Harsh times

Despite operating amid political instability, Royal Jordanian Airlines generated healthy revenues last year. President Samer Majali talks to Rob Morris about the highs and lows since taking control.
Harsh times
By Rob Morris
Wed 07 May 2008 04:00 AM

Despite operating amid political instability, Royal Jordanian Airlines generated healthy revenues last year. President Samer Majali talks to Rob Morris about the highs and lows since taking control.

It's been nearly seven years since Samer Majali took over Royal Jordanian Airlines, but the seasoned aviation figure still vividly recalls his arduous introduction.

Having accepted the president role in July 2001, Majali was forced to steer the company through the post 9/11 fallout two months later. The ordeal was a tough initiation for the newly installed chief, with the aviation industry crashing amid an economic downturn.

The timing was bad and I thought that when the attacks occurred," Majali says. "But there was a job that needed to be done and you have to do the best you can under the circumstances." Despite the downturn, Royal Jordanian's operation remained steady.

There are political issues in Iraq, Syria and Lebanon that have an obvious impact and that further complicates our business.

Indeed, Majali and his management team had been negotiating a deal involving four Airbus A340s before the attacks. Talks continued following 9/11, with aircraft manufacturer Airbus forced to sell at cheaper rates to offset order cancellations from other carriers.

The new planes were eventually deployed on US routes, replacing Royal Jordanian's older A310s. "Sometimes you can turn a negative situation to your advantage," Majali says. "Securing the A340s improved our network and generated more revenue.

For Royal Jordanian's management and staff, operating amid turbulent market conditions is nothing new. In the late 1980s, the airline's revenues dropped when Jordan's currency plummeted. Political influences also took their toll, with the Gulf War destabilising the region's economy.

Both incidents hit Royal Jordanian hard, forcing management to restructure the airline and put privatisation plans on hold. To reduce debts, the airline's directors sold off non-core assets such as engineering and overhaul operations, duty free shops, training centres and catering facilities.

Management also made more than 800 redundancies between 2002 and 2005. Meanwhile, the board increased flight frequencies and invested in the latest IT systems and aircraft.

In the short-term, making cutbacks in some areas while strengthening others appeared to pay off. But management suffered further blows after the Millennium. Problems emerged after the government assumed 100% control prior to launching the airline's privatisation plans eight years ago.

Some 49% of shares were set aside for an outside investor that would work closely with Royal Jordanian's management. But the airline's directors were forced to abandon this strategy following 9/11. "The plans were delayed because the appetite to invest in airlines had vanished," Majali says.

"We were back on our own again and unable to carry out the privatisation, which was one of my tasks when I was appointed. The idea was to inject more value back into the airline, getting it in better shape after it had gone through the privatisation.

The airline endured further misery in 2003 when US armed forces invaded Iraq. During the conflict, passenger numbers on services operating to and from nearby Jordan initially dropped.

The upshot was that Royal Jordanian's finances dipped slightly, with the airline generating modest returns before the latest political dispute involving Lebanon and Israel in 2006.

It was yet another international crisis threatening to undermine the airline's development. But unlike 9/11 and the Iraqi war, Lebanon's conflict with Israel failed to perturb most travellers from boarding Royal Jordanian flights.

According to the carrier's 2007 annual report, Royal Jordanian generated JD24 million (US$33.8 million) profits before taxes - more than triple the JD6.1 million ($8.6 million) return in 2006.

Operational revenues also climbed during the same period, with Royal Jordanian generating JD543 million ($766.2 million) compared to JD447 million ($630.7 million) the previous year.

The airline's strong profit amid the political fallout was attributed to rising passenger demand. Installing the latest IT systems, such as electronic ticketing, internet booking, self service check-in and revenue management, were other contributing factors, according to the airline's management.

With the carrier on a stable financial footing before last year's profit hike, the board's privatisation plans were rekindled in 2006. The government appointed Citigroup in January 2007 as lead consultant to prepare Royal Jordanian for an IPO.

Some 11 months later, the Jordan-based carrier joined the Amman Stock Exchange, listing 59.9 million shares at JD2.75 to JD3.40 each. The admission represented 71% of the airline's shares, with the government retaining a 29% stake.

"Our timing for the admission was good because the global market had taken a beating between January and March this year, so we were lucky to complete the IPO before this happened," Majali says."Our shares are on the market and have been fluctuating, but the price is generally around 20% up from the initial IPO offering. It took us four years to get to that point, but we're now in a much better shape. We have a new network, fleet, IT systems and people.

Majali insists the airline's operation remains relatively untouched following the stock exchange launch. But he admits Royal Jordanian's working culture is changing in line with the carrier's shift from government-owned entity to commercial business.

Some people have been in the business for 40 years and there has been a lot of positive and negative inertia developing during that period," he says.

"The negative inertia had to be removed and that's taken quite some time. We needed productivity and efficiency improvements among staff, so it's important to expand the workforce at a lower rate than the business. By doing this, we can achieve our goals, which then leads to benefits for staff such as increased pay and a better working environment.

Overseeing the airline's development and completing the IPO during turbulent times may have been major priorities. But expanding the carrier's fleet has also taken precedence.

In recent years, Royal Jordanian has agreed to buy four Boeing 787s and hopes to lease a further 10. The carrier is also adding Embraer 175s and 195s, Airbus A319s, A320s and A321s to its fleet. All aircraft are expected to arrive between now and 2014, increasing the operation to some 35 planes.

Elsewhere, the airline's management is introducing technical and communication training for staff, and overseeing the company's relocation to new offices in the coming years. The board is also keen to continue updating Royal Jordanian's website by investing in new online booking and check-in systems.

Increasing frequencies on existing and new routes is another objective, with the airline recently adding Barcelona, Montreal, Budapest and Hong Kong to its 53-strong network. Majali admits the board has considered launching new routes, although he only mentions Kiev when pressed on the matter.

He also insists adding more flights to current destinations is more important.

"We grow the company by investing in our current routes and making them better," Majali says. "If we fly somewhere three to four times a week we push it up to daily.

If we go somewhere daily we push it up to 10 times a week and 10 weekly flights are increased to double daily services. By offering more frequent flights we grow the market without having to look at new destinations.

For Majali, joining airline alliance oneworld in April 2007 has enabled management to concentrate on local routes. Indeed, the 10 member carriers cover most global regions, providing Royal Jordanian passengers interline services to some 700 destinations.

For example, through partner American Airlines, Royal Jordanian has access to more than 100 US cities. It also provides similar services in Asia, Europe and Australasia through Cathay Pacific, British Airways and Qantas respectively.

As a oneworld member, Royal Jordanian has a distinct advantage over its Middle East rivals, according to Majali. The Jordan-born businessman also believes securing membership to the coalition is testament to the airline's recent development.

"When you're invited to join an alliance, you have to meet stringent safety, operations and security requirements to ensure the business is on a par with current members," Majali says.

"For example, Cathay Pacific won't let passengers connect with your airline unless you can guarantee a comparable service. To be invited is testimony to all the improvements that have taken place at Royal Jordanian. The alliance liked our strategy for the region, privatisation plans, size, technical expertise and reputation, which is why we secured membership.

Since taking on the president role, Majali has endured many low points throughout his tenure. Nevertheless, despite the obstacles, Royal Jordanian has bounced back following several setbacks. "Business is tough wherever you are in the world," Majali says. "We work in an industry where the competition is open, so you don't really have a handle on the revenue side.

"There are political issues in Iraq, Syria and Lebanon that obviously have an impact and that further complicates our business in terms of predicting the future. It also makes investing in the airline a difficult task because you never know what's going to happen. But I've been with the airline for almost 30 years now and have got used to it.

Based on the past two decades, Royal Jordanian will continue operating amid political instability. But regardless of whether or not further international conflicts break out, Majali and his team will remain focused on the task in hand - increasing the airline's profits.

"The plan is to continue growing the company and making sure the passengers get value for money. Our vision is to be this region's leading choice of carrier that connects passengers to the rest of the world."

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