Conflict of interest at Oman Air (page 1 of 2)

After several turbulent years, these are suddenly the best of times for Gulf Air. The carrier's new CEO, James Hogan, has overseen the rejuvenation of the airline that is owned by the Abu Dhabi, Manama and Muscat governments.

Gulf Air, under Hogan's direction, has performed strongly over the past several months, since an injection of capital earlier this year. Everything is now going right for Gulf Air, and that's at least part of the reason why everthing is now going wrong for Oman Air.

For several obvious reasons, Oman Air's fate is closely linked to that of Gulf Air. Both airlines are second-tier operators in a small region that already has an oversupply of capacity.

Both are targeting the same consumers and both have very similar routes - with the Indian subcontinent and the Middle East region accounting for the largest share of their businesses. And of perhaps greatest importance, both airlines share a major stakeholder: the government of Oman.

With its recent recapitalization, Gulf Air now looks set for a brighter future. Oman Air's great weakness is that its owner's attention is divided between Gulf Air and Oman Air. As a result, the latter carrier's future now looks very dark. Until it pulled out of Gulf Air, the Qatar government faced a dilemma like that faced by Oman.

Now that Doha has decided to focus exclusively on building its national carrier, Oman stands as the only government in the world that holds a stake in two competing and underperforming airlines. With the government's attention diverted elsewhere, Oman Air has been unable to make any headway during the last several years.

The airline desperately needs an injection of capital - to buy new aircraft and expand capacity, to hire better-trained personnel and a fresh management team. But with the Muscat government focused on Gulf Air, Oman Air has not been able to make progress towards making the changes it so urgently needs.

The Oman Aviation Services Co. (OASC) - Oman Air's holding company - has announced its results for the first six months of 2003. The numbers are staggering. Losses have widened to 1.58 million Omani rials ($4.1 million) from 780,000 rials during the same period last year.

Oman Air's losses are magnified in the context of Gulf Air's vastly improved performance during the same period, capped by it recording its highest passenger numbers in its 53-year history in August. During this period, Gulf Air also managed to launch an economy airline, Gulf Traveller. Judging by the strong initial response, the low-cost carrier may well confound the skeptics who greeted the announcement of the project with barely concealed derision.

Most painful to Oman Air has to be the star turn by Qatar Airways, which in the last two quarters has widened its network with the addition of more flights to Britain and the launch of new services to Moscow. And early this month Emirates airline is likely to publish the best half-yearly results since its inception. (The carrier's financial year begins in April.)

The results from Emirates, Qatar Airways and Gulf Air are all the more impressive considering the terrible performance of sector worldwide, and the impact of the sars crisis and the war in Iraq. This shows that despite Oman Air's claims, the carrier's flaws run deeper than those brought on by sars and Saddam.

At a recent press conference, the chief executive of OASC, Abdulrahman Al Busaidy, said that the carrier required an urgent cash infusion to meet medium-term expansion plans.