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Fuel subsidy proposal may bolster Gulf Air

Manama, July 8, 2014

Gulf Air wants the government to subsidise 30 per cent of its fuel costs, to enable it to achieve an operating profit for the first time in years.
 
The proposal has already been tabled with the Cabinet, Gulf Air acting chief executive Maher Salman Al Musallam told the Gulf Daily News (GDN), our sister publication.
 
He said fuel bills accounted for around 35 per cent of the airline’s operating costs.
 
The carrier is two-and-a-half years into a massive restructuring that has seen it shed its workforce by 1,024 jobs last year, reduce its fleet and cancel unprofitable routes.
 
“Our goal for the current year is to operate with no losses and leave the losses in the overheads only... It is a challenge but we are confident of achieving it,” said Al Musallam. 
 
"The subsidy will definitely help us achieve the goal and cover some of the overhead costs also," he added.
 
This year the airline is targeting a further 12 per cent reduction in losses, after they were cut by more than BD100 million ($263.8) - or 52.4 per cent - from BD195.8 million to BD93.3 million last year.
 
"We netted year-on-year cost savings of 28pc and 14pc passenger yield increase under the aggressive restructuring strategy launched in December 2012," Al Musallam said.
 
Gulf Air's strongest financial results in eight years were achieved through cuts in aircraft leasing fees, retiring of aircraft, closure of eight loss-making routes, opening of five new destinations, increasing frequencies to eight existing destinations, reduction in staff expenses, renegotiation of more than 2,000 supplier contracts and productivity improvements.
 
After a period of consolidation, the airline is now looking to expand again with two new routes planned this year.
 
Another proposal the airline is banking on is the creation of a state-owned holding company consolidating the ownership of Gulf Air, Bahrain Airport Company and Gulf Aviation Academy.
 
The chief executive said he hoped the proposed holding company could be expanded to include Bahrain Aviation Fuelling Company, Bahrain Airport Services and Bahrain Duty Free Shop Complex to maximise synergies and cross-subsidisation benefits.
 
Gulf Air, Bahrain Airport Company and Gulf Aviation Academy are fully owned by the sovereign wealth fund Bahrain Mumtalakat Holding Company.
 
Dubai-based Nirvana Consulting's chief analyst Varun Sutholiya told the GDN the consolidation would help Gulf Air save on landing and terminal fees and airport usage charges.
 
It may also potentially reduce the airline's borrowing costs below market rates by allowing it to take advantage of the government shareholders' sovereign borrower status.
 
Musallam said Gulf Air offered a different value proposition than other international carriers. 
 
"Our business strategy focuses on point-to-point traffic, especially in the region," he said. 
 
"We operate lower-density aircraft allowing us to focus on offering passengers access to high-frequency flights, putting control of when to travel very much back into the hands of passengers," he added. - TradeArabia News Service



Tags: Gulf | subsidy | fuel | Air |

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