ABU DHABI // A leaked internal memo from Gulf Air shows the embattled Bahraini carrier has forecast nearly US$1 billion (Dh3.67bn) in losses over the next two years, although the company has since dismissed the data as inaccurate and out of date. Record oil prices have hit the airline industry at a time when Gulf Air has sought to emerge from a protracted restructuring process that began early last year.
The airline will sustain losses of 131.7 million Bahraini dinars (Dh1.28bn) this year followed by 226.3m dinars next year, according to a document leaked to the local press. The losses are expected to gradually subside over the next six years, down to 22.6m dinars in 2013. In that time, fuel costs are expected to more than double for the Manama-based carrier. Company officials acknowledged the authenticity of the memo but downplayed its relevance, saying it had never been presented to the board or approved as an official forecast.
"It is woefully inaccurate and nowhere near to being a fair reflection of the current situation at Gulf Air," said Adnan Malek, a public relations manager at the carrier. The company did not say whether an updated outlook would show an earlier return to profits. According to the leaked memo, Gulf Air has already weathered substantial losses: 111.8m dinars in 2006 and 115.9m dinars last year. Despite the possibility of facing hundreds of millions more in red ink in the foreseeable future, Gulf Air has been supported by its government shareholder because it holds strategic value in stimulating the local economy through trade and tourism.
Restructuring changes ushered in last year focused on dramatically cutting operating costs through reducing the Gulf Air fleet and dropping unprofitable routes. However a more recent approach, overseen by Bjorn Naf, the chief executive, has been to expand the route network through new aircraft. That led to firm orders this year for 15 of the Airbus A320 single aisle aircraft and 20 of the A330-300s, plus 16 midsized 787 Dreamliners from Boeing. Another goal has been to win over customers from Emirates airline and other carriers by developing its Manama base as the fastest turnaround time for transiting passengers on long-haul flights. Gulf Air currently flies to 42 cities worldwide with a fleet of 29 aircraft.
The memo leak underscores a gloomy outlook for Middle East airlines, which are beginning to see their strong growth in regional passenger demand offset by the dramatic rise in fuel prices. Earlier this week Emirates airline slashed its profit outlook for the year, and Air Arabia reported lower than expected second-quarter profits. Both blamed the price of jet fuel, which sold this week at $158 a barrel, up 75 per cent from one year ago.
Oil recovered slightly since its high of $147 a barrel on July 11, and this week jet fuel prices eased 4.7 per cent from last week. The volatility has led analysts to question the significance and reliability of multiyear outlooks such as Gulf Air's. "It really is impossible at this very special time in airline history to be making five-year financial forecasts," said Peter Harbison, the executive chairman at the Centre for Asia Pacific Aviation in Sydney. "I suspect this is just a worst-case scenario."
Mr Malek expressed his dismay that confidential planning documents had been disclosed. "Gulf Air employees are extremely upset by this as ultimately it would have been them who suffered had the information been valid." @Email:igale@thenational.ae