By Parag Deulgaonkar
Oman's low-cost carrier SalamAir has launched at a time when other Gulf airlines are reporting profit declines. But the former pilot-turned-CEO, Francois Bouteiller, is not expecting turbulence.
If you have flown on Oman’s first budget carrier SalamAir, you may have been greeted by Francois Bouteiller while boarding or de-boarding the plane.
A pilot by profession, the CEO loves to return to the air once or twice a week. The motive behind these excursions is clear: to gain instant feedback from passengers.
“I do fly as a pilot and so our clients don’t necessarily know that I am the CEO of the airline. They just see me as a captain with the stripes on my uniform. I fly every week or twice a week because it is then you really get the feel of what’s going on,” he tells Arabian Business.
“I greet our clients onboard and walk into the cabin. I talk to them asking them their experience of flight booking and their experience since they arrived at the airport. These sort of things are important because I can get direct feedback.
While he is not necessarily going to change the structure of the company based on one customer's complaint or experience, if it turns out to be recurrent then it is important to fix it.
“Since we are a small company we have the ability to take decisions and incorporate changes quickly and it is crucial compared to larger airlines, where it takes a far longer time to implement changes,” he says.
Launched only six months ago by Muscat National Development & Investment Company (ASAAS), an investment and development vehicle whose shareholders include 10 government pension funds and private investors, the low-cost carrier (LCC) is expected to meet Oman’s increasing demand for air traffic at lower prices.
The airline operates on the promise of “Always Welcome”, a concept that captures its customer-focused philosophy.
Operating from Muscat International Airport, flights so far include Jeddah, Medina and Taif in Saudi Arabia; and Sialkot, Multan and Karachi in Pakistan. SalamAir also operates a four-daily service to Salalah International Airport, on Oman's south coast, and daily service to Al Maktoum International Airport (DWC), Dubai's second facility. It is scheduled to begin services to Dubai International in October.
The airline currently leases three aircraft from Chile’s LATAM Airlines and plans to operate 12 Airbus A320 aircraft by 2020.
“We plan to add three aircraft to our fleet in 2018,” he says, adding the airline will also temporarily increase its fleet size during the summer to cope with the holiday seasonal demand.
The airline is expecting to carry between 750,000 and 800,000 passengers this year.
“Our intention is to consolidate our market in GCC countries. We have just started our Saudi flights and it is performing very well. If you look at Salalah, after the third day we had our first full flight and we ran for the following weeks with about 90 percent load factor,” says Bouteiller.
Saj Ahmad, chief analyst at StrategicAero Research, says with three airplanes and just a handful of routes, the passenger target appears ambitious, particularly considering the fierce loyalty that passengers in SalamAir's key markets, such as Dubai and Jeddah, will already have to their local carriers - both low-cost and full service.
“If SalamAir can get anywhere close to the numbers it projects, then yes it’s a success for its first year of operation – but it has to look to markets for growth where demand exists but services do not. It is this trait that has made flydubai so successful, as the world’s fastest growing low-cost carrier. So the model exists for SalamAir to emulate.”
John Strickland, air transport expert and director at London-based JLS Consulting, says one of the biggest challenges for any new airline is to become known and then to establish a reputation for competitive and reliable service.
“This needs to be achieved against large and well established low-cost carriers Air Arabia and flydubai,” he adds.
Demand for SalamAir’s Dubai service is already below expectation.
“Our morning flight to Al Maktoum International Airport is not doing too good, but the evening flight is doing fine - our load factor is in the 60s,” Bouteiller says, adding the airline is seeking to move base to Dubai International Airport (DXB) to drive passenger demand.
“In Muscat, if you are going to Dubai you have to fly to DXB because when they [passengers] look at the map they say ‘this is in the centre of the city’. It’s only an impression that DWC is too far out and is not as ‘prestigious’ as DXB. But, in fact, it is a lot more efficient and a much better airport in terms of operational capability.”
“[Dubai Airports CEO Paul Griffiths] is working on a solution and it’s coming from their end. We did obtain some slots in DXB but they have some restrictions in Terminal 2. We technically have the right to operate into DXB but they cannot accommodate us at the moment.”
Griffiths confirms to Arabian Business that DXB is operating at full capacity, but says the airport authorities are trying to fit in SalamAir.
StrategicAero Research’s Ahmed says: “Given the congestion into places such as Dubai, traffic access is the biggest obstacle because airlines may not be able to get the preferred slot times they need to entice new passengers their way. But if they are left with little or no choice on slot availability, they have to take them because otherwise somebody else will.”
So is the market deep enough to accommodate budget carriers?
Martin Consulting CEO Mark D Martin argues it is. “Growth in Middle East air traffic will lead to market viability and we believe there are more airlines that will see stable and sustainable growth," he says.
"SaudiGulf Airlines has transitioned from being a non-starter to a starter in the last two years, so clearly there is a market and that market can be made viable.
“[However], the failures outweigh the success of airline operations in the Middle East. Airlines such Bahrain Air, Air Jazeera, RAK Airways, Fujairah Airlines and Wataniya Airways, a total of five airlines have shut down during the last seven years, so clearly these certainly are interesting times when it comes to building aviation in the region, because there clearly is shortage in capacity.
“After these airlines shut shop, the Middle East lost nearly 100 single aisle aircraft in a span of 36 months; that’s roughly three aircraft every month. SalamAir certainly will help fill the void that [now] exists.”
Ahmad argues there is room for at least four or five more low-cost carriers to operate in the GCC.
“It is conceivable that Etihad may look to set up something. Someone could set up something out of Dubai World Central. Iran and Iraq are two massive markets that are also crying out for a home grown LCC. Saudi Arabia, too, is a prime spot, but given the dithering of flynas’ identity crisis and the red tape there, I don’t see any fledgling start up coming out of there anytime soon,” he adds.
“That said, the likes of leaders such as flydubai and Air Arabia will dominate. The lower tier players like flynas, Jazeera Airways, SalamAir and others will see the greatest pressure on yields and pricing because they have it all to do when it comes to expansion.”
While Bouteiller previously headed flynas, a low-cost Saudi airline, his game plan for SalamAir will be different.
“While flynas is a low cost that moved into a hybrid model, SalamAir is and will remain a low-cost airline for the time being. Besides, the difference is that it [SalamAir] has the soul of Oman. We are really trying to get as much of an Omani touch as possible, in terms of service onboard and even the smell in the aircraft,” Bouteiller says.
He is also acutely aware that he will need to turn a profit sooner rather than later in order to keep the airline flying - and his job.
“We have to offer more flights to more destinations. We have to be more competitive and offer good fares that correspond to customer needs," he acknowledges.
"If I do that and I can attract enough passengers onboard my flights then I make profit, which is the other reason for the [airline's] existence, because I am a privately owned airline and I am not subsidised by government by any means."
With a pilot's licence, a mandate for expansion and a market that is only growing, there is plenty of optimism to keep Bouteiller in the sky for a while yet.