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  • Writer's pictureOussama Salah

Royal Jordanian, Uncertain Future

Royal Jordanian (RJA) is facing liquidation since its losses have exceeded 75% of its capital. For this reason, the airline has not issued its 2013 financial results or had its share holders general meeting yet. In reality, the government who is the major share holder will not allow its liquidation. It is a matter of national pride and to a certain extent national security. There are talks of restructuring and a government bail out, but this is a hot topic because of the economy and the deficit. It appears like a lot of political jockeying is going on.

The airline was listed in the Amman Stock Exchange in December 2007 and since then it had very mixed results. It sustained losses in 2008 (34.7 M USD), 2011 (81.6 M USD) and 2013 but had moderate profits in 2009 (40.3 M USD), 2010 (13.6 M USD) and 2012 (1.6 M USD).

In all fairness to Royal Jordanian the geopolitical situation in MENA has not been very favorable and still is not; between fluctuating fuel prices, the Arab Spring, Libya and now ISIL, the airline had to indefinitely suspend lucrative routes like Damascus, Aleppo, Tripoli, Benghazi, Misrata and now Mosul; Cairo, Baghdad and Erbil were suspended on and off for security considerations. RJA also suspended flights over Syria which added almost an hour to an hour forty five minutes to the Beirut flight without an appreciable increase to fares. However, RJA has just announced a code share agreement with Middle East Airlines to start in mid October 2014, allowing RJA to cancel two of its four daily flights. But the most interesting reason cited is the aggressive competition from the Gulf three (Emirates, Etihad and Qatar Airways).

In an attempt to reduce its costs RJA inked code share agreements with Gulf Air, Oman Air and SriLankan to operate Amman to Bahrain, Muscat and Colombo and has suspended or plan to suspend flights to what it terms as losing routes, like Delhi, Mumbai, Alexandria, Accra, Lagos, Brussels and Milan.

Not withstanding geopolitics, the airline did not react quickly enough. While canceling unprofitable routes is a good thing, overcapacity is not. It leaves part of the fleet idling while still incurring lease and loan payments. Rationalizing staff levels is not be the greatest option in a politically charged country with a very high unemployment rate.

RJA has already returned 2 A321s and with the B787 deliveries it is planning to rationalize the fleet composition by the end of 2014 to include the following:

B787, 5 operating aircraft;

A340, completely phased out (4 aircraft) ;

A330, 2 operating aircraft down from 3;

A321, 2 operating aircraft down from 4;

A320, 6 operating aircraft down from 7;

A319, 4 operating aircraft, no change;

E195, 4 operating aircraft down from 5;

E175, 3 operating aircraft, and

A310F, 2 operating aircraft, no change.

A net change of 5 passenger aircraft all of them single aisle aircraft, but with a more fuel efficient and modern fleet.

In a nutshell, the airline board and management acted, just like in the old days, like a government entity. This has caused the share price to go down from a high of 4.09 JOD {5.76 US$} on 16 March 2008 to 0.38 JOD {0.53 US$} on 15 September 2014. RJA would have certainly benefited of the equivalent of a Chapter 11.

RJA needs to act in a more agile and proactive manner, after all that was the reason the airline was privatized. The plans for the fleet and route reductions were too late and too little. There is a need to come up with innovative solutions that increase revenue and not only reduce cost. After all, cost reduction is subject to the law of diminishing returns but with revenues, the sky is the limit.

While RJA may have not lacked leadership, it requires a different kind of leadership. One that not only looks at fleet and routes but one that looks at the management structure and how management approaches risk assessment and especially mitigation. A management that looks at new opportunities for expansion amid the chaos. If this means replacing senior managers, then so be it.

Royal Jordanian has survived for 50 years among the geopolitical chaos; the dilemma today is how to survive and thrive in the same chaos as a publicly listed company. This is a totally different set of rules that RJ may not be yet equipped to handle.

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