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Gulf Air is battling for Bahrain’s skies

Can another strategic turn really be successful?

Gulf Air Bahrain Reuters
Gulf Air is ordering new aircraft, but its share of the Bahrain market is shrinking, albeit still dominant

The aviation industry is so competitive that airlines are fighting for every passenger.

What’s more, the rapidly shifting sands in the Middle East are placing increasing pressure on those airlines and airports that are classic mid-market operators – who may be hoping that they are “too big to fail”.

The kingdom of Bahrain falls into that classic sinking-sand space. 

While the whole Middle East market has recovered to near pre-pandemic levels, there are always winners and losers. Unfortunately, markets such as Iran, Oman, Iraq and Lebanon still have some way to go on their recovery journeys, although perhaps less capacity will result in more profitable operations for some airlines. 

Bahrain’s recovery typifies where they are as a market: slightly below pre-pandemic levels and the regional average, but not alarmingly so, and within touching distance of 2019 levels.

Not surprisingly, Bahrain’s national carrier Gulf Air holds a dominant position in the kingdom, with 10 times more capacity than any other carrier.

The Emirates Group has been swapping capacity between its two airlines – Emirates and FlyDubai – perhaps better matching schedules to the changing market in the region; operating six percent more flights but producing four percent less capacity in 2023 than 2019. 

Additionally, Turkish Airlines' development of connecting traffic in Istanbul has targeted Bahrain as a market for growth with capacity increasing by more than a third, with a twice-daily connection now on offer. 

Increasing vulnerability to competition

One of the strongest features of the regional market is the relationship between the base airlines and the airport operator – Emirates is Dubai and Doha is Qatar Airways.

In Bahrain, Gulf Air has been losing market share, with the airline now operating 61 percent of all capacity compared with 64 percent four years ago.

In some cases, the loss of capacity share can be positive, as a wider airline base can mean a higher degree of competition. But in the case of Bahrain, when that loss of share is to other regional airlines, that’s not quite the case. 

With Bahrain viewed as a source of connecting traffic, then the long-term impact on Gulf Air is likely to be a gentle slide into a shrinking network, smaller operation and a perpetual circle of decline that cannot be broken.

All of which makes for a fascinating position given the events of the last few weeks and expected developments by the end of the year.

Time for fight or flight

It doesn’t take a genius to realise that Bahrain is slipping further and further behind in the regional market. Do you accept the inevitability, or fight back? Well, it appears that Bahrain is about to fight, although it looks like a tough battle ahead. 

At the recent Routes World airline/airport "speed dating" conference staged in Istanbul, the kingdom of Bahrain was reaffirmed as the next host of this event in 2024.

Routes World brings together 3,000-plus delegates and provides the platform for new routes to be launched every year. Now that’s a positive step, essentially inviting the world’s aviation decision makers to Bahrain. 

But looming over this year’s Turkish event was a massive presence from Saudi Arabia, with every aviation related organisation, airport and airline in the kingdom represented.

It may not have been intentional but the shadow cast on Bahrain was huge and with similar stand space already booked by the Saudis for 2024, Bahrain could be hosting its biggest threat in its own home – an intriguing situation.

Still, Bahrain must fight and it is certainly going to be helped by the plans of Gulf Air. 

A recent order from Gulf Air for additional A320neo planes, in addition to the outstanding four B787s, could provide the airline with a fleet of more than 50 aircraft capable of serving almost all potential markets from Bahrain but in an operating model where less capacity is offered than through their rival’s hub airports. 

That smaller capacity will perhaps afford the airline the opportunity to revenue-manage fares more effectively and not have to chase the lowest-yielding traffic, although that may be hard to ignore in some places.

Resisting low-yield traffic may be a real problem for an airline with one of the highest proportions of connecting traffic in the Middle East, especially when many of those flows are from the Indian subcontinent. 

More competition to come

The challenges of Gulf Air can be likened to many carriers in the region. Royal Jordanian, Kuwait Airways and Oman Air are all in a similar space, however they may spin the situation.

Some of those airlines will say they are "evolving" or "becoming niche" in their product and offer; others have said that in the past and struggled to survive. It really is tough being a small player in the market. 

Can another strategic turn for Gulf Air really be successful? Only time will tell, but it’s going to be a turbulent flight.

John Grant is partner at UK consultancy Midas Aviation

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