Gulf Air, the national carrier of Bahrain, may be paying up to seven times more to buy its jet fuel than some regional rivals - crippling its chances of ever making a decent profit, a report said.

In 2011, the company's global fuel bill hit $500 million, representing more than 35 per cent of its costs, added the report in our sister publication the Gulf Daily News.

'Every one cent rise in oil prices in Bahrain translates into $1.5 million extra in annual costs to Gulf Air,' said the source.

Surprisingly, it is cheaper for Gulf Air to re-fuel its planes at Bangkok or Frankfurt than in Bahrain, because of the premium charged by jet-fuel supplier(s) in Bahrain.

In Bahrain it is believed that airlines currently pay nearly $3.40 per gallon, in Kuwait it is $3.10, Frankfurt $3.35 and Bangkok $3.25.

By comparison, it has been heavily speculated that all other leading Gulf carriers receive fuel subsidies. In Saudi Arabia, it is believed that airlines only pay 50 cents per gallon while it is common knowledge among industry analysts that other leading regional airlines receive substantial support from their national petroleum companies.

Disadvantage

The source pointed out that half of Gulf Air's flights depart from Bahrain International Airport, representing around 70 per cent of all departures from Bahrain airport. Therefore, it is but natural that, as the largest hub-carrier and a key infrastructure asset supporting the Kingdom of Bahrain, Gulf Air gets its jet fuel at a far more competitive rate purely on the basis of the volume it purchases.

Instead, the airline ends up paying much higher prices than its neighbours. Unfortunately, this is true with other regional carriers as well, who buy fuel from Bahrain airport. So the reality is that both the national airline and other regional carriers using Bahrain Airport are being hit by a huge differential in fuel cost.

'Such practices are severely hampering Gulf Air's profit potential and strangling its growth,' said the source.

For instance, last year the airline purchased 159.8 million gallons of jet fuel worldwide at a total cost of more than $500 million representing 35 per cent of Gulf Air's costs for the year.

Of this, 91.8 million gallons of fuel was purchased at Bahrain International Airport costing $282 million. So almost 20 per cent of the carrier's total annual costs are related to fuel purchased from its home base, Bahrain.

'Since Gulf Air is based in an oil-producing nation and fully owned by the government, ideally it should not be fully exposed to the impact of rising fuel costs. Unfortunately, the pricing Gulf Air receives in Bahrain is based on standard market pricing and it does not receive any preferential treatment for refuelling at Bahrain International Airport,' said the source.

In Bahrain, this market-based treatment for the supply of jet fuel - a type of hydrocarbon - is unique to Gulf Air which is central to the national economy of Bahrain. Similar to Gulf Air, there are other companies that purchase large quantities of another type of hydrocarbon.

'The shocking truth is that these partially state owned companies are given preferential pricing when they purchase the hydrocarbon. This practice helps them to trade profitably, whilst Gulf Air is burdened with heavy market costs due to market-based pricing.

'Even more painful is the fact that while Gulf Air is 100 per cent owned by the Bahraini government, these organisations are not. Therefore, Gulf Air is clearly at a huge disadvantage,' said the source. – TradeArabia News Service