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in Air Transport / Features

Pichler's right Royal shake-up

Posted 20 February 2018 · Add Comment

Royal Jordanian Airlines is breaking from the past with a radical low-cost makeover led by new chief executive Stefan Pichler. He talked to Martin Rivers about the flag-carrier’s new direction.

When Royal Jordanian Airlines ran a series of advertisements mocking US President Donald Trump and making light of his laptop ban for Middle Eastern flights, many of the people sharing its messages on social media had never even heard of the airline – let alone flown with it.
Despite flying its country’s flag for more than half-a-century, Royal Jordanian still lacks the scale and brand recognition of its Gulf competitors. It has also become a financial burden on the Government of Jordan, its 26% shareholder, posting net losses in four of the six years since the Arab Spring.
New chief executive, Stefan Pichler, admits that regional instability has held the airline back. Neighbouring Syria used to be a major source of connecting traffic before civil war closed its skies, while routes to Iraq, Libya and Yemen were also abandoned when violence flared in their borders. Surrounded by conflict, Jordan’s own tourism sector has nosedived as westerners steer clear of what they perceive to be a dangerous neighbourhood.
Yet Pichler believes still greater damage was caused by a culture of inefficiency and entitlement at the Amman-based carrier – a culture he is determined to tear down and replace.
“The company, operationally, hasn’t made money for the last 10 years,” he said, contradicting financial reports that disclosed just three operating losses during the past decade. “That’s nothing to do with security. What the company was missing was commercial acumen. The last 10 years basically were lost – nothing moved – so now we try to enhance revenue management, sales, marketing and ancillary revenues.”
Royal Jordanian’s sassy advertisements, launched before Pichler took on his role in May, were just a taster of things to come.
Under his watch, the airline has ditched its gentrified image in favour of a stripped-down, cheap and cheerful brand that treats air travel as a “commodity” and is better placed to compete with low-cost competitors.
“My mission here at Royal Jordanian is to make the company sustainable profits,” he said. “I developed a five-year turnaround plan, which got approved by our board. Our plan is not about market share and not about opening new markets. We don’t want to rule the world. Our plan is making money every year, full stop.”
He highlighted Royal Jordanian’s third-quarter results as an early sign of success. The company achieved a net profit of 31.8 million Jordanian dinar ($44.9 million) during the period, thanks in large part to a load factor of 75%, compared with last year’s average of 65%.
The improvement stemmed from a “more aggressive commercial strategy” that has its roots in Pichler’s experience heading up low-cost operators like Jazeera Airways and Thomas Cook. Hot meals have been replaced with cold snacks on most flights, he noted, while a series of promotional campaigns have been launched to win publicity and stimulate the market. The first such initiative, dubbed “Fares Are Not Fair”, attracted 50,000 new customers.
“We try to play the low-cost game in Jordan,” Pichler enthused. “We have very attractive fares, we have non-refundable cheap fares, and we grow the market.”
Asked to what extent Royal Jordanian can really become a no-frills carrier, the chief executive appeared nonplussed. “Excuse me, we are moving already in that direction,” he insisted. “We are going to offer branded fares, and the lowest branded fares will be very attractive, but you can only have hand luggage. We will offer exactly this kind of product.”
Would the airline go so far as to remove all complimentary food? “Happy to! I will go as far as I need to go to make money,” he responded.
While some customers will be dismayed by the strategy, Pichler believes that Royal Jordanian needs to keep pace with industry trends. Tim Clark, the boss of Dubai’s Emirates Airline, has openly contemplated adding a “budget economy” class to his wide-body services, while also seeking greater cooperation with low-cost unit Flydubai. Even Saudia, the conservative flag-carrier of Saudi Arabia, has entered the low-cost sphere with new subsidiary Flyadeal.
Going down the low-cost route also carries less risk than alternative strategies – an important point for a government shareholder that has grown tired of losses.
“We define our core home market as the Levant, not the Gulf,” Pichler emphasised. “That means our key competitors are not the non-commercial Gulf airlines, like Etihad, Emirates and Qatar Airways. Their shareholders pump money in. We are publicly listed, we are on the stock exchange, we cannot [pump money in]! We need to deliver profits.”
Avoiding competition with what he describes as state-subsidised companies means avoiding the specialism of these so-called super-connectors – intercontinental transfer traffic. Royal Jordanian’s historic plans to grow sixth-freedom flows through Amman have, thus, been abandoned, with the result that the Gulf and Asia are no longer considered priority growth markets.
Indeed, the change of strategy appears to have been decided prior to Pichler’s arrival. Both of the Far Eastern routes added in late 2015 and early 2016 – Jakarta in Indonesia, and Guangzhou in China – were dropped after a year of operations.
Their cancellation followed earlier pull-outs from the Indian sub-continent and west Africa – two other sources of connecting traffic.
Modest growth and selective network development is, instead, the order of the day. Management want to grow operations by “about 3% to 3.5% per year” until 2023, adding a handful of mostly western routes. Washington DC in America, Copenhagen in Denmark, Stockholm in Sweden, and Kyrenia in Cyprus have already been identified as targets, while operations will also be scaled up in Aqaba, the southern city just across the border from Eilat in Israel.
Royal Jordanian currently serves 20 points in Europe; 15 in the Middle East; four in northern Africa; four in North America; and three in the Far East. Its mixed fleet comprises seven Boeing 787 Dreamliners, 12 Airbus A320-family jets, five Embraers and two wide-body Airbus freighters.
Committing to “very rational” growth of the fleet that matches the network development, Pichler has set a target of 30 aircraft by the end of the turnaround plan.
This will not include Royal Jordanian’s eighth ordered 787, which is being cancelled because “we can’t fly it profitably”. But it will include a reorganised single-aisle fleet. “The growth will be narrow-body,” Pichler confirmed. “We will develop a fleet plan in the next four to five months. My objective is to go to a single [type] narrow-body fleet. It can be Airbus, it can be Bombardier, it can be Embraer, it can be Boeing. Anything.”
With two decades of C-level experience in the airline and tourism sectors, the Jordanian Government has every reason to be confident in Pichler’s ability.
If he has a flaw, though, it may be his honesty. Despite claiming that his turnaround plan “focuses on RJ being a consumer champion”, the airline boss freely admits he is stamping out competition in the sector.
Air Arabia Jordan suspended scheduled flights within months of his appointment, officially blaming the Jordanian Civil Aviation Regulatory Commission for denying its traffic-rights requests. In reality, Pichler’s influence in the matter is plain to see. “I try to own the market so I try to kick everybody out, full stop. That’s how life is,” he said. “I am there to operate a profitable airline, so if a competitor reduces my profits I want to kill them. I hate competitors.”
Pressed on the negative impact that a monopoly would have on Jordan’s economy, he retorted: “I’m not paid for the overall growth of the air transport market in Jordan. I’m not the transport minister. I’m not the tourism minister. I am just a guy who runs the airline.”
Such remarks may be encouraging for shareholders in the company. They are certainly well-suited to a small airline that punches above its weight for marketing.
But they also expose a conflict of interest within government. Jordan’s leaders must decide what price they are willing to pay to see their flag-carrier turn a profit. Lifting commercial performance without stifling competition is surely a better option for the country and the travelling public.
 

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