D-day looms for Bahrain Air seeks niche market

Availability of financing is likely to be the hard-headed deciding factor for the Bahrain Air deal, although CEO Richard Nuttall believes that opting for a new design is, in itself, useful to an airline like his.

“We’re small, so we need something that has a bit of pizazz about it. It’s much better to be small and one of the early customers for a new aircraft than to be small and a ‘me too’,” he said.  

Regardless of whether the company opts for the Canadian or Russian contender, Bahrain’s second airline will already be transitioning from its launch position as a low-cost carrier to a hybrid ‘premium value carrier’ and seeking to rebuild its fortunes after 2011’s travails.

Like many airlines in the region, Bahrain Air was badly affected by last year’s unrest in the region and had the additional problem of the political disruption in Bahrain itself with which to contend.

“When you’re an airline with five aircraft and you’re asked by the government to stop flying to Iran and Iraq, there’s no market to Egypt, no market to Syria and you’re left with nowhere to fly, your aircraft utilisation goes down,” said Nuttall. “So, you’re paying for those assets and you’ve still got the costs.”

With competitors also suffering, there was huge competition for those remaining passengers, which meant that both passenger numbers and yields dropped.

Whereas the airline had seen passenger traffic increase by 30-40% in each of its first three years of existence, 2011 saw that figure reverse by roughly the same amount: “Effectively we lost two years of growth in 2011,” said Nuttall, who became CEO late last year.

Bahrain Air aims to move to its new, hybrid, business model in the realisation that the island kingdom’s population is too small to provide the necessary passenger volumes to allow it to create the economies of scale to be a true low-cost carrier: “We will never have low enough costs to compete with people like Air Arabia or flydubai,” he admitted. Nor was there enough point-to-point traffic.

Additionally, some points in the region, notably Dubai and Abu Dhabi, had become destinations in their own right, further boosting passenger volumes; Bahrain had not.

“Bahrain’s never been properly promoted as a destination,” he commented. This was a shame, as those people who came both to Dubai and Bahrain generally found they preferred the latter’s atmosphere and hospitality to that of the emirate further down the Gulf.

“It’s a real challenge. This is where the Dubai carriers get ahead of us. At certain times of the year we have 100% full aircraft leaving, but nobody coming in. We somehow have to create an inbound market.”

While unable to compete with volumes in the low-cost carrier market, neither was it sensible to cross swords with full-service giants such as Emirates and Qatar Airways: “So, we want to be somewhere in the middle. It’s about finding a realistic niche.”

This meant giving passengers most of the benefits they would receive from a full-service carrier but at a regional level. Those benefits included a premium class, access to a lounge, complimentary on-board food and a decent baggage allowance.

Nuttall believes that Bahrain Air can carve a niche as the local partner for major carriers based outside the region but accepts that his company has to improve its internal systems for this to happen.

Plenty of business passengers arrived in Bahrain on intercontinental carriers with the intention of travelling onwards to multiple destinations or to secondary airports in the region, he said. Their original carrier was understandably reluctant to transfer them to rivals such as Emirates, Etihad or Qatar for the next stage of their journey in case they were tempted to switch their allegiance. They would prefer, he said, to place them with a reliable, on-time, independent regional carrier.

He hinted that such airlines had already expressed interest in using Bahrain Air in this role. However bringing this to fruition, he admitted, would require the company to invest in its reservations and distribution systems and to improve its connectivity to allow it to work with other carriers.

To improve future growth Nuttall would like to see a change in the way the Bahraini government deals with airlines based on the island: “Growth is driven by traffic rights. The current situation is that we’re allowed what pickings we can get after Gulf Air.”

Bahrain’s civil aviation authorities “are very fair with us when it comes to new bilaterals, but we’re four years old and Gulf Air has been around for a long time. Basically, Bahrain’s traffic rights until four years ago were Gulf Air’s traffic rights.” Nuttall would like – not unnaturally – to see that situation change.

“What we’re gradually pushing for is an environment where it’s ‘use it or lose it’, so that if Gulf Air doesn’t use certain traffic rights we would get access to them. That would allow us to grow a little more quickly.”

Bahrain Air will also be looking to nations that effectively have ‘open skies’ policies or at least accept multi-designation of carriers, such as Lebanon. 

It also plans to step up operations to the Indian sub-continent throughout 2012. Long a source of passengers because of the huge traffic in expatriate workers to and from the Gulf, Bahrain Air hopes to tap into this by launching three new routes there this year. However, “all are dependent, on different levels, on sorting out traffic rights”.

In late January, the airline also restarted its services to Kuwait. Nuttall admitted: “The first time we flew there, we got it wrong due to bad scheduling.” The company’s reputation duly suffered in the local market.

Now, by making Kuwait an intermediate stop on the Beirut route, he is hopeful that better passenger numbers and timetabling will restore its image with customers.

The hangover from last year’s regional unrest will see Bahrain Air’s fleet shortly drop to four aircraft as it returns one of its leased A320s. However, Nuttall hopes to see another A320 return to service in June as traffic recovers. By around that time it should be close to deciding which modern twinjet – CSeries or Superjet – will be the chosen contender to take it into the future.

The carrier currently operates two Airbus A319s and three A320s. However, its A319s come off lease in 2014-15 and it requires an aircraft with smaller capacity than the A320 for some of its routes, notably to regional destinations such as Beirut.

Whether the Canadian or Russian aircraft will eventually replace all the European twinjets has not yet been decided, said Nuttall. While there were obvious benefits in operating a single-type fleet, running two would not be an insuperable problem.