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in Air Transport / Features

Oman and SuperOman

Posted 31 August 2018 · Add Comment

Oman Air’s new chief executive, Abdulaziz Al Raisi, tells Martin Rivers the Gulf carrier is stepping up its expansion plans, while reducing its reliance on sixth-freedom traffic.

Like the Gulf super-connectors, Oman Air carries more than two-thirds of its passengers on transfer flights over its hub.
This sixth-freedom model allows the flag-carrier to surpass the limitations of its home market, unlocking routes and frequencies that could never be sustained by Oman’s population of just 4.8 million.
Unlike its better-known neighbours in the UAE and Qatar, however, the Muscat-based airline is now rolling back its reliance on transfer traffic.
New chief executive, Abdulaziz Al Raisi, is targeting a 50/50 split between connecting flows and point-to-point flows within a couple of years, and he wants to achieve this even as Oman Air accelerates the growth of its fleet and network.
“With sixth-freedom traffic, you are going into competition with a lot of giant airlines, big players. It’s very hard for us as a small airline to survive in that market,” Al Raisi explained.
“So we are trying to make Oman Air as a destination airline, focusing more on point-to-point traffic. We all know Oman is a country that gives a lot of things to tourists, or to any visitor. Considering our neighbouring countries, I think Oman has more to give than anybody else. It is easy for us to promote Oman, and that will help us to increase our point-to-point traffic.”
Cutting losses at the airline is a top priority for its government owner. Oman Air has been consistently in the red since 2008 – the year after Muscat withdrew from Gulf Air, the post-colonial, pan-national carrier that brought together the aviation interests of Bahrain, Oman, Qatar and Abu Dhabi. With the latter two emirates also pulling out in favour of their own flag-carriers, all four governments are now funding single-hub operations at home. None is profitable.
Yet, whereas Qatar Airways and Abu Dhabi’s Etihad Airways followed the example of Dubai’s Emirates Airline by creating mega-hubs – giant airports that suck in traffic from six continents – Oman Air grew more slowly as a niche carrier.
The result is that it deploys just 49 aircraft today, versus Qatar’s 210 and Abu Dhabi’s 110-strong fleet. Its losses are also correspondingly lower, albeit still significant at 161 million Omani Rial ($418 million) for 2017. By shifting the focus to origin-and-destination markets, Al Raisi believes the company can at last break even in the middle of the next decade.
“Point-to-point traffic is better yield and I’m sure that will help us to improve our numbers here,” he said. “So the government, the ministry of tourism and Oman Air, together hand-to-hand we are trying to promote Oman as a destination.”
The flag-carrier’s current network reflects its grudging reliance on sixth-freedom traffic. Seven destinations are served in western Europe (Frankfurt, London, Manchester, Milan, Munich, Paris and Zurich) and five in the Far East (Bangkok, Guangzhou, Jakarta, Kuala Lumpur and Manila).
The Indian subcontinent also features prominently – providing both feeder traffic to Europe and labour traffic for the Omani economy – with 11 destinations in India, three in Pakistan, and one each in Sri Lanka and Nepal.
Transfer flows on these European and Asian services are a double-edged sword.
By exploiting Oman’s geographical location at the crossroads of east and west, they give rise to a powerful network effect that strengthens overall demand for tickets. Without onward bookings to Bangkok, for example, London would almost certainly not be served twice daily.
However, sixth-freedom operators need to dangle cheap fares in order to entice passengers away from nonstop routings. And Oman Air’s low economies of scale – at least when compared with the Gulf super-connectors – mean its discounts are typically loss-making.
The airline’s Middle Eastern footprint is less exposed to this financial pressure because most regional customers travel point-to-point. Oman Air currently serves four destinations in neighbouring Saudi Arabia (Dammam, Jeddah, Medina and Riyadh), two in Iran (Tehran and Mashhad), two in the UAE (Dubai and Abu Dhabi), and one each in Turkey, Egypt, Jordan, Iraq, Kuwait, Bahrain and Qatar.
Its network is completed by three sub-Saharan African cities (Dar es Salaam, Zanzibar and Nairobi), plus three domestic points: Salalah in the south of Oman, Duqm in the centre, and Khasab in the northern exclave of Musandam.
Four route launches have already been announced for 2018. Flights to Istanbul began in June and a new service to Casablanca was due to start as this article went to press. Moscow and the Maldives will then join the network in October.
Al Raisi conceded that expansion comes at a price. “That’s common in the start-up [phase]. Whenever you open a new destination it takes some time for the route to start making money,” he said. “So there will be some significant effect on my 2018 results. However, I think it will help me on the network side. And I’m hoping all four new routes will show some positive results by 2019.”
Insisting that further growth will put the flag-carrier on a sustainable footing, the chief executive said a dozen new markets are now under evaluation.
Either Beijing or Shanghai should join the network in the first quarter of 2019, he revealed, adding: “The Chinese Government promised us they will give us something by end of this year. We will open one of them – whichever we get first.”
Elsewhere in the Far East, Hong Kong and Bali are currently being considered. In India, network planners are looking at Ahmedabad, Kolkata, Mangalore and Coimbatore. In Africa, Tunis is being targeted, along with either Johannesburg or Cape Town. And in Europe, Amsterdam is seen as the next logical addition.
“I’ve got a very long wish-list, but it depends on the numbers,” Al Raisi stressed. “Oman Air is very well known for its steady growth. We don’t want to grow really fast. We are doing it very wisely.”
Asked what steps the government has taken to boost inbound demand, he noted that visa requirements were recently eased for tourists from China, Russia and Iran. Citizens of those countries can now obtain an entry visa online in just 15 minutes, without needing to nominate a local sponsor for their trip.
However, although progress has been made on several fronts, bilateral restrictions remain a bugbear for management.
As well as facing hurdles in traditionally illiberal markets like China and India, the flag-carrier has struggled to secure more traffic rights in western Europe. “We have issues with the French Government and the Italian Government,” Al Raisi admitted. “The French Government thinks we are a threat to Air France, but we are not. Our business model is totally different. I think it will give them a bit of comfort once we show them our strategy, once we show that we are not trying to steal traffic from their national carriers.”
With talks under way at an ambassadorial level, he voiced optimism that Oman Air could soon raise frequencies to both Paris and Milan from seven to ten times weekly. The airline’s daily flights to Frankfurt and Munich are also earmarked for possible growth, while Guangzhou is expected to rise from four times weekly to daily this winter.
Hinting at the difficult balancing act that Oman Air faces in its current stage of development, Al Raisi, nonetheless, said transfer traffic remains an important part of the equation.
Deeper expansion into Africa will almost certainly depend on greater feed from Beijing, for example, while Shanghai has the potential to strengthen flows to and from Europe. Longer-term, any push into North America is unlikely until access to the Indian market improves.
“My [traffic-rights] quota from India is not enough whereby I can take enough passengers to the US,” the chief executive noted. “If I manage to increase my quota, maybe that will help me a little bit. By 2021, 2022 maybe I will think of New York.”
Enhanced access to India would also boost the case for a Cape Town or Johannesburg route launch. “The Indian market is a perfect feeder for those destinations,” Al Raisi affirmed. “But we are still in dialogue with the Indian Government. We are [asking for] exactly what they have given our neighbouring countries. And we are very optimistic that we will get it.”
Turning to the fleet, he said Oman Air will receive three Boeing 787-9 Dreamliners and five 737 MAX 8s between June and December.
The deliveries will be drawn from an outstanding order book of five 787-9s, four 787-8s and 25 MAX 8s.
This year’s new Dreamliners will be configured in a three-cabin layout featuring Oman Air’s new first-class suites and deployed on the London and Manchester routes. The three A330s they replace will, in turn, be reconfigured in a high-density layout – up from 230 to 312 seats – before being put to work serving Jakarta and Manila.
Another three Dreamliners and “five to six” MAX 8s will then arrive in 2019, by which time the next phase of the fleet programme should be clear.
“After a couple of years, some of our A330s will reach an age of 12 years old,” Al Raisi noted. “Usually, we keep the wide-bodies for not more than 12-13 years.
“So we are looking at replacements for those A330s. We are doing a study and we are working very closely with Boeing and Airbus. With Boeing we are looking at the 787-10, and with Airbus we are looking at A350-900 or -1000. We are hoping by the end of this year we could finalise the whole deal.”
The stretched variants of the 787 and A350 that he alluded to typically seat between 315 and 366 passengers. That compares with seating capacities of between 226 and 289 on the existing Dreamliners and A330s.
Maturing demand across the network has convinced Al Raisi to pursue fleet-wide up-gauging, also including the disposal of Oman Air’s last regional jets. “Our Embraers only take 71 passengers,” he noted. “We used to operate them to Doha and Abu Dhabi and Bahrain. Now we need an aircraft with bigger capacity.”
As of May, Oman Air deployed a 49-strong fleet of 21 737-800s, five 737-900ERs, two 737 MAX 8s, four 787-8s, three 787-9s, six A330-300s, four A330-200s and four Embraer E175s. It is aiming to reach 70 aircraft by 2024.
Though the entire fleet is based in Muscat, Al Raisi is mindful of the need to boost connectivity with Oman’s smaller cities.
Salalah is now served about eight times daily by the flag-carrier, while Khasab benefits from nine flights a week and Duqm six. Salam Air, the state-owned low-cost carrier launched in 2017, also flies between Muscat and Salalah up to five times daily, as well as linking Salalah and Sohar twice a week.
Oman Air’s flights from Salalah to India were axed within months of launching last year. But the flag-carrier still connects the city with Dubai, while Salam Air links it with Jeddah and Medina.
The rapid pace of airport development across Oman leaves no doubt about the government’s long-term ambitions. This year’s opening of a new terminal in Muscat lifted the hub’s annual capacity to 20 million people – well above the 14 million it processed last year – and plans are in place to eventually handle up to 56 million. Salalah also gained a new terminal in 2015, while the airports in Duqm and Sohar were opened in 2014.
Yet, even with a growing passenger base and enviable new infrastructure, Al Raisi is reluctant to over-promise on behalf of a company that has always relied heavily on state support.
“My focus is purely to reduce the losses and to reduce the burden on the government,” he concluded. “I’m hoping to break even by 2024. However, saying that, there are a lot of external factors. The airline business is very dynamic and no-one knows what’s going to happen.”
 

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