Gulf Air, the national carrier of Bahrain, is moving in the "right direction" towards recovery, despite job losses caused by a major downsizing and threats of strike, according to a leading aviation report.

The CAPA Centre for Aviation analysed the restructuring of Gulf Air, including the proposed government bailout, the country's political situation, parliament's role in the downsizing, Bahrain International Airport's traffic figures, regional competition and external influences, said a report in the Gulf Daily News, our sister publication.

The CAPA analysis, which was released yesterday, indicates the airline will emerge as a much leaner and more commercially viable carrier, although losses are expected to continue until the end of the year.

Gulf Air launched its three-year strategy to cut jobs, simplify its fleet and change its destination network earlier in January.

It hopes to achieve cost savings of 24 per cent by the end of the year and reduce the airline's losses from BD95 million ($250.5 million) to BD58 million a year by 2017.

"The turnaround has not come without its troubles though, the chief among them is the carrier's labour relations," said the report, which was compiled by the leading independent provider of aviation market intelligence and analysis.

"The carrier is a major employer of Bahraini nationals and workforce cuts have proved a politically sensitive subject, particularly given the social unrest that is still prevalent in the country.

"When the bailout was approved, Gulf Air stated its workforce would need to be aligned to meet the operational, maintenance and administrative needs of the revised fleet and network."

Around 3,800 people were employed by Gulf Air, which is reportedly seeking to shed up to 1,800 jobs as part of the massive downsizing operation.

The airline earlier said 15 per cent of its workforce had been reduced at the end of February as a result of its voluntary retirement scheme.

More than 40 Bahrainis have now been forced to take the retirement packages, according to Gulf Air Trade Union spokesman Mohammed Mahdi.

Bahrainisation

However, the report reveals that the Bahrainisation level has actually increased, in spite of dismissals of Bahraini employees.

"By the end of February 2013, the carrier had chopped its headcount back by 15 per cent, without revealing firm numbers," said the report.

"At the same time, the airline's Bahrainisation levels at its head office reached a record high of 85 per cent (excluding flight crew).

"The carrier had reported an overall Bahrainisation level of close to 60 per cent, with a stated goal of increasing this to 75 per cent. While this is hardly an adequate criterion for improved efficiency, it is a political necessity."

However, the report says the airline is currently not in a position to compete with low-cost regional airlines, despite moving in the right direction.

"The process is moving Gulf Air's performance in the right direction, but outside national borders too, the airline faces an unenviable competitive position," it said.

"Compared to its regional rivals, its cost base is still very high and its product, although much improved, still requires further enhancement. It still cannot compete with either the large regional full-service carriers or the fast expanding low-cost airlines, so is striving to find its own niche.

"Even the exit of Bahrain Air from the local market - as much a victim of politics as Gulf Air - will do little to improve its position."

The report also predicted the workforce downsizing is expected to be complete by the end of the year, although union intransigence and political interference may drag it on longer.

However, Mahdi said the report did not mention the negative impact the restructuring plan has had on the lives of employees.

"This study seems to be talking about economic development as a whole not the human impact that the development is causing," he said. "It doesn't account for the low morale that is hindering productivity. This is a generalised view looking at the whole, not each part individually."

The union yesterday held a meeting with Labour Ministry assistant under-secretary for labour affairs Dr Mohammed Al Ansari.

"We have had two meetings with Dr Al Ansari about the dismissals and we were told verbally that the Labour Ministry has asked Gulf Air management to stop forcing the voluntary retirement," said Mahdi. "The number of fired staff has risen from 30 to over 40 that have come forward to the union but there could be more that haven't approached the union."

Meanwhile, a total of 345 workers were affected when Bahrain Air announced it was going into voluntary liquidation in February.

The airline said the decision was taken due to massive losses as a result of unrest in 2011, which led to profitable routes being cancelled and a drop in passenger traffic through Bahrain. – TradeArabia News Service