Royal Jordanian falls victim to regional unrest, competition, high fuel prices

AMMAN — The government and Royal Jordanian (RJ) board members are studying a number of options to help the company return to profitability, and secure a bright future, an RJ press statement sent to The Jordan Times quoted RJ Chairman Nasser Lozi as telling shareholders on Sunday.

Lozi, also the company's president and chief executive officer, said in the press release that RJ is running its services under difficult operational conditions. 

Security and stability are top drivers of tourism and air transportation in the world, the press release noted. Consequently, tourism and the air transport industry are the first victims of unrest, because they directly reflect on the load factors, the ticket fares and eventually the final results of airlines. 

By operating from the heart of the Middle East, which is surrounded by unrest, the chairman indicated that the airline's operations underwent major changes and its route network was highly affected.

"Damascus and Aleppo, two stations of a strategic significance to Royal Jordanian, are still suspended. The two Syrian stations, added to Beirut, are considered feeding routes for RJ flights to North America and Europe. Last year, the load factor to these destinations went remarkably down," Lozi said.

He added that the airline had to halt operations to three Libyan cities and one to Iraq this year. RJ also had to reduce frequencies to some destinations, the most significant Beirut, due to the low demand for travel to the Lebanese capital. 

He noted that the company incurred losses when it had to change the route between Amman and Beirut in March 2013. The flight duration now takes 1 hour and 45 minutes instead of 1 hour, a result of avoiding flying over Syrian airspace. 

"It [the airline] was highly impacted by the low demand on travel, and tourism to Jordan and the Arab world, particularly from the traditional markets of Europe and the Far East, since tour operators look at the Middle East as one tourism station," he explained.  

Lozi said that these factors contributed to the 2013 operational and financial results. RJ used to achieve a 15-20 per cent growth in the number of passengers and revenues year on year. 

Last year, however, the number of passengers declined by 3 per cent, which resulted in a decrease in revenues from JD802 million in 2012 to JD744 million in 2013. 

He said the company did its utmost to cut costs without affecting the level of services to passengers indicating that the high fuel bill paid by the company last year constituted 38 per cent of the total operational cost

The cost reduction efforts resulted in bringing down the operational expenses from JD722 million in 2012 to JD713 million in 2013.

Lozi also mentioned that, besides instability, intense competition among regional airlines, was another challenge faced by RJ in 2013 as it had a big role in reducing ticket prices.

According to the press statement, the chairman told the shareholders that Royal Jordanian has taken many steps and measures in 2014 to improve the performance of the company and enable it to achieve profits. 

He underlined the airline's determination to generate ancillary revenue and find different sources of income by investing in different areas in the aviation industry, such as aircraft maintenance, ground handling and airport services.

RJ will enter these fields in new markets and regional airports, thus contributing to developing and building up the aviation industry in neighbouring countries, besides its contribution to the progress in the Jordanian airports, the press release said. 

"At operational level, 2014 marks a new positive turning point in RJ's history and fleet," he said. "Starting with the end of August this year, the airline received the first Boeing 787 aircraft [Dreamliner]. The company will add four other new 787s by the end of 2014; the rest of the ordered aircraft will join the RJ fleet in the upcoming years, replacing the Airbus 340s and 330s."

The new Dreamliner, with its host of new technologies and fuel efficiency features, will operate on RJ's medium- and long-haul routes, opening new horizons and markets for the airline in different countries around the world. It uses 20 per cent less fuel than today's similarly sized planes. 

The airline phased out a number of its aircraft during 2014, due to the fact that the company decided to forgo some destinations on its route network that is constantly reviewed by the airline.

Due to the weak economic feasibility, RJ decided to shut down its operations to Milan, Colombo, Accra, Delhi, Mumbai and Lagos, and passed on the Sharm Al Sheikh operations to Royal Wings. 

It also reduced the number of flights to Beirut from four to two daily, based on a code-share agreement concluded recently with the Middle East Airlines. 

Lozi assured the 7th ordinary general assembly meeting of the airline’s keenness to improve its financial results and achieve a return on investment for shareholders. 

He said that in spite of the company’s unsatisfactory financial results, various other indicators show that RJ is a successful and progressive airline that competes with big international airlines in terms of ground and air services, qualified staff, technology, and safety and security standards it adopts.

Noting that RJ is not only a shareholding company, but also a big national company that has sovereignty and economic dimensions as it is the national carrier of Jordan, connecting the Kingdom with a large number of countries and mirroring a bright image of Jordan to the world, he drummed up the firm's JD378.5 million contribution to Jordan's gross domestic product last year, with an average of 2-3 per cent.

"With its qualified human capital, its revised route network, its modern fleet of aircraft, competitive services to passengers and highest safety standards, RJ will be able to become stronger," Lozi concluded. 

At the beginning of this year, RJ was named one of the top 10 safest airlines in the world in 2013 on the world's best one-stop airline safety and product rating review website.