Flying on your private jet is the new frontier of luxury travelling in the Gulf: business class is still there for those who want to be pampered, but the comfort of getting on board in five minutes instead of two hours is just impossible to beat, especially if you are a businessman with no time to lose.
More people every year spend thousands of dollars just for an hour-long flight, but big figures do not necessarily equal big gains. Private aviation is still a highly volatile industry, and it’s a high-cost business with very limited revenue margins in Qatar. Rizon Jet is a Doha-based private aviation company attempting to make its own way in this market, and is trying to build a viable business having to deal with two tough giants: Qatar Airways and Qatar Civil Aviation Authority.
A one-hour flight on an eight-seat Hawker 900XP costs around $4,000 for the customer, but the operational costs faced by the private aviation company every year are much higher. Rizon Jet is, in fact, spending around $11m (QR40m) a year just to keep the business working in Doha. The start-up investment injected by Rizon Jet when it was founded in 2006 came to $137m and it has not been amortised during this six years of activity. The government supported the initiative by allocating the land, but then Rizon Jet had to build the full infrastructure. In this business, the costs quickly add up. A private jet can cost between $10-65m. A single plane tyre costs around $15,000 and you need at least six of them.
Mechanics for the planes’ maintenance, ground services, electricity, air conditioning, security, and salaries of around 100 staff in Doha are just some of the listed expenses and to start making revenues the firm needs to fly around 600 hours a year. So far, Rizon Jet hasn’t come close to that level. The company registered around 300 movements in 2012 and 50 percent of its revenue came from third party customers using their facilities in Doha.
According to Rizon Jet CEO Hassan Al Mousawi, the company was accused of providing ground services — which is a monopoly run by Qatar Airways-owned group Qatar Aviation Services — and in November 2012 the Qatar Civil Aviation Authority (the local regulator) started rejecting all applications from other private jet customers to use Rizon Jet’s facilities, cutting off a significant source of income. A committee of five members, three of which were from Qatar Airways, was created to solve the issue. But in the meantime, Rizon Jet just keeps on haemorrhaging cash.
“It’s not viable for us to pay for staff, to have this facility open just for our 300 movements. We were counting on gaining more market share from third-party aircraft, so that it was viable to provide the service,” says Al Mousawi, who is considering taking Qatar Civil Aviation Authority to court as a last resort. Going in front of a judge is a costly and lengthy option for Rizon Jet but the company feels that it has reached a crossroads: either go to court or quit.
Qatar Civil Aviation Authority has also withdrawn Rizon Jet’s travel agency licence just six months after it was granted, cancelling another possible source of income. “Even gate passes for our vehicles have been stopped,” Al Mousawi says. “We asked for additional gate passes for our vehicles, they refused. For the ones that we already had, when our vehicles went out for annual inspection, the gate passes expired, and they refused to renew it.”
Article continued on next page
Right now, Rizon Jet’s potential sources of revenue have dwindled to a trickle. It can’t make money from ground services, and third parties can no longer use its facilities. If you add that to the fact that it now can’t sell airline tickets, and can’t pick up commissions on those sales, then the future is looking grim.
The pressure of the monopoly is now suffocating this private business. “Let people have freedom of choice and let them choose what service they want,” says Al Mousawi.
Elsewhere in the aviation sector, it’s clear that monopolies are proving to be painful in terms of both efficiency and of prices for the public. In a frank interview with Al Watan, a local newspaper, Qatar Airways CEO Akbar Al Baker revealed that the high cost of air fares from Doha are due to the lack of competition. Flights transiting through Doha are less expensive because Qatar Airways competes in an open market with other airlines offering the same routes, but with flights leaving from Doha Qatar Airways can keep prices up since there are no competitors.
Having a monopoly also creates an issue with regard to accountability. “The Qatar Civil Aviation Authority chairman needs to be accountable not only to the public, but also to the authorities,” says Al Mousawi, who is counting on the government to intervene on the issue. But the government’s role in this matter is tricky. On one side, the Emir of Qatar, the Prime Minister and Minister of Foreign Affairs, and the Heir Apparent supported the launch of private aviation in Qatar, in a long-term vision that sees private companies playing their part in the economy of the country. On the other side we haven’t seen the government intervention on this issue yet to guarantee the viability of private aviation.
“We count on the government to intervene now, but our voice might not be heard,” says Al Mousawi.
Rizon Jet is part of Ghanim Bin Saad Al Saad Holdings’(GSSG) portfolio in Qatar, which also includes investments in education, hospitality, cars, marine, real estate and other sectors. GSSG is clearly part of the local community and is contributing significantly to the overall economy. Closing down Rizon Jet’s Doha office would eventually result in damage to the image of Qatar as well, since having a Qatari company with no office in Doha doesn’t really send out the right message.
But despite all these troubles, private aviation is certainly becoming more appealing in Qatar both for businessmen and pilots. A pilot working for a private aviation company has a higher salary than a commercial airline pilot, as well as working fewer hours. If a Qatar Airways pilot flies up to 99 hours per month, a Rizon Jet pilot flies around 35 hours. “We can have a life,” says one private aviation pilot with the firm, although he does say that he needs to be available 24 hours a day, with a minimum of twelve hours notice.
Article continued on next page
Of the 80,000 movements registered at the Doha International Airport in 2012, 1,500 were private jet category operations. While from 2011 to 2012 it has been registered only a small increase in the private jet movements from 1,440 to 1,500, Rizon Jet increased its traffic from 92 to 317 in only one year, a more than 200 percent rise. From whatever angle you look at it, the business of private aviation is growing: it just needs to be able to take off.
Rizon Jet’s new home?
Qatar’s much-delayed airport, the newly renamed Hamad International Airport, will receive its first commercial passengers on 1 April, the CEO of Qatar Airways confirmed in January.
“The airport will be fully operational and fully open to all airlines in the second half of this year. Qatar Civil Aviation Authority chairman has stated that on 1 April the airport will be opened to airlines that do not require lounge utilisation,” Qatar Airways CEO Akbar Al Baker was quoted as saying by Gulf Times newspaper.
Airport operator Qatar Airways said in December it will file a $600m legal claim against German Emirati joint venture construction company Lindner Depa Interiors (LDI) after it claimed LDI’s failure to complete the $250m fit-out of nineteen airport lounges by the summer of 2012 had resulted in significant delays to the opening of the project.
Al Baker said a new contractor has been appointed to fit-out the lounges, which will be delivered between June and September later this year.
The $15.5bn airport was due to have opened in 12 December 2012 but was delayed as the legal battle continued between airport authorities and LDI.
LDI accused the carrier of making “false and misleading” comments and the war of words intensified when Al Baker said the joint venture was “adding insult to injury by denying that its delay caused huge damages and that LDI should pay compensation for such damages”.
Phase one of the new $15.5bn airport is slated to handle over 28 million passengers a year, with the capacity expected to more than double by the time the airport is fully operational in 2018.
The current Doha International Airport handles almost 20 million passengers a year, with over 80 percent of the passenger traffic generated by Qatar Airways alone.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.