Published On: Mon, Jun 8th, 2015

Oman Air CEO worried US-Gulf subsidy row could hurt his airline

Paul-Gregorowitsch_Oman-AirOman Air’s Paul Gregorowitsch, who took over as chief executive last year, is concerned that attempts to restrict the Gulf’s largest carriers by American and European carriers could hurt his airline, which is state subsidised.

The United States’ biggest airlines — Delta, United and American — are publicly lobbying their government to freeze additional landing rights to Emirates, Etihad Airways and Qatar Airways because they say they benefit from unfair state subsidies. The three Gulf carriers deny they are subsidised.

European carriers, including Franco-Dutch Air France-KLM and Germany’s Lufthansa, are also calling on their governments to take similar action, which led to the Dutch government announcing last month that it will not grant additional landing rights to Gulf carriers until the European Union decides how to tack the allegations unilaterally.

“We are not a threat,” Gregorowitsch said.

State-controlled Oman Air, which Gregorowitsch defines as a “regional player with global ambitions,” was subsidised to the tune of $350 million (Dh1.28 billion) last year to help fund aircraft orders. But this year it will receive less, $150 million, Gregorowitsch said, as the government tries to wean it off subsidies and towards break-even point by 2017.

Oman Air plans to operate 55 aircraft by 2017, 15 more than the 40 it is scheduled to be flying by the end of this year. By 2020, it plans to operate a fleet of 70 aircraft to 75 destinations.

But even with its growth ambitions, Oman Air will not share the size and scale of the regional big three; Emirates is today one of the world’s biggest airlines flying 234 aircraft to 140 destinations on six continents.

Oman Air’s plans are to expand on routes and frequencies to the Middle East, Europe, Asia and Africa. It does not play to fly to Australia, South America or North America.

Oman Air made a loss of 96 million Omani riyals ($249 million) in 2014, 4 per cent less than its 2013 loss, while growing revenues by 4 per cent to 398 million riyals ($1.035 billion). Gregorowitsch said losses will be “dramatically reduced this year,” partially due to the drop in the price of oil, with the airline targeting to carry 6 million passengers in 2015 compared to 5.1 million last year.

Amid the heated subsidy row, Oman Air has been able to attract some allies.

The airline signed a codeshare earlier this year with KLM, an airline that Gregorowitsch, a Dutch national, previously worked for. Gregorowitsch said he is not worried about KLM pushing back against Oman Air.

“We have a very good relationship and they know that on the longer term it is far better not to upset your last possible footprint in the Middle East,” he said.

Gregorowitsch is also hopeful of courting Delta, Lufthansa and Swiss Air in launching direct flights to Muscat where their passengers can connect onto 110 weekly Oman Air flights to India.

But the Omani carrier has felt the pressure from KLM partner Air France. Gregorowitsch said the airline is blocking Oman Air from increasing its four weekly flights to Paris’ Charles de Gaulle Airport to daily services.

Air France has initiated the move based on claims that it is unable to commercially compete with subsidised Gulf airlines like Oman Air, Gregorowitsch said.

Gregorowitsch said Oman Air has received support for its daily services from the French government, European aircraft manufacturer Airbus and Aeroports de Paris, who operates Charles de Gaulle airport and is a contractor building the new terminal at Muscat International.

Gregorowitsch warned that the “short sighted behaviour” of Air France risked damaging the French economy.

“We want to have daily frequencies. As a consequence of not getting daily frequencies, we ordered 20 Boeing aircraft [instead of Airbus],” Gregorowitsch said in reference to the Boeing 737s Oman Air ordered in March.

Gulf airlines, including Emirates and Qatar Airways, have also suggested they would not buy European-made Airbus aircraft if they were blocked access to Europe. Similar comments have been made about purchasing US-made Boeing aircraft.

If Air France was to change its tone, then “Airbus will come into the picture for new widebody orders,” Gregorowitsch said.

“If we don’t get landing rights, why should we support the French economy?” he said.

Gregorowitsch also said Oman Air could fly daily to Munich in Germany, Milan in Italy, and Zurich in Switzerland.

Gregorowitsch’s comments follow remarks made by Qatar Airways Chief Executive, Akbar Al Bakr, in the Netherlands last week in which he held the view that by blocking the airline the Dutch government was risking Fifa World Cup stadium construction and oil and gas contracts that the Qatar government could award to Dutch companies.