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Fri 18 Dec 2009 04:00 AM

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Time traveller

Royal Jordanian CEO Hussein Dabbas maps out the company's future.

Time traveller
Time traveller

Royal Jordanian CEO Hussein Dabbas maps out the company's future.

With 30 years experience at Royal Jordanian under his belt, you would think that Hussein Dabbas would be oozing confidence in his new position as president and CEO. Having worked in nearly every department at RJ since joining the airline in 1979, he was the obvious choice to take over from current Gulf Air chief, Samer Majali.

The handover took place in June this year and at the time, Dabbas saw the job offer as a great opportunity, but fast forward five months and he remains realistic as to the challenges that lie ahead.

"It was my luck to have been chosen by the board, but I believe I am taking over during very difficult times; difficult times for the entire airline industry. I need to work very hard to adapt the business to withstand the economic challenges we face."

Despite his anxieties, Dabbas is well-prepared to deal with any unexpected surprises. In 2002, he was part of the team that built the airline's current strategy; low-cost, high yield routes that have established the airline's form of travel we are familiar with today.

"We focus on a three-pronged approach - the home market, the support market and the external market. Home is the Levant; Syria, Lebanon, Iraq and this is the core of the operation." Back then, RJ changed the whole concept of air travel in the region by offering multi-frequencies - small airplanes covering small airports - "this is why we opted to get the Embraer aircraft added to our fleet," Dabbas explains. "Back then, multi-frequency routes were almost unheard of in the Middle East, but by increasing frequencies we generated new business, and continue to do so today."

The airline now operates multi-frequency routes to destinations such as Beirut, Dubai, Alexandria and Sharm El Sheikh, but it is by operating services to Iraq where it has established itself as the market leader.

In 1970, RJ's inaugural flight to Baghdad left its home base at Queen Alia International Airport. Since then, it has launched scheduled services to three additional Iraq destinations; Basra, Erbil and Sulaymaniyah, and the airline is busy conducting market research to begin operations to Musel.

But 2009 has been a year for rival airlines to re-enter the Iraqi market. Ironically it has been Gulf Air, under Majali's leadership, that has implemented the most aggressive re-entry programme into the country. To date, the Bahrain-based carrier has launched flights to three Iraq cities in as many months, and two more destinations are expected to be announced before the end of the year. So is Dabbas worried by his former boss's latest moves?

"Look, it helps the market to grow when new airlines enter markets. It is part of the business. It makes life more difficult, but keeps us on our toes."

He is also quick to point out that RJ maintained its services to Iraq when other airlines were swiftly exiting the market. "If you don't take risks then you don't do business. It was an expensive risk. At the beginning, we were not even allowed to operate our own planes, so we had to wet-lease planes to operate. This was during the times when the Iraq operation was very foggy and we didn't know how secure the passengers would really be."

But all that has changed and RJ has been instrumental in establishing Iraq as a key destination. "We used Jordan as a gateway to the country and brought about a major transformation in the quality of services, timings and rates," Dabbas explains.

IBA Group aviation expert Usman Ahmed says the airline should continue on this path.

"By connecting local and regional destinations it can tap into both the transit and tourism market.

"Royal Jordanian has one distinct advantage; that it can save passengers up to two hours by transiting through Amman."But, while Iraq remains of importance to RJ's business, its new CEO is currently scrutinising other segments of the company too.

In 2004, RJ began to make a profit. Under Majali's leadership the airline had been privatised and the good times were to continue until 2007. But 12 months later, the airline incurred a net loss of JD3.8 million (US$5.4 million) due to its fuel hedging policy.

"Last year, most airlines took a slap from their fuel hedging policies," Dabbas explains. "All indications were it would rise to $200 barrel, but when it was $145 we were all running around like headless chickens trying to find solutions.

"But we anticipated the crash of the oil prices and the level we have now is very feasible for both the consumer and the airline." Add to that a struggling economy and the airline has done well to record a net profit of JD25.5 million ($36 million) in the first nine months of this year, helped, in part, to a 20% reduction in operational costs.

"We cut capacity and frequency on some flights and sent airplanes to hangars for C-checks, but when demand dropped we had to see what could be done to ensure seats were being sold at the right price." But, unfortunately, many airlines did the same, and RJ was forced to slash its ticket fares, leading to a 14% drop in passenger yield.

"The Middle East has remained particularly strong throughout this year and the market was, and still is, vibrant. Where we took a beating was on the Far East routes. Yields fell through the floor, and it was the same story for North Atlantic routes."

But cutting capacity is just one method to bring the airline into order, says IBA Group's Ahmed. "Royal Jordanian needs to assess other areas of operations; such as ground operations, network, services contracts, suppliers, lease contracts and maintenance operations. These must be reviewed on a regular basis to ensure the best possible deal. Most importantly RJ needs to achieve high levels of staff efficiency to stay above the water in the current economic conditions."

So, what about job cuts? On his exit, RJ's former CEO, Majali admitted that he had made some 500 employees redundant in his last remaining weeks. But Dabbas, it seems, does not have the same methodology. "I'm not here to chop heads and deprive people of livelihoods. I have not initiated any job cancellations since I took over as CEO, although we are not hiring new staff either. But I have told employees that I am here to improve the business productivity and I encourage people to save paper and turn off lights."

So where to next? Dabbas says the airline has exhausted the region in terms of new route launches, and he will continue to re-examine the airline's strategy.

"We have to look at where we want to be by 2012, 2015 and 2020; we need to be creative, assess our successes and change what is lacking."

But the business strategy doesn't end there. Dabbas has concerns that the current expansion project at Queen Alia International Airport will not fulfill his ambitions for RJ.

With just 14 bridges opening in 2013, the infrastructure falls far short of the 26-28 bridges Dabbas anticipates will be needed. As a consequence, he plans to fully exploit the airlines affiliation with the oneworld alliance and the airline will soon be codesharing with Cathay Pacific, and on routes to London with British Airways. But it is merger plans that Dabbas is keen to discuss.

"We need to merge with another airline in the region in order to grow, and we will explore this option next year."

But Ahmed warns that mergers can bring many challenges.

"Internal management needs to adapt to complement working ethics. In addition, fare structures and network optimisation can become key issues.

"The biggest challenge for any airline will always be its competition. At least by merging, RJ will have one less competitor and gain a partner." And when it comes to finding a partner, Dabbas says he would consider looking to airlines in Europe.

"We would like to find an airline that fits our ambitions and we would not rule out the possibility of partnering with a European carrier.

"We have had our peaks and valleys and I won't deny that the economic slowdown has made us think that we cannot carry on the business alone, but consolidation is the future and we will use alliances as a means of facilitating travel."

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