Kuwait at the crossroads

Traditionally, airlines grow by expanding their route network. However, Kuwait Airways’ CEO, Kamil Al-Awadhi, believes that it will be more important to focus on increasing frequencies on those routes that are guaranteed to make a profit.
“We are at a crossroads right now,” he said. “Our original plan asks for depth and to only go for breadth if you have really good justification; if you’re going to make a lot of money. There may be a reduction in destinations and more focus on the depth part of it in 2020, even though we’re getting more aircraft.
“I’m not going to operate a route just to break even,” he added. “It’s a waste of time, energy and resources.”
Kuwait Airways’ current fleet consists of 10 Airbus A320ceos, five A330-200s and 10 Boeing 777-300ERs, with most of these aircraft being the result of a wave of new arrivals around five years ago. A second re-fleeting exercise is under way, with 15 A320neos, five A350-900s and eight A330-800s on order.
The re-engined A320neos will replace the previous generation A320ceos and Al-Awadhi said there is “a very high probability” that at least seven of the neos will be upgraded to the larger A321neo version. A decision on this is likely to have been taken by the time this issue of Arabian Aerospace appears.
The A321’s greater capacity brings down the seat-cost of the flight, helping Kuwait Airways compete against low-cost carriers, said the CEO.
Like most airlines, Kuwait Airways has suffered from delivery delays at Airbus and received only three of the five A320neo deliveries planned for last year. The problems with the CFM International LEAP engine have been well-documented. Al-Awadhi , however, is looking on the bright side of choosing the US-French engine: “Thank God we did, because Pratt & Whitney have even bigger problems.”
However, as the existing A320s – which are all leased – come to the end of their contracts, they will be steadily replaced by the A320neos. This year, three ceos will give way to neos.
Some eyebrows were raised in the industry when the airline opted for the A330-800, which has not proved popular in the marketplace. However, Kuwait Airways believes that the aircraft’s long range and capacity makes it a good stepping stone as routes mature.
Once demand on a route starts to outgrow the capacity of an A320, previously the route would have been taken over by the Boeing 777-300ER. However, that is so much larger than the A320 that load factors dropped dramatically.
Instead, if the A321 is chosen and once the A330-800 starts to enter service, the airline has a more graduated capacity gradient that can handle increasing passenger demand. “It allows me to grow the market without having a high load factor to compensate for the operating cost,” said Al-Awadhi. “And its range is incredible.”
The company is mulling the possibility of putting the A330-800 on the New York run: “That would be a very, very cost-effective flight.”
The airline has to be nimble in its scheduling, said the CEO. It receives projected loads seven days, three days and 24 hours before a flight operates. If, for example, it becomes apparent seven days before a flight to Beirut that the planned A320 is already full, the aircraft can be swapped for larger equipment.
The company is now studying its fleet mix; it is still relatively small and it is possible that, with the arrival of the A330-800s and A350-900s, it will have too many types. Where does that leave the Boeings?
Al-Awadhi would only say that the company was studying its options for the 777-300ERs and, more generally, the mix of types in the fleet. The US aircraft are highly popular with passengers and, unusually, are still outfitted with the original, roomier nine-abreast economy-class cabin, rather than the 10-abreast more frequently used today. However, they are expensive to operate.
Behind the scenes, one factor that has dogged Kuwait Airways for the past decade has been the on-off-on question of whether the state-owned airline should be privatised. The issue has been raised several times by the emirate’s government or members of its parliament. The effect has been to stifle the company’s activities, as everyone waits to see how the issue will play out.
The issue has been raised again recently, but Al-Awadhi believed that it was unlikely that it would succeed. Kuwait’s politicians are split virtually 50-50 on the issue.
The airline is still loss-making. Overall revenues in 2018, the last year for which figures are available, were estimated at KD 330 million ($1.09 billion), up from KD 298 million in 2017. If revenue and cost figures continue to follow their present trajectories, the airline is targeting break-even in 2024.
One major cost is the number of personnel – considerably more than would be normal in a European or North American carrier. “We do have too many staff,” admitted the CEO, but there were several reasons for this.
One is that Kuwait Airways employs many people – such as ground-handling, security, baggage-handlers and cleaning staff – who would be usually be outsourced in other airlines. Another is that a new generation of staff is being trained up: “I’m rotating out the staff that are over 60,” said Al-Awadhi, “and I need an overlap period where I bring in new staff.
“Plus, I had prepared for five additional aircraft this year. The staff are plugged-and-played and ready to go: it’s just the aircraft that didn’t make it.”
Although aircraft deliveries were behind the curve last year, Kuwait Airways’ operational performance was well ahead of it. One reason for this was Kuwait International Airport’s Terminal 4, which the airline built so its own passengers could escape the congestion in the main terminal.
“We’re expecting 4.7 million passengers in our own terminal this year. I think that’s probably already pushing it to its limits. Next year’s target is 5.5 million.”
To make maximum use of its own terminal, Al-Awadhi and his team are looking at rescheduling some flights: “The way our waves operate now, the number of passengers are far in excess of the capacity of the airport. I have a team right now working on rethinking the schedule to optimise flow so I don’t have too many aircraft on the ground at the same time.”
A new main terminal “is supposed to be available in 2023; if I had to make a guess, I would say 2025. If that’s the case, I have to re-think what we’re doing with Terminal 4, because by that point [passenger] numbers will be around 7 million.”
For the moment, however, Terminal 4 has helped improve the utilisation of aircraft and staff: “Because your aircraft are all parked next to each other, distances are shorter and the transfer of staff and equipment from aircraft to aircraft is much easier.
“In general, our overall performance has improved dramatically. Before I took over, our average on-time performance (OTP) was 57%. Last year, we were above 90%, month over month. We’re the best Arab airline for OTP.”
Might the dedicated terminal be extended? “That’s one of the options on the table. Should we extend it? If we do, it will be at our own expense.
“I have to convince the government if there is enough return on investment to do this because, obviously, it’s going to take time to do it and if we’re moving in five years’ time to a new terminal, is it worth the investment?”
Sometimes, of course, even the most meticulous plans cannot take account of nature. In November 2018, heavy rain flooded the airport: “It locked in six or eight of my aircraft; I couldn’t get half my fleet out of the terminal. It caused four days of disruption.”
As it approaches that crossroads, the airline will be hoping that the road ahead is not blocked by something as unpredictable as the weather.