In November 2016, the aviation industry waited anxiously for the results of the US elections, Here in the Middle East, one airline decided to make the most of it.
Soon to be president, Donald Trump’s tirades against travel from the Middle East to the US had spooked the industry into delivering nervous statements about protectionism. Royal Jordanian, on the other hand, decided to be different. The Amman-based carrier began its own campaign to get travellers to visit the US “while you’re still allowed to,” tweeting more than Trump himself and reaching over 650 million users.
The gamble paid off. Over 10,000 Jordanians travelled to the US, and the airline registered a 50 percent increase in bookings. Of course, this was due in large part to the airline’s media agency, Memac Ogilvy, which won accolades for its idea at the Dubai Lynx Awards in March.
But in April, when United Airlines allowed a passenger to be dragged unwilling across its aisle, the Amman-based carrier was back at it. A snarkily phrased tweet about “dragging being strictly prohibited by passengers and crew,” tapped into the exact kind of humour – at United’s expense – that customers don’t expect from most major brands, especially airlines. Other airlines tried to abandon their diffidence on social media and cash in on the ‘shade’ that RJ had thrown, but few were able to break past being self-congratulatory and over-engineered. RJ was being recognised as the “sassiest” airline in the world. Now, Jordan’s national carrier is trying to show the world it isn’t a one trick pony with a few savvy marketing soundbites and little else.
Enter the new man in charge
In May, the company appointed German airline executive Stefan Pichler as its new CEO, hoping to cash in on a resume spanning 30 years, including time spent with Sir Richard Branson on Virgin Blue, restructuring Air Berlin, and turning around carriers including Fiji Airways and Jazeera Airways.
Pichler’s tenure at the latter in Kuwait involved the most intense restructuring in its history at the time. His “low cost high revenue” plan reduced the size of the airline’s fleet and cut 30 percent of its staff. By the end of it, the airline had rebounded from dismal results in 2009 and 2010 to post ten consecutive quarters of profit and become the region’s most punctual carrier.
That experience will prove invaluable as Pichler returns to the Middle East, because Royal Jordanian needs an urgent turnaround. The airline, which reaches its 55th year of operations in 2018, has posted a profit only twice since the turn of the decade and its ability to fill seats has deteriorated each year since 2012. Passenger growth rates have also fallen considerably – in 2016, the airline barely managed to ferry more than three million passengers.
Pichler is “very confident” the airline has what it takes to turn around. “That’s why I joined,” he tells Arabian Business sister publication Aviation Business.
“Every airline is different and needs a different strategy. I can’t compare any of the other airlines I’ve been at with this, but strong support from the government was crucial to carve out a market niche with Fiji Airways. The Jordanian government promises the same at Royal Jordanian, and so does the airline’s staff. That’s a great asset to have,” he says.
A three-faceted turnaround plan is crucial for the airline’s success, says Pichler. “We need to grow to become the market leader in the Levant; offer products that don’t overshoot or under deliver, and become a corporation that attracts the best talent available,” he says.
Essentially that means adding more flights, becoming the first choice airline in the northern Middle East, and possibly trimming staff.
Pichler doesn’t hold back. That the airline has weaknesses isn’t something about which he beats around the bush. “We need to get more bums on seats, and we haven’t been operating Amman as an airline hub very efficiently. We’re also overstaffed in some areas and need to work on that. We have a lot of room to improve in terms of managing costs. But there are bright spots as well,” he adds.
Low cost versus load
Those bright spots come from the fact that no one in Jordan is playing the low cost game. That Emirates and Flydubai have decided to work together is also a good sign because it implies Emirates won’t be flying its 777s into Amman anymore, “which helps us compete better with our product,” according to Pichler.
“The good thing about this move is that it will change the industry in the Middle East, where people are still addicted to the old-fashioned style of travelling,” he says. “Look at the business class seats which most of the airlines offer. With Flydubai this might change the trend. We’ll be able to adapt our product as well. This will help me to cut more costs at RJ as well,” says Pichler.
The CEO is all for lowering costs. That doesn’t mean, however, that he’s going to turn the airline into a low-cost carrier, he says. “Look, I’ve been around for 30 years and constantly get asked to make a speech about low-cost versus legacy carriers. And it’s all just wrong. Every airline is trying its hardest to reduce costs and every airline tries to enhance revenues. And that’s what we need to do as well,” he says.
What RJ needs to do is get more people flying with it. The airline works on an abysmal load factor that hovers around 60 percent, far lower than any airline hoping to turn its fortunes around.
Pichler’s plan to turn that around is to add more frequencies, connecting destinations and lower fares to entice travellers. Capitalising on its social media momentum, Pichler has advocated a number of digital-first discount campaigns with snappy web-friendly taglines including “Fares are not fair!” and “Happy Friday.”
The response to the campaigns has been tremendous he says. “So far, 10 percent of our bookings come from online,” according to Pichler. “Without giving anything away until our next results, I can tell you our load factor has improved considerably.”
Lowering fares makes sense, given the direction the industry is headed, where a new generation of low-cost carriers are targeting the long-haul routes around which the traditional airline businesses have been built. Nearly 70 percent of travellers booking flights on the airline in recent months are Jordanians who have never flown before, and growing the market with lower fares will be instrumental in improving the load factor.
Royal Jordanian also benefits from being the only local carrier serving a destination as ripe and as untapped for tourism as its homebase. “Jordan has a vibrant market for tourism and with places such as Aqaba where the infrastructure exists, we are working with the tourism authorities to attract more travellers,” he says.
At some point, Pichler wants to add more seats on planes, a remarkable goal considering the airline isn’t able to fill more than a third of each flight.
Pichler, a former marathon runner for the German national team, insists the goal is viable in the long-run.
“If you operate an airline with a 60 percent load factor there’s a lot of room to improve if you grow the market. Lower fares, mean more passengers and therefore a higher load factor. Yields might be lower in higher tiers, but with a higher load factor we’ll be able to improve overall revenues with ancilliaries. And that will allow us to increase seats on the planes,” he says.
In what has become a fast moving industry, Pichler’s plan will need to marry the airline’s pace on social media with the stamina to change for the long-haul. If he succeeds, Royal Jordanian will have graduated from being a social media sensation into a turnaround success story.
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