The sad story of Bahrain Air

For every Emirates, there’s a Bahrain Air. Last week, after spending five years manfully battling against mammoth headwinds, the carrier was finally forced into voluntary liquidation. It’s bad news for the carrier’s 300 staff, who will find it tough to find new jobs in the same industry, as rival Gulf Air is also paring back its staff.

CEO Richard Nuttall – who is, by all accounts, an immensely likeable guy – must have had one of the toughest jobs in the Gulf in recent years. In an interview with Arabian Business last year, he described 2011 as ‘spectacularly uninteresting’ in terms of growth.

That remark was something of an understatement. The term perfect storm has become a cliché, but for Bahrain Air, the last two years have seen huge obstacles thrown in its path. Airlines worldwide have been forced to pare back their operations or merge; the biggest news in the industry right now is the $11bn merger between US Airways and American Airlines’ parent, which will create the world’s largest carrier.

Expensive fuel and an uncertain economic outlook have affected most airlines’ balance sheets; the situation was far worse for Bahrain Air given the ‘Arab Spring effect’ on most of its routes, plus the unrest at home. And if that were not enough, the carrier – which marketed itself as somewhere between a low-cost and a full-service airline – also faced competition at home from state-backed Gulf Air, as well as what appears to be a pretty intransigent attitude from the Ministry of Transport.

But the real question has to be whether Bahrain – with a population of only 1.3m – ever needed a second airline in the first place. Even at the time that Bahrain Air launched in 2008 – which in itself was unfortunate timing – rival Gulf Air was on its third CEO in two years and battling desperately to stay competitive against fast-expanding Emirates, Etihad and co. By the end of 2008, it was losing money hand over fist – at around half a billion dollars a year – and acting as a major drag on the results of its owner, sovereign wealth fund Mumtalakat. Bahrain Air was left with the crumbs from Gulf Air’s table in terms of routes; its traffic rights were such that it could only fly to destinations that its larger rival had written off as unworthy.

All airlines make a loss in the first few years of operation and Bahrain Air was no exception. But the difficulties the carrier faced were such that there was no way that shareholders could see when the balance sheet was going to improve. While Gulf Air lapped up government funding, Bahrain Air couldn’t raise financing from the banks. And while Gulf Air is still flying despite losses in the hundreds of millions of dollars, Bahrain Air is finished due to debts of tens of millions.

While there was some talk of a merger last year, I’m not sure the idea was ever seriously considered by Gulf Air. The state-owned carrier didn’t need Bahrain Air’s planes (which were leased anyway), or its staff, and the only routes that the smaller airline had were those which Gulf Air didn’t want.

The most successful carriers in this region have been those that fulfil a national need, and have some degree of support – in whatever form that may come – at the governmental level. Unfortunately Bahrain Air had neither. Air Arabia is the rare exception, which is why it’s tough to underrate the achievements of CEO Adel Ali. When we asked Ali last year what advice he would give anyone wishing to set up an airline, his candid response was: “In a nutshell, don’t do it.” And as Richard Branson once famously said: “If you want to be a millionaire, start with a billion dollars and launch a new airline”.