By Shane McGinley
As national carrier Royal Jordanian looks to Africa for growth in 2011, its CEO Hussein Dabbas faces a bigger challenge on his home turf: brightly coloured low-cost carriers
National flag carrier Royal Jordanian will celebrate its 50th birthday in two years time. In the half century since the airline was launched by the late King Hussein, it has faced the fallout from the 9/11 attacks, political strife in Lebanon and Syria, the Gulf wars, the collapse of the Jordanian currency and the global economic crisis.
However, president and CEO Hussein Dabbas, in the job since August 2009, is faced with a whole new challenge in 2011: the arrival of Sir Stelios Haji-Ioannou’s easyJet and mass market, low-cost travel.
The Jordanian capital of Amman will be the infamous UK-based carrier’s first route into the Middle East. Is Dabbas worried? The naturally calm and gregarious airline boss certainly doesn’t appear to be and claims to be all set for the challenge the mass market rival will bring.
While he believes “Jordan is a small country and [the] market cannot sustain too many airlines operating from the same country” he concedes that there is room for the low-cost carriers and the full service airlines to operate side-by-side. He even goes as far as to say that he may consider setting up Royal Jordanian’s own low-cost unit if it thinks there is a demand for it.
“We believe we continue to be a full service carrier and if we want to have a small LCC (low-cost carrier) developed that is something we would probably look into later in the future.”
Entering the low-cost market is something many full service airline CEOs in the region have already considered. Dabbas’ sentiment echoes frequent comments by Qatar Airways CEO Akbar Al Baker that the Doha-based airline has registered a logo and name as part of its contingency plan to launch a low-cost carrier if it feels its market share is being threatened by low-cost carriers in the region.
Abu Dhabi carrier Etihad Airways has already, since October last year, begun operating economy-only flights on some of its routes. However, Dabbas says if Royal Jordanian does seriously consider entering the no-frills market it will do it as a completely separate unit. “You cannot combine both… they have to be completely separate.”
On March 27, easyJet’s first aircraft from London Gatwick will land in the Jordanian capital. The carrier plans to operate three flights a day and tickets will be priced at around £106 ($149) return, compared to around £450 ($634) return with rivals Royal Jordanian or BMI. Tourism in Jordan already accounts for eleven percent of the country’s gross domestic product and the government tourism board is confident that the attractive fares offered by easyJet will help this increase in 2011.
“We have been discussing direct flight options to Jordan with easyJet for a number of years now and are delighted with the news of the launch of this new route to Amman,” says David Symes, Jordan Tourism Board country manager for the UK and Ireland.
“The increased frequency, capacity and more flexible pricing is great news for tourism to Jordan and should work to increase awareness of the destination as well as grow the independent traveller market, which already makes up approximately 50 percent of UK visitors.”
Dabbas may not welcome the challenge but he can take some comfort in the knowledge that competition already exists from Dubai-based flydubai, Sharjah-based Air Arabia - which will set up a hub in Amman this year - and Saudi’s nasair. These low-cost operators have certainly not dented the airline’s 2010 performance. End of year figures show that the number of passengers in 2010 increased to more than three million, compared to 2.6 million in 2009, marking an annual growth of thirteen percent. The seat factor is up from 68 percent to 70 percent and the number of flights operated was up nine percent from 35,715 to 38,813. On the cargo front, the amount of tonnage also increased 29 percent from 41,500 to 53,500 tonnes in 2010.
While passenger numbers and cargo were on the rise, profits for the first nine months of 2010 were down by nearly a quarter as a result of an increase in fuel prices and operational costs. While revenue was up 14.6 percent to JD516m ($727.27m), profits for the first nine months fell 23.5 percent to JD19.5m ($27.48m).
The cause of the drop in profits was due to an increase in its fuel bill and operational costs rising by around 19.5 percent. “We believe, according to the forecast numbers we have, that the fuel bill will increase from the last year of $150m to $200m, which is about $50m extra to what we paid last year,” says Dabbas.
He believes one of the big issues is yields, where, like many regional carriers, it is “facing a lot of pressure.” At the time of the interview, full year results had not been finalised but Dabbas confidently predicts “a decent profit for the airline for 2010.”
As its market becomes more competitive, Dabbas says the airline is looking to tap into more emerging markets and is looking to Africa for growth in 2011. “Our strategy is that every year we add two routes to our network, one medium short haul and one long haul,” he says. In 2010, Medina in Saudi Arabia and Kuala Lumpur in Malaysia were the chosen routes and Dabbas has already announced that the German capital of Berlin will be its medium short-haul route for 2011.
“The second destination we are looking at is Lagos in Nigeria. We intend to do that. If it doesn’t work for Lagos we will look at another African destination,” says Dabbas.
The airline flies to Khartoum in Sudan, Tripoli in Libya and Tunis in Tunisia and Cairo, Alexandria and Sharm El Sheikh in Egypt, but Lagos will be Royal Jordanian’s 60th route and its first foray into Sub-Saharan Africa.
“We have no proper connection with Africa and we are seeing that the African continent is up and coming, economically and the people have started to have a lot of disposable income to travel.
“We would like to expand into Africa to expand more on the network and connect the African nations with Jordan and the Middle East,” he adds.
The airline currently operates 32 aircraft and Dabbas claims its fleet is one of the youngest in the world. In order to service its existing routes and facilitate its expansion, the carrier is planning to increase its fleet in 2011.
In June last year, it announced that it intended to introduce seven new Airbus A320 and A321 aircraft, with the first delivery slated for April 2011. The new aircraft will replace six Airbuses currently operating in the fleet and all will be delivered by the end of 2012.
The Amman-based airline was also the first Middle East carrier to order a Boeing 787 Dreamliner aircraft. The pride of the US manufacturer, the Dreamliner eventually made its maiden flight in late 2009, two years late. However, Dabbas says he is not concerned and is confident that Royal Jordanian will take delivery of its first Dreamliner aircraft in 2013.
“The first aircraft we expect to arrive on September 2013, we believe we should be receiving four of them and the fifth will arrive in 2014 and then we will not receive any until 2015 onwards.”
While it has eleven on order in total, Dabbas says any delays by Boeing will not impact its delivery schedule: “Any delay will, supposedly, not affect our delivery dates because we are talking about three years from now so we believe we will be receiving them on time.”
The strong relationship between Jordan and Boeing was highlighted by the recent Wikileaks debacle. A confidential cable from the US embassy in Amman revealed that in 2004 Jordan’s King Abdullah II told the ambassador that he had rejected a better offer from Airbus as he “intended to make a ‘political’ decision to have Royal Jordanian buy Boeing aircraft.”
Listed on the local exchange since December 2007 with capital of JD84.4m ($119m), the carrier is 26 percent owned by the government, with the remainder owned by the Social Security Corporation, the armed forces, airline employees and overseas investors.
As it approaches its 50th birthday, the airline has achieved remarkable growth for a legacy carrier. The number of passengers carried has increased from 87,000 in 1964 to more than three million in 2010 and the number of yearly flights has surged from 4,193 to 38,800. As a result, its fleet has increased from two aircraft to 32 and its range of destinations has rocketed from three to 60 by the end of 2011.
The airline also proudly states that revenues have grown from JD1m ($1.41m) at the end of 1964 to an estimated JD641m ($904m) for 2010. With the number of employees expanding from 250 in 1964 to 4,330 in 2010, productivity per employee has also jumped from JD4,000 ($5,638) in 1964 to JD148,000 ($208,627) in 2010.
As part of the Jordanian government’s $10m tie-up with Google, Royal Jordanian will be one of the government-backed companies the search engine giant will now promote. Under the three-year deal, Google will use its advertising platforms to promote Jordanian companies and Royal Jordanian will be able to buy keywords to ensure their advertising is highlighted in search results shown to users.
“It is really a tough job but it is a challenging job and you need to work completely different day in day out,” Dabbas says of his two years at the national flag carrier.
With the help of Google and its membership of the global airline alliance oneworld — which it joined in April 2007 — Dabbas is no doubt hoping that in 2011 Royal Jordanian can withstand the arrival of the slightly less regal easyJet and its bright orange fleet of low-cost aircraft.