankan Airlines. “We don’t have huge ambitions to be the biggest, but we do have an ambition to become recognised as a world-class business and economy class airline.”

But despite this seemingly rosy outlook, the company posted a 2008 loss of US$109 million and this year is also expected to see significant losses for the airline. Hill doesn’t forecast the business being in the black until 2014. “I’ve said that 2014 is the turnaround for Oman Air, with the next three to four years being decreasing losses rather than profits,” he concedes. “I would be the first to jump up with glee if we could bring that profitability forward, but it’s a tough old world out there as we try to cut costs, make sure the product is up there with the best and get closer to profit.” The target now is turning a profit and repaying government its funding. “It’s going to take us some time to recoup the amount of money we’ve put into the business so far, and this is certainly a year where we expect to make a considerable loss in our business. So whilst the government is keen on investing and developing the airline, it wants to see that investment paid back and that’s our strategy.”

He acknowledges that 2010 and 2011 are going to be tough years for Oman Air, which first took to the skies in 1993, as adverse economic conditions continue to linger. “In the next couple of years it’s going to be very difficult for us to make money because last winter we started five new long haul destinations. We’re bringing two or three more on during the course of this year and they’ll take a little while to mature.” The business won’t be over-stretching itself, either. “Yes, in the last 12 months we’ve taken on a lot of aircraft – we took on 10 last year but this year it’s only two, next year it’ll be a couple more, so we’re not expanding beyond our capabilities. So you won’t see huge numbers of aircraft joining the fleet and we hope this will mean a gradual and profitable expansion of the network.” To fuel this controlled growth, the carrier has also raised its capital by 67 percent to from US$779.2 million to US$1.3 billion.

Bumpy ride

With the global economy in a tailspin, the competition among the airlines is fiercer than ever. Up until the end of 2008, Oman Air, which took over the coveted national carrier status from Gulf Air, grew by 30 percent year on year. And although Oman itself has been fairly insulated from the financial maelstrom, this airline has been quick to adopt flexible pricing and creative promotions in order to fill seats, because once the cabin doors close the empty seats have cost you money, Hill explains.

The flipside to the downturn is that Oman Air is able to negotiate favourable contracts with suppliers, caterers and baggage handlers. “We’ve been able to leverage a lot of benefits from this current situation,” says Hill. “Once the economic recovery materialises – and I am one of those people who believes it will – we are set pretty fair with deals we have locked in for the next three to five years with suppliers.” Despite the turbulent period, Oman Air is predicting a 30 percent rise in passenger numbers this year over 2009. “It’s ambitious for us but I believe we’ll do it.” Its cargo side of the business is another growth area. Today it represents four percent of the airline’s earnings but Hill forecasts it rising to 10 to 12 percent in the next five years, especially with the wide-body fleet coming into service. “Until we started taking delivery of the A330s we were predominantly a narrow-bodied operator with 737s; great workhorses but when you fill them up with 150 passengers they don’t carry too much cargo. So with the expansion of our wide-body fleet, we were able to start really carrying cargo.”

As well as offering passengers video on demand and six channels of live television, Oman Air recently became the first airline in the world to offer the ability to make mobile phone calls mid-flight, as well as Wi-Fi connectivity and broadband internet. This has been a staggered roll, out but by August the whole A330 fleet will be kitted out with this connectivity. These services are only functional above 10,000 feet, due to the fact that electronic devices need to be switched off during takeoff and landing. This groundbreaking move will be music to the ears of those needing to fire off an email or make an important call, but the salient issue of fellow passengers being disturbed by loud phone calls will concern some customers. “When you’re travelling on an overnight flight you don’t want to be bothered by somebody having a rather robust conversation at three in the morning,” Hill explains. “We’ll speak to people who are making a nuisance and, if necessary, even cut it out, because we can do that.” He says it comes down to education. “We believe that we can educate our customers progressively to use the mobile phone in a responsible way. We’re going to encourage people to use the silent or the vibrating mode rather than the bells and whistles when a call or message comes in.”

Despite these concerns, the initial feedback from customers has been more than positive. “Time will tell, but so far the reaction has been amazing. Everybody wanted to know how we could do it but it’s all about investment and timing.” He adds: “It’s now very difficult to resist the urge to use your mobile phone up there. It’s the novelty factor initially, but it will also be pretty affordable when you’re sending messages and things like that to stay in touch.” Oman Air’s chiefs see these developments as a competitive advantage in the battle for business. “My board and the management team believe that the more things you can make available that you would normally expect in everyday life up in the air, the more competitive your product is going to be. I’ve spent quite a number of years in this area, and we’ve gone from nothing to fantastic in-flight entertainment. More and more connectivity is the way to go.” The airline says it wants to be at the forefront of technology and comfort but without forgetting the traditional values. This is echoed by Hill: “We are investing in the product in a big way because we want to make sure that our customers not only have probably one of the most comfortable rides in the sky, but are also very well entertained.”

Desert delights

Oman as a nation is weening itself off its dependency on oil revenues and turning its attention to the burgeoning tourism sector, marketing the Sultanate as an upmarket travel hotspot. Entitled the Economic Vision 2030, the country has a roadmap to diversify the economy over the next 20 years. As part of this investment and tourism drive, Oman Air will be instrumental in attracting increasing numbers of tourists and corporate visitors on direct flights in and out of Muscat. Oman is a country that boasts a stunning coastline, desert landscapes and the highest mountain range in the Arabian peninsula. “For seven or eight months of the year, the temperature is perfect, with clear blue skies and tremendous scenery,” says Hill. “Increasingly, more and more people are going away to get away from city life and when you come to Oman you can experience all of that, as well as top rate hotels being developed. They won’t be inexpensive but you’re going to pay for the uniqueness of Oman.”

Oman isn’t looking to flood the country with tourists though, warns Hill. “The country doesn’t want to attract millions and millions of visitors every year because that would spoil the ecology and the ecosystem in the country. So the government is clever in that they’re developing areas that are designed to bring all the infrastructure together – the roads, the power, the water – and blend that into regions of the country that will not spoil the natural habitats. We’re creating new tourist sites that are going to be developed into resorts, golf courses and marinas all over the country. And this is not for the next couple of years – this is for five, 20, 30 years down the line.” Muscat International Airport is also undergoing a US$1.2 billion expansion plan that will eventually boost the airport’s capacity from four million to 12 million passengers a year. “For Oman Air, a steady expansion of the network and a consistent improvement of the product will get us up in the minds of people who will see Oman as an exciting but very interesting and rather exclusive destination. I would like to see Oman Air as the airline that brings them into and out of the country, and their first experience of Oman should be on Oman Air as the brand ambassador of the country. Oman Air’s goal is to act as a catalyst for development in Oman,” Hill reveals.