Royal Jordanian & the Roaring 20s
Turbulent times ahead
58 years and Jordan’s national carrier, Royal Jordanian, is making an emergency landing.
Back then, there was no Turkish Airline stealing all its customers as it was a mediocre airline with a bad safety record and a reputation for delays.
There were no luxurious (subsidised with cheap fuel1) Gulf airlines.
Royal Jordanian could’ve been the Turkish or the Emirates of today, connecting West-East. But it remained a relatively small airline fighting to survive in tougher spaces. How will it fare in the next decades?
Against Cheap Odds
According to the government budget, cheap airlines are getting subsidised (Ryan Air, Easy Jet, Wizz Air). How? Every traveller exiting the country has to pay the “Exit” tax. Maybe you are old enough to remember paying this separately at the old airport building by going to a separate window. Now it is automatically included in the ticket.
Passengers flying with Ryan Air do not have to pay this as they are exempt for a set duration. So don’t be surprised when you hear someone getting a ticket to Cyprus for $5.
This was of course a deal done between the government and budget airline to encourage more tourism to the country. The government is assuming that it will recoup the lost exit fee from other sources (visa upon arrival, taxes on hotel stay, car rentals etc.).
Do we want RJ to turn into a budget airline? God forbid. Imagine paying for every little comfort, like Oxygen (yes they thought of it!2)
We do have other local airlines that could fill the “budget airline” gap, including upcoming Fly Aqaba.
Decade of Bad Luck
Last decade started off “well” with the Arab spring, culminating with the collapse in oil prices in 2015, the rise of ISIS and ending with COVID. Thankfully the government did not allow this airline to go bust. It was bailed out as were many other national carriers across the globe3:
What did we expect when the world got scared of flying:
Ryan Air CEO however didn’t enjoy this because it goes against “free market” principles. He even tried to sue them in the European Court (and lost4).
Even Fly Jordan increased capital:
Should RJ go ahead like Alitalia? Bankruptcy and re operate under a new name?
I guess this would be blow to the airline and to its OneWorld alliance partners.
So let’s talk about restructuring.
First what were the internal bad decisions that plagued RJ’s flying ambitions?
Series of Unfortunate Decisions
During the Great Financial Crisis in 2008, Oil price saw a drop from $147/bbl to $60/bbl. This massive drop was negatively reflected in RJ’s profit who made a bad bet (fuel hedging is common practice for all airlines) thinking it prices would go up even further.5
Crisis averted and we entered the 2010s. Turbulent times call for expert navigators. But we had a even more bad decisions taken:
-Opening and closing of new routes (India, Nigeria, Ghana and Kenya)
-Bad outsourcing6 (did you know RJ had its own department that made uniforms to all staff and crew at the 1st circle? You get a new jacket every 2 years, a seasonal shirt every year, shoes/handbags every 5 years)
-hiring the CEO of bankrupt airline.
Personally I have nothing against Air Berlin’s ex-ceo (except the way he left things7), So here is a non-exhaustive list of his best accomplishments:
Option town
Claim that too many employees work at the airline (see next point)8
Fastening the Belt
There is this world famous example of the American Airline olive: in the 1980s, then CEO Robert Crandall calculated that if you removed just 1 olive from the salad, passengers will not notice and the airline would save $100,000. This is the penny pinching business solution that adds up. However this type of penny pinching when it comes to meals did not prove too popular nor did it reflect well on Jordanian Hospitality.
First let us address the issue of “too many employees” (as this could go with other large firms as well as the government itself): why do you need 4 employees when 1 can do the task at hand? This is resource efficiency. But some employees are barely paid a liveable wage. So if RJ does get rid of some of its “useless” staff, it should compensate those that do work by increasing their salaries (to motivate them). This is a delicate matter that needs to be addressed with finesse.
What other ways to cut costs?
Cost Control: one example that is still ongoing is the control of outstations where area/stations managers live like lords with an unlimited credit card. This is an example where these stations could be outsourced to local GSAs.
Lift off
For now, current management have gotten their (last) secure line and should focus on growing the company:
Focus on business sector.
RJ should focus on corporate clients (SMEs and large firms). Every weekend, thousands of engineers and consultants get on a plane to go work in the Gulf region and return the next weekend. The Corporate segment represents 30% for most airlines. Option town was the first step towards this. (For the non-corporate, general audience, they could simply improve customer service and their website).
Focus on the tourism sector.
Working with travel agents and tour operators to charter flights from various destinations.
Cargo.
Sometimes airlines do not know what to do with their old fleet. Some convert them by removing the seats and turn them into cargo planes. With the help of the public sector and coordinating with the private sector, RJ cargo could help bolster trade (Kenya would’ve been a good example of Jordanian trade expansion into the East African Gateway).
Personal wish: Back to basics approach of fixed/seasonal ticket pricing, similar to the 70s and 80s, where you know that during one season, the price of a ticket (one leg) to Dubai for example will always be 120 JODs (all taxes included). And just like budget airlines, you could add a meal, luggage for an extra fee at your convenience (again there are many rules & regulations that may not allow for this to happen).
Let’s hope we see RJ soar to better times.
https://www.vox.com/2015/3/27/8296495/gulf-airline-subsidies
https://www.theguardian.com/money/2009/jan/17/airline-charge-oxygen
https://www.washingtonpost.com/transportation/2021/12/14/airline-bailout-covid-flights/
https://www.euronews.com/my-europe/2021/04/14/european-court-of-justice-rules-against-ryanair-over-airlines-covid-bailouts
https://www.timesaerospace.aero/news/business-and-finance/royal-jordanian-profit-wiped-out-by-unsuccessful-fuel-hedging
https://news.albousla.ps/arab/1267809/الكابتن-الطيار-الدعجة-يكشف-اسرار-تروى-لاول-مرة-عن-اسباب-خسائر-الملكية-الاردنية
https://alrai.com/article/10446551/محليات/بيشلر-يمكن-إدارة-الملكية-الأردنية-بربع-عدد-الموظفين-الحاليين
With all it's sentimental value, as a tax payer I would like for it to close 😒
We've more crucial things to build/fix in the country than bailing an airline