Due to the Current Situation Which Gulf Air Faced, Does Staff Reduction Help the Company Financially?

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Scientific Research Methodology

Assignment II

Research Proposal

Due to the current situation which Gulf Air faced, does staff reduction help the company financially?

Submitted by: Mohamed Khalil Alnazar
Supervisor: Dr. Ahmed Ali
The Kingdom University - Bahrain
December 2012

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Background:

Gulf Air lost more than BAHRAININ DINARS 380 million (US DOLLARS 1 billion) between 2008 and 2010, suffered deep losses last year after Gulf Air temporarily suspended flights to Iran, Iraq and Lebanon during the height of the Bahraini uprising. The exact scale of the losses has not been disclosed, but it is clear that the carrier’s multi-year turnaround and plan to break even has suffered a major setback.

A decade ago, Gulf Air was one of the largest players in Middle East aviation. As its multi-national ownership disintegrated due to various governments choosing to focus on their own national carriers, Bahrain was left as the sole owner. Locked out of its old hubs, Gulf Air faced a new and increasingly hostile competitive environment. It has also suffered due to high fuel prices, poor traffic demand and the recent unstable local and regional political situation, which continues to rumble on in Bahrain.

Gulf Air has been forced once again to reassess its commercial priorities. After launching a major turnaround in late 2009, the carrier made “significant gains” in 2010 according to CEO Samar Majali. Losses were cut from approximately BAHRAININ DINARS 190 million (US DOLLARS 500 million) in 2009 to BAHRAININ DINARS 135 million (US DOLLARS 360 million) in 2010. Over the two-year period, the carrier underwent a major route reorganization, cut staff numbers by nearly 1000 over 12 months – around a fifth of the total workforce – and launched a fleet renewal, which has seen the carrier’s average fleet age halved, bringing cost efficiencies.

The aim was to cut almost BAHRAININ DINARS1.1 billion (US DOLLARS 3 billion) of costs over five years and to refocus the airline as the Middle East’s “carrier of choice” by offering a diverse, high frequency regional network, backed by excellent service. By late 2010, the effort appeared to be paying off. The renewed focus on the Middle East and nearby South Asian and African markets was matched with a tighter network, targeting higher yielding markets with convenient flight timings and connection banking. Mr. Majali was bold enough to announce that Gulf Air was projecting breakeven by the end of 2012.

The end of 2010 saw the start of the Arab Spring, which spread into local social and political unrest in Bahrain, with disastrous implications for Gulf Air. The first five months of 2011 saw Gulf Air’s traffic down more than 25%. As if this was not enough, the Bahraini Government put in place a ban on operations to Lebanon, Iran and Iraq, due to security considerations. While flights to Lebanon have resumed, Gulf Air remains shut out of the potentially lucrative Iranian and Iraqi markets, and has been forced to turn to other markets, such as Saudi Arabia, to compensate.

Gulf Air’s owners – the Bahrain Government via its Mumtalakat sovereign wealth fund – are looking at another major shake-up of the airline. A late Jan-2012 announcement made it known that a range of strategic options were under consideration for the carrier. These included another major injection of funds into Gulf Air, a significant downsizing of its operations, a comprehensive restructuring or dissolution, or complete sell-off of assets along with the formation of a new carrier.

As many as 1,800 staff could be laid off as part of a deal proposed by the government to secure National Assembly approval for a BAHRAININ DINARS185 million bailout of the carrier. The restructuring plan will reportedly reduce the carrier's losses from BAHRAININ DINARS 95 million to BAHRAININ DINARS 58...
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