James Hogan, the Australian brought in to reinvent Gulf Air has already wrought major changes in Bahrain. And even with the threat of war looming, he still aims to achieve profitability by 2005
Once one of the world's prestige carriers, Gulf Air in 2002 was in bad shape. The airline was deeply unprofitable; Qatar, one of its four state owners, had walked away and another looked likely to follow; a Bahrain government investigation into the fatal crash of an Airbus A320 in 2000 basically branded the company incompetent; and its service standards had fallen to the point that locals gave it the rhyming nickname "down there".
With the carrier's viability becoming a serious question, the situation was dire enough that, in May, the three remaining owner states - Abu Dhabi, Bahrain and Oman - took the unprecedented moves of bringing in a non-Gulf national to run the airline and giving him a mandate to run it in a commercial manner. Enter Australian and former bmi british midland chief operating officer James Hogan.
It will surprise few to hear that when Hogan first arrived in Bahrain he could not believe his eyes. Less predictably, he liked what he saw. "It was all there," he recounts. "The infrastructure - including the strongest network in the Middle East - was already in place. But the airline hadn't been looking five to10 years ahead or minding the day-to-day."
Convinced the carrier could be a winner, the new chief mapped out a game plan that will, he vows, see Gulf Air stop losing money in 2004. "It will take two years to rectify, three to break even," he pledged early on, citing the themes that will be key to the turnaround - Gulf's product, revenues, costs, people, and communication. He began acting on all five immediately.
He started by tackling the carrier's failing premium-class services, which were lagging badly in a region that boasts Emirates and, more recently, Qatar Airways, two carriers that do not scrimp on the in-flight experience. In addition to retooling the meal service across all three classes, Gulf has introduced a "five-star chef-on-board" concept for first-class travel between Europe and both Abu Dhabi and Bahrain. Hogan professes to be entirely satisfied with the results of the offering, saying the "repositioning of the service proposition" has been critical to the carrier reclaiming the bulk of the first-class traffic emanating from those two cities.
He plans to continue to retool service in all classes, upgrading it and making it uniform across the fleet. He is also focusing on imbuing it with traditional Arab hospitality, something he feels is a huge selling point which the region's other carriers have completely overlooked. Hospitality is a key theme for Hogan, a proud veteran of the hotel industry. "I don't like the word passenger," he says. "They are our guests and I want us to be helping them, not processing them. That's the style I want to bring to Gulf Air."
Regional firsts
More critical to the product modification are two yet to be launched programmes for the home markets of Abu Dhabi, Bahrain and Muscat, the capital of Oman. With 45% of Gulf's traffic being origin & destination (O&D), and with 60% of its seat capacity intra-regional, winning these cities will be critical. To do so, Hogan will continue to strengthen the quality of its three-class service to core Europe and the Middle East destinations, plus introduce unique products for the regional business traveller and guest worker populations.
For the local business passenger, Hogan plans to introduce regional jets into the fleet to provide the frequencies necessary for daily out-and-back flying. At present, Gulf, in common with other regional carriers, operates flights of less than an hour with A320s, or even A330s and Boeing 767s, but typically only once or twice a day. By introducing regional jets - and he is said to be in discussions with Embraer on the 70-seat 170 - Hogan intends to give local business people the "frequencies they crave".
Even more novel for the region is the planned all-economy class product he plans to launch from Abu Dhabi to the Indian subcontinent. He stresses it will be "full-service, not low-cost". Hogan explains that the aircraft Gulf currently flies to the subcontinent have 18% of their space dedicated to premium capacity, while premium tickets are bought by only 0.5% of the passengers, the great majority of whom are guest workers. The new service, he says, will save wasted crew and catering costs, while adding capacity on Gulf's highest-volume routes. "Certain parts of the world are going to be all-economy, so you tailor your product to maximise return."
Basing the 767 service from Abu Dhabi is designed not only to cater for the local guest worker population, but also that in neighbouring Dubai, about an hour away by road. Gulf will offer express bus service between the two city states and Hogan believes that he will carry a lot of traffic that currently flies from Dubai, home to Emirates. If the experiment is successful, Hogan will apply it to other destinations with similar dynamics, such as those in northern England.
The proximity of Abu Dhabi to tourist hot-spot Dubai is a frequent topic of conversation for the new president, who compares the two cities' airports to Heathrow and Gatwick in London. He envisions this proximity being a key driver of traffic from outside the region once the public is made aware of it.
This goal of raising revenues extends beyond revamping the product and schedule, to include an aggressive focus on yields and inventory. "It's key," Hogan says. "With a load factor of 70% across the system, we are able to undertake true interrogation of revenue management."
Every morning he meets with his revenue management team to see how the effort at changing the mix is going and what actions can be taken to help the process. One of the keys is communicating their findings across the organisation, something that never used to happen at the carrier. For instance, the team recently informed the sales force that Europe-to-Gulf loads were good enough for attention over the next three months to be focused on filling the premium cabins. Thus far, Hogan is pleased with the results, reporting that in October the carrier reversed a five-year decline in yield without sacrificing any load-factor points.
Cutting costs
The cost side has also received serious scrutiny. When in London last October to launch the chefs-on-board product, he characterised efficiency and gains as "low-hanging fruit". Now, he says, the obvious fixes - reforming purchasing practices of catering services, spare parts and fuel, as well as headcount reductions - are done. Attention is now being trained on some even more fundamental issues.
One of the biggest costs unique to Gulf Air comes from maintaining hubs at each of the three member states. The replication of services from Europe and the Far East to Abu Dhabi, Bahrain and Muscat in Oman is clearly an enormous expense, and one seldom justified by the revenue they generate. But this is an issue even more politically difficult to address than workforce cuts.
Not long after he took the reins, Hogan announced that Gulf Air "was no longer looking to support airports in the region", that his only priority was the airline, and that "everything we do will be commercial". But this statement was greeted with some scepticism by the airline community. How would a sponsoring government actually react when its prestigious direct service to Europe was pulled from the schedule? Would these high-minded commercial principles stick?
The early indications enhance the reformer's credibility. The April schedule will show service to Frankfurt - formerly divided between Abu Dhabi and Bahrain - operating from Bahrain only. Similarly, all flights to Trivandrum, India, will take off in Abu Dhabi and all services to Delhi will originate in Muscat.
Hogan says premium service will stay at each hub as long as it works. "The focus," Hogan reports, "is on route profitability - on using the right capacity for the right market and using the strength of each airport to help the airline."
A people person
For the new Gulf head, having both the right people for the job and having a motivated workforce are two of the biggest keys. Recognising that some skill areas - like revenue management - were absent on his new staff, he brought 10 senior-to-mid-level staff with him when he landed in May. Some had served with Ansett or bmi british midland, while others, including his vice-presidents for in-flight service and sales & marketing, come from the rental car industry.
A former 13-year executive with Hertz, Hogan believes working in car rentals is ideal training for the airline industry because it requires cost control and because most of the brand differentiation comes from customer service. "It's a hard-nosed environment that requires maximised asset utilisation - with prices that low, you've got to get it right - while also emphasising customer service. To excel, the two have to be seamless," he says.
Hogan is quick to stress that he did not import a whole new management team - that only a few areas needed specialist skills not already in place and that a process of transferring this knowledge to local staff is part of the deal. He also stresses that the Westerners and Gulf staff are working together as a team. Watching him at the carrier's headquarters complex next to the airport in Bahrain, it is easy to believe.
People close to the Gulf Air of old describe former chief executives as politically connected high flyers who generally absented themselves from the running of the business. Indeed, the infrequency of their presence and their air of grandeur combined to make each visit to the head office seem like a state function. Contrast this with Hogan, who walks around the building in his shirtsleeves, eschewing the lift for stairs, addressing subordinates as "mate" and dismissing apologies with "no worries". This change in management style affords an idea why employee morale is said to be as high as at any time in the last few decades.
Having worked for years in service industries, Hogan knows the value of having a contented work- force, especially those in front-line positions. Part of the way he has gone about achieving this effect is by instituting the first ever cost-of-living salary increases for Gulf-based employees, as well as a bonus scheme whereby all staff received the equivalent of a week's pay when the carrier reached it profitability target for 2002. They will receive a month's salary if Gulf hits the break-even mark by 2004.
But perhaps more important than the pay increases is the sense of being part of a team that the new management is trying to build among staff. The communication Hogan highlighted as one of his five areas of focus is a vital tool in this team-building process. For instance, he sends out a monthly in-house newsletter explaining recent moves by management and the airline's performance, and then meets at least quarterly with all staff to answer their questions.
"We want to communicate with the employees how we're going to become a winning business again. The staff now knows its role in turning this airline around. The whole company must come together if we're to win," he says, adding that he aims to "introduce a vocabulary of winning at Gulf".
This he does in part by providing measurements that let the workforce know how it is doing. At the front entrance at the main office building is a board showing the percentage of flights that has left on time that day, the percentage that has departed within 15 minutes of schedule and the day's system seat factor.
He says that, even if it means they have to work harder, "90% of the staff" welcome the change. "They remember that in the 1970s and 1980s Gulf Air was one of the premier carriers in the world. They've been there and they want to get back," he says. Evidence for this is found in a reversal of previously worrying - and costly - employee turnover rates.
Getting the message across
The communication process also crucially applies to Gulf's customers. "We have to change the perception of the business traveller," Hogan says. He admits that it has been slow to happen, lamenting that he believes Gulf Air premium-class product is the best in the region, but that too few people know about it. Undaunted, he vows to continue "communicating aggressively to tell people that we're back in the marketplace".
Part of that process is a branding exercise that the carrier contracted Landor Associates to undertake on its behalf. The redesigned Gulf brand will feature a new livery and service, both of which are designed to highlight the Arabic hospitality theme that Hogan is convinced will be a big winner.
So far the results of the turnaround programme have been ahead of target. The business plan Hogan presented to the board when he joined called for the carrier to: lose Bahraini Dinar 50 million ($130 million) in 2002; lose BD20 million this year; break even by 2004; and turn a BD5 million profit in 2005. With the books closed on 2002, the results are running ahead of plan with a loss of only BD41 million.
And the effort continues. An item to be ticked off the list at some point this year is global alliance membership, which will enable Gulf to increase revenue and give its customers access to more destinations. Hogan obviously will not indicate his preferred grouping, but does say that he has narrowed the list to the Star Alliance - it has codeshare agreements in place with bmi - and oneworld, where Gulf already cooperates extensively with American Airlines and Qantas.
A fleet renewal is also planned. With the planned addition to the stable of regional jet equipment, Hogan plans essentially to double the fleet - which currently consists of 10 A320s, six A330-200s, five A340-300s and nine 767-300s - within 10 years. By year four of the plan, the company will begin to phase out existing aircraft and bring in a new fleet, something that will allow for "proper negotiations" with the manufacturers. He reports that discussions are already under way with Airbus and Boeing.
Winds of war
For all the future plans and positive results so far, Hogan knows it all rests on a knife-edge. The company knows that the threat of war between the USA and Iraq is a not an idle one. It further knows that there is only so much it can do to protect itself from the outbreak of hostilities.
One thing it can prepare is a logistical response. "Yesterday war was declared, and we drilled," Hogan announced during this interview. "Our first priority is getting our people in Kuwait and elsewhere to safety. We're also drilling on protecting our assets, crew and passengers."
Of course, the situation is completely out of its hands, and Gulf has decided to conduct business as usual. For instance, in late 2002 it launched a holiday programme promoting its three destinations. Holiday packages in the Gulf on the eve of a possible war in the region is obviously not an easy sell, but Hogan thought the best thing to do was to push ahead. "Our plan calls for us to break even in three years. What are we going to do? Pause it and wait? Do that, and you can wind up waiting forever."
So, while it has delayed unveiling its new livery for "between 30 and 60 days, depending on what happens with our friends next door in Iraq", Gulf Air mostly pushes ahead with its recovery programme. It continues to negotiate with aircraft suppliers and recently announced that it may add new destinations Alexandria, Johannesburg, Sydney and Athens (to feed the Sydney flight) this June.
Hogan believes that whatever the situation, Gulf Air is ultimately sound. That its proximity to the enormous Indian market, its location in "the last tourism frontier" and its strong regional network will hold it in good stead over the long haul. And his personal plans? How long will he be in Bahrain orchestrating the return to profitability? "Probably between three and six years," he says. "But, I'm here to rebuild a company, and I won't leave until it's fixed."
| Aussie rules |
| Born in 1956 in Melbourne, James Hogan was 19 when he joined Ansett Airlines as airport customer service staff. Since then, he has worked with Qantas, VIP Airfreight and Ansett Pioneer in various operations and sales roles. In 1984 he joined Hertz as national marketing manager for Australia and Asia-Pacific. When he left Hertz 13 years later he had risen to the rank of vice-president for marketing and sales. In 1997, Hogan joined bmi british midland as service director responsible for inflight services, ground staff, customer relations, reservations and service training. In 1998, he left bmi for Forte Hotels, where he served as worldwide sales director, returning to bmi in 1999 in the role of chief operating officer responsible for cargo, commercial, engineering, handling, marketing, operations and sales departments. He was also appointed to board of directors. In February 2002, he was briefly chief executive of Tesna, the consortium engaged to restructure Ansett Airlines, before the attempt was ended by the Australian government. That May he became president and chief executive of Gulf Air. James Hogan has a wife and two teenage sons. |
REPORT BY RICHARD PINKHAM IN BAHRAIN PHOTOGRAPHY BY JONATHAN WALLEY
Source: Airline Business
