Jazeera Airways had its most profitable year on record in 2019, achieving its best-ever operating results. Where has the coronavirus crisis left you? It must be incredibly frustrating.
Well, that’s life. Over the last three years we have significantly scaled up our level of activity. For example, we’ve doubled our fleet in the last two-and-a-half years, we doubled our profits in the last two years and 2019 was a record year. In January we saw a slight decline and were wondering what all this is about and by the end of January we got seriously concerned. In February we started putting together plans. Most of the carriers in this part of the world are not listed entities and they have government shareholders. We on the other hand are listed on the Kuwaiti stock exchange and we need to take care of our shareholders. We were probably one of the earliest in the region to take very aggressive action.
What kind of measures have you taken so far?
We had to take some very painful steps. In compliance with the regulations, we had to bring our airline to a hard stop by 12 March. Kuwait was one of the earliest airports in the region to shut down completely for scheduled flights. Imagine: our home base is shut down, we can’t fly anywhere. And then we need to realign our business to a whole lot of uncertainty. We went line by line through all our cost elements in our books, we renegotiated a lot of cost structures with our suppliers, we spoke to our shareholders and our board and they very generously agreed to suspend their dividends. We also had to take some very difficult decisions with respect to our staff. We had to regretfully let go of about 37% of our staff and I consider that to be a huge sacrifice on their part, which humbles me. All of them have been told in no uncertain terms that they are most welcome to come back and they will be given first priority once things improve.
The ones remaining, including my management team, continue to be on 50% salary and I myself am on zero salary as I believe we need to lead by example. We needed to ensure that we retain as much cash as possible in the business for longevity. As you know, Jazeera has a very strong balance sheet, we have zero debt in our books, which is quite an exception for an airline business. We still have enough cash within the company to continue for more than two years at this pace. We remain strong and poised for the recovery that is likely to come shortly. It’s not going to be easy. We had to keep the lights on by operating a number of charter, repatriation and cargo flights. For a low-cost airline that literally had zero experience in the cargo business, our team did a phenomenal job; within two weeks learning the cargo business from scratch and getting the necessary certification from Airbus and the Kuwaiti civil aviation authorities to start carrying cargo on our flights.
How effective have the cargo operations been in maintaining some kind of revenue?
It has been effective. It’s still very small compared to the overall scale of the business that we do but this period has taught us that you have to be innovative. And as a low-cost carrier, which has one of the highest levels of aircraft utilisation in the world, operating narrow-body aircraft for 14.5 hours per day, for us to then pivot towards the cargo business, learn it and then do it justice, makes me incredibly proud of our team. I suspect that moving forward, once that our regular passenger business comes back, we will still continue to play a significant role in the cargo ecosystem in Kuwait and the region.
As one of the only privately-owned airline businesses in the region, has the crisis been particularly challenging for Jazeera?
You’re absolutely right and it’s different in two ways. One, within the region, most of the airlines have a big daddy who will support them during this situation. We don’t have that, we have to rely on our own resources and our own balance sheet. The second thing is that even for airlines in the West that are privately owned, most of them received some sort of bailout or stimulus package from their respective governments, which we haven’t. It’s the resilience of what Jazeera had become pre-corona that has sustained us through this period. Has it hurt us? Of course it has. And it’s forced us to take painful decisions but it’s not brought us to our knees. We’re well poised among our peers to recover quickly and take advantage of the opportunities that present themselves coming up.
Why have the likes of Jazeera and Wizz Air managed to build such high levels of liquidity in comparison to larger rivals and legacy carriers?
We’re still very small compared to some of the larger airlines. Perhaps that itself is an advantage in these times as it gives us the ability to be flexible, to be nimble and not be saddled with the huge costs of large fleets that can’t fly. Another important thing is the impact of fuel prices and the havoc that that has caused. Most people think that the very low fuel price that we saw in the last three months would have been beneficial to airlines. The opposite is true because most airlines have a significant hedged position and the advantage of a low fuel price kicks in only if you’re operating. Airlines were hit by a double whammy where they weren’t operating so they couldn’t take advantage of the fuel price and the ones who were hedged really hurt badly during this period.
Looking forward towards your recovery, what will be your strategy?
The government of Kuwait has issued a roadmap for aviation, which is quite conservative. From the 1 August to the end of February, aviation capacity is going to be capped at 30%. From February to next August it’s going to be 60% of capacity. And it’s only from August 2021 that they see unrestricted 100% capacity at Kuwait airport. It’s still early days and these directives change depending on how things evolve. From our point-of-view we have to manage both our airline and our terminal, Jazeera Terminal 5. The focus right now is to implement such comprehensive hygiene measures on the aircraft and in the terminal to make sure not only are we implementing the best standards of the industry in this regard, but also communicating this to passengers to ensure there is a good building of confidence.
Have your growth plans remained intact or are you having to change them? For example, is the long-haul low-cost model still something you’re pursuing?
The only destination that falls within that area arguably is our Kuwait to London Gatwick service. So, no. On one hand our network will be driven by demand but on the other hand and more restrictively, it’s being driven by which countries are open to accepting traffic and that’s the bigger challenge at this time. So while there is demand to and from India, our operations to India are severely curtailed by the government of India’s decision to restrict incoming passengers. They are also going to be driven by which country implements what health regime in terms of quarantine and so on. At the moment we’re going to be conservative and risk adverse, we’re going to make sure we do what’s necessary to have a gradual return to operations. Yes, it’s going to mean that our aeroplanes won’t be flying nearly as much as they were before, but I’m glad that they will be flying.
Are you looking at adjusting your fleet structure in the wake of the crisis?
We’re not handing any aeroplanes back prematurely. On the contrary, we are taking delivery of four new A320neos in Q4 of this year. We are going ahead; they are good aeroplanes. We believe that in the second-half of next year that business will come back to normal. We do believe that people fundamentally will get back to travel.
Has this crisis created more of a level playing field or is it actually harder for smaller carriers now?
I think it’s hard in general for everyone in the industry and not just airlines. That’s not going to change for many months if not a couple of years. The only ones that are going to survive are the ones that exercise financial and commercial discipline. The ones who gauge their success by biggest, network, largest fleet and all these meaningless metrics are going to find it extremely hard. The ones who measure their success in terms of profitability, bottom line, customer satisfaction, these are the ones that are going to thrive. A strong balance sheet is key to weathering this crisis. There’s no substitute to having a strong balance sheet and every week brings more bad news in this area with respect to airline failures and unfortunately I don’t think we’re done with that yet.
Can you see any carriers in the Gulf region failing before the year is out?
I’d be very surprised for the simple reason that in this part of the world airlines are seen more as symbols of national pride than businesses. So I doubt you’re going to see airline failures in the region, particularly when they’re backed by governments.
Have any positives come out of this crisis?
Several. One of the biggest positives to come out of this is the way we’re pursuing digitisation. During this period where the scale of operations went down, it gave us an opportunity to reflect and look at what’s best out there in the market, what’s cost effective, what’s going to increase our efficiency and reduce our costs, increase our turnaround time. This period of slowdown in operations gave the entire team a chance to review the processes that need to be changed and digital initiatives that need to be undertaken. The second thing is that it has sparked a real entrepreneurial spirit in our team. I can’t put too fine a point on it, it’s very valuable, it’s very important for each person to think that they’re running their own company. When your back is against the wall it forces people to be entrepreneurial, aggressive and find solutions. I saw plenty of evidence of that.
What’s your view on the launch of new local competition in the form of Wizz Air Abu Dhabi and Air Arabia Abu Dhabi?
It’s very interesting, especially with both companies deciding on the base and the time frame exactly the same. I suspect both were surprised with the other one doing the same thing. Nevertheless, competition is something that we at Jazeera were born into. We have a large government owned carrier in Kuwait and we’re surrounded by large government owned carriers so it’s hardly a level playing field. Yes, two more entities coming in will add to the supply and it will put pressure on fares and make it less profitable for airlines. But guess what, when fares go down and revenues go down, it’s the airline with the lowest cost structure that survives. And who is that? It’s basically one or two airlines in the region, one of which is Jazeera. So yes, we will need to perhaps be a bit cleverer in how we manage our network. In some cases we might have to go into battle, that’s not unusual and in the end the customer is the beneficiary. It’ll be very interesting to watch the evolution of Abu Dhabi-based carriers over the next year or so.
All things considered, you sound relatively optimistic about the market. What’s your outlook?
I am optimistic because of our unique position in Kuwait. Kuwait has the second highest GDP per capita in the Gulf and I think we dominate the low-cost space to and from Kuwait. Make no mistake, the next six to 12 months are going to be very hard for everybody including us and it’s not going got be a picnic. It’s going to take a very long time to recover. But I bet on us because we have a great home base, a good business strategy, a very strong balance sheet and in addition to the core airline we have the terminal, which in maturity will be as profitable as the airline. So yes, you could say that I’m cautiously optimistic at this stage.