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Asian Journal of Management Cases
DOI: 10.1177/097282010700400204
Asian Journal of Management Cases
James Rajasekar and Unnikammu Moideenkutty
Oman Air: Challenges Of Repositioning Through Business Level Strategy
http://ajc.sagepub.com/cgi/content/abstract/4/2/117
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O
MAN AIR: CHALLENGES OF REPOSITIONING
THROUGH
BUSINESS LEVEL STRATEGY
James Rajasekar
Unnikammu Moideenkutty
This case study describes the journey of Oman Air, the flag carrier of the Sultanate of
Oman from operating losses to profitability. The main concern of Oman Air’s top
management now is to consolidate these gains and to ensure sustained profitability
and growth over the long term. The airline has faced challenges from existing and
emerging competitors operating on both full-service and low-cost business models. In
addition, the recent strategic decision of the Government of Oman to pull out of the
much larger Gulf Air made Oman Air the only national airline of Oman. Oman Air now
needs to reposition itself from a major regional airline to a full-fledged international
airline to service the long-haul markets.
Keywords:
Oman Air, Middle East airline industry, strategic direction, business-level
strategy, competition and environmental analysis
On 5 May 2007, the Government of Oman formally withdrew from part ownership of
the loss-making Gulf Air, the airline jointly owned by Oman and Bahrain (Gulfnews.com
2007a). This followed the announcement by Bahrain that it intended to increase its stake
in Gulf Air to 80 per cent, reducing Oman’s share to 20 per cent (Khaleej Times Online
2007a). Earlier, Oman Air had announced its intention to purchase wide-bodied aircraft
to start long-haul flights (Khaleej Times Online 2007b). Bahrain thus became the sole
owner of Gulf Air making Oman Air, the national carrier of Oman, free to chart its own
course. When the Government of Oman had ownership stakes in both Gulf Air and Oman
Air, the focus was on complementation and synergy between the two airlines. Gulf Air
flew long-haul flights to Europe, the Far East and Australia mainly from Bahrain, while
Oman Air focused on short-haul flights within the Middle East and to the Indian subcontinent
from Muscat. While Gulf Air floundered, Oman Air made a virtue out of necessity
and become a very successful niche regional airline (Exhibits 1 and 2).
A
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S
AGE PUBLICATIONS LOS ANGELES/LONDON/NEW DELHI/SINGAPORE
DOI:
10.1177/097282010700400204
∗
This case study was written by Dr James Rajasekar and Dr Unnikammu Moideenkutty of College of Commerce
and Economics, Sultan Qaboos University, Muscat, Sultanate of Oman. Both the authors contributed
equally in writing this case study.
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In 2006, Oman Aviation Services (OAS), the parent company of Oman Air, made a net
profit of RO 2.893 million (US$ 7.46 million) from sales of RO 85.915 million (US$ 221.66
million). Oman Air carried over 1.2 million passengers in 2006, an 8 per cent increase over
the previous year (Exhibit 3). The passenger load factor remained at a healthy 76 per
cent in 2006.
1 Meanwhile Gulf Air was reportedly losing more than a million dollars a
day (Gulfnews.com 2007b).
Prior to withdrawing from Gulf Air, the Government of Oman had consolidated its
control over OAS. In February 2007, the government increased its stake in the company
from 34 per cent to 83 per cent through a private placement of shares, increasing the share
capital of OAS from RO 13.282 million (US$ 34.28 million) to RO 50 million (US$ 129 million).
In July 2007, the OAS Board was reconstituted with six government representatives
and one representative of private sector shareholders (Times of Oman 2007) (Exhibit 4).
According to media reports, the government intended to buy out the remaining private
sector shareholders to convert OAS into a fully government owned company.
Ziad Al Haremi, the Chief Executive Officer (CEO) of Oman Air, stated that the infusion
of capital was necessary to finance the purchase of wide-bodied aircraft for long-haul
flights.
2 Since these investments had a long gestation period, government support was
essential. He further explained that Oman Air’s future strategy would be closely tied to
the development of the tourism industry in Oman. The focus would be on flying to destinations
from where tourists were likely to visit Oman. It seemed clear that Oman Air
was making a significant change in its strategic direction. It remained to be seen if the
new direction would prove successful for the airline.
A review of the recent overall performance of the airline industry is useful to evaluate
the new strategic direction of Oman Air.
A
IRLINE INDUSTRY
At the global level, the aviation industry (of which the airline industry is a part) generates
29 million jobs and nearly US$ 3 trillion in economic output. In the Middle Eastern region,
the International Air Transport Association (IATA) estimates that air transport is generating
450,000 jobs and US$ 16 billion in economic output. However, since 2001 the global commercial
aviation industry has shown negative profits.
l
Muscat Securities Market. Home. Financial Reports. Oman Aviation Services. Retrieved on 15 July 2007
from http://www.msm.gov.om/Documents/106_2006_yearly_e.zip
2
About Oman Air: Current Press Releases (3 March 2007). Retrieved from http://www.omanair.aero/
wy/aboutus/aboutus_media_center/ bout_media_presrelses/releases_89.htm on 23 June 2007.
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According to International Civil Aviation Organization (ICAO) figures, world airline
passenger traffic in Revenue Passenger Kilometers (RPKs) grew about 7.9 per cent in
2005 compared to 2004, with international RPKs up around 8.5 per cent. Capacity, measured
in Available Seat Kilometers (ASKs), increased at a slightly slower pace, resulting in
an average passenger load factor of almost 75 per cent, up 2 points over the previous year.
Load factor on international services was also 75 per cent as compared to 74 per cent
in 2004.
In 2006, the number of passengers carried worldwide on scheduled services was estimated
to have topped 2.1 billion versus just under 2 billion in the previous year. Freight
carried worldwide was flat at 38 million tons. Total traffic, comprising passengers and
freight, rose 5.5 per cent to nearly 500 billion Revenue Ton Kilometers (RTKs). The Middle
East was the fastest-growing region in terms of RTKs, followed by Latin America/
Caribbean and Africa. Airline growth in Asia and Europe was in line with the world average,
while airlines in North America lagged the world average.
According to IATA figures, Middle Eastern carriers topped the industry in air cargo
shipments in 2005. While the global air cargo grew by 2.6 per cent, the Middle East carriers
posted a 14.1 per cent gain.
3 The Middle Eastern region also performed extremely
well by outperforming global passenger traffic. This was evident from the fact that Middle
Eastern passenger traffic grew 12.6 per cent against the global industry average of 7.9 per
cent. IATA forecasted that this trend of the Middle Eastern region performing better than
the global industry average would continue for the next five years.
4
The Gulf region was also leading the world in new aircraft orders. During 2005 alone,
carriers from the Middle East region placed aircraft orders worth US$ 27 billion. To sustain
this growth, governments in the Gulf region proposed to invest US$ 30 billion in airports
and related infrastructure and more than half of this (US$ 17 billion) was in the United
Arab Emirates (UAE).
Seeb International Airport, the hub of Oman Air, also showed significant growth in
aircraft, passenger and cargo traffic during the first eleven months of 2005. Passenger
traffic rose by 8.5 per cent at the end of 2006 to 4.7 million, compared to 3.7 million
during the same period in 2005. The number of arriving passengers stood at 1.53 million
against 1.43 million in 2004. The number of departing passengers rose by 7.8 per cent to
3
Remarks by Giovanni Bisignani, Director General and CEO, International Air Transporters Association
(IATA) to the Arab Air Carriers Organization AGM, Yemen (30 November 2005).
4
Remarks by Giovanni Bisignani, Director General and CEO, International Air Transporters Association
(IATA).
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1.53 million, compared to 1.42 million passengers in 2004. Air cargo traffic handled by
Seeb Airport rose to 99, 582 tons (Exhibit 5).
An interesting development in the airline industry was the emergence and success of
several low-cost or budget carriers. Airlines operating on this model in the Middle East
were Air Arabia, the flag carrier of the Emirate of Sharjah and Jazeera Airways based in
Kuwait. Air India Express, the India-based budget carrier also provided services to the
Middle East. The business model of low-cost airlines is to keep the operating costs at a
bare minimum. The airlines then pass these cost savings to passengers in the form of
cheaper fares. Low-cost or budget carriers save on operating costs by using only one type
of aircraft and avoiding expensive in-flight services such as hot meals, drinks and other
frills. This also means a leaner cabin crew and much lower staff costs.
Low-cost airlines generally avoid long-haul routes serviced by full-service airlines. Instead,
they focus on profitable short-haul routes. Low-cost airlines also avoid major airports
and land at secondary airports, saving a significant amount of money. This is because in
secondary airports, aircrafts spend less time waiting for landing slots and the turnaround
is faster. The landing and navigation charges are also lower compared to major airports.
Low-cost airlines avoid travel agents and instead use the Internet to issue tickets. This
model works very well for low-cost airlines in the US and in Europe, where Internet
penetration levels are high and people are used to doing business online. However, given
the relatively low levels of Internet penetration and people’s unfamiliarity with doing
business online, low-cost carriers in the Middle East may have to supplement online
bookings with other distribution channels. For instance, Air Arabia has tied up with local
banks to accept payments for tickets. However, arrangements such as these add to the
costs of low-cost airlines in the region.
T
HE STORY OF OMAN AIR
Oman Air was the airline operation of OAS. Apart from Oman Air, the other businesses
of OAS included airport services (ground and cargo handling), airline catering and management
of duty free outlets. Oman Air contributed more than 78 per cent of the revenues
of OAS. Oman Air began operations in 1993. However, as of 2007 it flies to seventeen
international and two domestic destinations. The fleet consisted of four turbo-prop ATRs
(
Aerei da Trasporto Regionale or Avions de Transport Régional, an Italian-French aircraft
manufacturer) and seven Boeing 737s. Earlier the ATRs were used for short-haul flights.
Now, one ATR was leased to Air Deccan in India. The other three ATRs were dedicated
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for Petroleum Development Oman and Occidental Mukhaizna (both petroleum companies)
operations.
In its early years, Oman Air did not appear to have a strategic direction. By 2000, the
fleet had changed three times and consisted of nine aircraft of five different types. In
that year, a new management team led by Abdul Rahman Al Busaidy took control of
Oman Air. The new management conducted a study of the financial and market position
of the airline. As a result of this study, action was taken to improve its operating performance
and profitability. This included fleet reorganization, network rationalization, information
technology investments, operational efficiency improvements and cost reduction
measures (Business Today 2001).
Fleet Reorganization
For an airline, owning many different types of aircraft is expensive. This is because each
type of aircraft needs dedicated pilots, maintenance engineers, cabin crew and spares.
Additionally, the aircraft type must fit the nature of the network. Oman Air’s agreement
with India was to operate a certain number of seats per week. This meant that when a
high capacity aircraft was used, the number of flights that could be operated per week to
a particular destination was reduced. In addition, if all the seats were not filled, the flight
operated at a loss. When a smaller aircraft was used, more flights per week could be
operated. This increased the choice for passengers and hence increased the likelihood of
flights being operated at full capacity.
Aircraft types were reduced from five to two. The leased Airbus A310s were returned
to the owners. Oman Air currently had only Boeing 737s and ATR turbo props. The Boeing
fleet consisted of three 737-700s and four 737-800s. Being smaller and lighter, Boeing
737-700s consume less fuel and cost less in landing fees that are calculated on the basis
of the weight of the aircraft. While the Airbus has a capacity of over 200, the capacity of
737-700 is 126 passengers and that of 737-800, 170 passengers (Business Today 2001).
Since buying an aircraft entails heavy initial investments, airlines usually use a mix of
lease and ownership to optimize ownership costs and capital investment. Oman Air used
a judicious mix of leased and owned aircraft to reduce its fleet ownership costs. These
fleet changes and the new fleet ownership structure resulted in a 20 per cent reduction
in ownership costs, 50 per cent reduction in fuel costs, 30 per cent reduction in maintenance
costs and a 15 per cent reduction in other operating costs such as landing fees
(Business Today 2001).
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Network Rationalization
The new management realized that in order to survive, Oman Air would have to identify
its own niche. Market studies indicated that regional flights of Emirates and Gulf Air
were designed as feeders for their international flights. These flights were not convenient
for local people travelling regionally. Oman Air identified this as a niche opportunity.
Focusing on this niche resulted in an increase in the frequency of flights to Dubai. Now
Oman Air had a 65 per cent market share on this route with the highest load factor. It
was also focusing on developing Muscat as a hub for flights to the subcontinent (Business
Today 2001). Flights to regional destinations were introduced including flights to Colombo,
Cairo, Beirut and Amman. In 2005, flights to Hyderabad and Delhi were introduced.
5 In
2007, Oman Air began direct flights to Lucknow and Jaipur in India and Chittagong in
Bangladesh (Exhibits 6 and 7). Oman Air had followed a very judicious approach in the
introduction of new flights, which were introduced after careful study. The airline was
quick to withdraw from unviable routes. For example, flights to Zanzibar were introduced
after much fanfare, but were quickly stopped when they were found to be unviable.
Investments in Information Technology
Oman Air had made significant investments in Information Technology (IT) infrastructure.
In 2006, the company signed an agreement with Shepherd Systems, a leader in business
intelligence software, to use its product Clarity. Clarity utilized processed booking and
market-share data for an airline’s top fifty markets and displayed this data in an array of
customizable, intuitive and easy-to-understand reports. This browser-based, online system
could be accessed over the web anytime, anywhere, eliminating the need for expensive
hardware upgrades or implementations.
In addition to tracking the market performance of an airline and its competitors, Clarity
could also be used to monitor market trends. This enabled the airline to respond appropriately
to market changes in a timely manner. As airlines continue to be challenged by
a difficult economic environment, this system bolstered Oman Air’s ability to plan and
execute with confidence.
Revenue management was recognized in the airline industry as a significant contributor
to profitability. An appraisal of revenue management in Oman Air identified benefits
achievable through investment in revenue management functionality. After an extensive
review of the various systems available, the Sabre AirMax Revenue Management system
5
Muscat.
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was chosen by the airline. The system planned to position Oman Air at par with other
leading airlines in the world in terms of revenue management technology and it was
agreed that it would further strengthen its competitive edge.
Apart from these investments in IT infrastructure, Oman Air also invested heavily in
the e-ticketing initiative (Times of Oman 2006). E-ticketing was now possible to most of
the destinations in the Oman Air network. In 2006, Oman Air named Sabre as its preferred
global distribution system. This meant that Sabre connected travel agencies will have full
access to Oman Air’s fares and real time access to the carrier’s inventory. Sabre connected
travel agents will now be able to issue e-tickets for travel on Oman Air. Through e-ticketing,
Oman Air hoped to reduce distribution costs by approximately 40 per cent in Oman and
30 per cent in the region.
Cost Reduction Measures
The senior management team took several measures to reduce costs. The organization
was restructured to make it leaner and meaner. Originally the structure of OAS consisted
of two general managers managing the two divisions, Oman Air and Airport Services.
The divisions were now merged under one CEO. This reduced overlap and duplication.
For example, the two human resource departments were combined. The structure now
consisted of one CEO and five divisional managers. Staff overtime was reduced and some
facilities were stopped. For example, company transport was substituted with an allowance.
Uniforms which had been tailored in the UK were done elsewhere, resulting in a saving
of 40 per cent and a voluntary retirement scheme was introduced to reduce overstaffing.
Priority was given to Omani products on the catering side. This not only reduced costs
but also contributed to the Omani economy. At 12.6 block hours per day, Oman Air now
had one of the highest aircraft utilization rates in the industry. The focus on cost reduction
resulted in savings of about RO 800,000 (US$ 2 million) (Business Today 2001).
Operational Performance Improvements
In addition to the impressive market and financial performance, Oman Air also showed
remarkable improvement in its operational performance. By 2005, the on-time performance
and technical reliability of the aircraft had increased to 99.6 per cent, higher than
the global standard of 97 per cent. This was a result of a number of steps taken by Oman
Air to improve its operational performance, including the completion of the prestigious
IATA Operational Safety Audit (IOSA).
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The IATA Operational Safety Audit (IOSA) Programme is an internationally recognized
and accepted evaluation system designed to assess the operational management and
control systems of an airline (Exhibit 8). IOSA uses internationally recognized quality
audit principles and is designed so that audits are conducted in a standardized and consistent
manner. Oman Air completed this prestigious audit successfully and received the
IOSA certification from IATA on 18 April 2005.
6
These measures resulted in improvements in operating performance. However, the
dramatic increase in fuel costs in recent years have dampened profitability. In 2006, fuel
prices increased by 16 per cent increasing the share of fuel costs to total expenditure
from 20 per cent in 2005 to 22 per cent in 2006.
7 Although, like other airlines, Oman Air
levied a fuel surcharge, this did not fully compensate for the increase in fuel prices. The
fleet of Boeing 737-800 was installed with winglets to reduce fuel consumption and to increase
operating efficiencies and pay load capabilities.
The operational and financial performance of Oman Air in 2007 indicates that the
niche regional strategy was working for the present. However, the increase of government
stake in Oman Air, the decision to purchase long-haul aircraft and the withdrawal of the
Government of Oman from co-ownership of Gulf Air indicated that a shift in strategy
was in progress. To understand the implications of this shift, it is important to review the
relationship of Oman Air and Gulf Air.
G
ULF AIR
The airline now known as Gulf Air began in 1950 as the Gulf Aviation Company. It was
promoted by private investors and was based in Bahrain. This company was later taken
over by the British Overseas Airways Corporation (BOAC). In 1973, the governments of
Abu Dhabi, Bahrain, Oman and Qatar bought BOAC’s stock in the Gulf Aviation Company.
On 1 January 1974, the Gulf Aviation Company became Gulf Air, the national carrier of
the four owner states. What followed was an era of expansion and growth. At the height
of its glory in the 1990s Gulf Air had thirty aircraft and flew to fifty destinations in Europe,
Middle East and Asia
8 (Exhibit 9).
6
Remarks by Giovanni Bisignani, Director General and CEO, International Air Transporters Association
(IATA).
7
Muscat.
8
Gulf Air: About Gulf Air: Corporate info: History. Retrieved on 20 December 2005 from http://www.
gulfairco.com/about/history.asp
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Gulf Air’s troubles began in the mid-1990s with the successes of other regional carriers.
Dubai based Emirates had started operations in 1985, Qatar Airways was ‘re-launched’ in
1997 and Oman Air began operations in 1993. Gulf Air’s woes reached its nadir with the
crash of its Airbus A320 aircraft off the coast of Bahrain in August 2000 (Exhibit 2). One
hundred and forty three passengers and crew died in the crash. The next major blow was
the September 11 terrorist attacks on the World Trade Center in New York and the consequent
slowdown in the aviation industry.
From 1997 the owner governments attempted in vain to resuscitate the ailing airline
with a succession of bailouts. Finally, in 2002, Qatar decided to throw in the towel and
sold its stock to the other three owners. Qatar Airways officials stated that in their opinion,
efforts to save the ailing airline were unlikely to succeed. It must be noted that at this
point Qatar was planning a major injection of capital into its national carrier, Qatar
Airways. In June 2003 Qatar Airways placed orders for new aircraft worth US$ 5.1 billion,
with Airbus Industries.
After Qatar’s departure, the other three owners pumped in about US$ 320 million into
Gulf Air. In 2002, Gulf Air appointed Australian James Hogan as president and chief
executive officer with the brief to turn the ailing airline around. This was the first time
that Gulf Air had appointed a professional manager as the CEO. Until then the top post
was rotated among the four owners, with each state appointing a bureaucrat from the
civil aviation ministry. Hogan initiated a three-year restructuring programme called Project
Falcon, aimed at increasing profitability and reducing costs. Project Falcon was based on
brand development, fleet reconstruction, network restructuring, alliance membership
and enhanced customer service. During the restructuring programme Gulf Air launched
the Gulf Traveller, an all economy, full-service subsidiary based in Abu Dhabi. This was
based on the realization that most of the traffic from the subcontinent to the Middle East
consisted of labourers who filled up the economy cabin while leaving the premium classes
empty. Gulf Air also introduced a five-star chef service in its first-class cabin and Gulf
Air Sky Nanny, a professional childcare service on long-haul flights. Services to several
new destinations were introduced and self-service check-in kiosks were introduced at
several airports. During this period Gulf Air won many awards including the Most Improved
Airline, Middle East Leading First Class Airline, MENA Platinum Best Airline and
the prestigious Mercury Award for In-Flight Service and the Center for Asia Pacific Aviation
award for the Turnaround Airline of the Year.
9
9
Centre.
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As a result of Project Falcon, the airline’s financial performance improved and in 2004
Gulf Air made a profit of BD 1.5 million (US$ 3.975 million) on revenues of BD 476.3 million
(US$ 1262.2 million), an increase of 23.8 per cent over the previous year. This was
despite a BD 30 million (US$ 79.5 million) increase in costs due to the rise in fuel prices.
However, in 2005, further increase in fuel prices and competition from regional and lowcost
carriers saw Gulf Air return to losses.
10
The departure of Qatar was a major blow for Gulf Air. It exposed the inherent weakness
in the ownership structure of the airline. Multiple ownership of an airline would have
led to an obvious conflict of interest, especially when each of the owner countries had
their own national airline. In an interview with a business magazine in 2003, Hogan said
that Gulf Air would focus on making Abu Dhabi a major gateway to the UAE. As mentioned
earlier, Gulf Air Traveller, the six aircraft all economy-full-service division, was based in
Abu Dhabi. However, a majority of the prestigious Europe and Far East bound flights
continued to originate from Bahrain. Some sources cite this as one reason for Abu Dhabi
starting its own airline.
11
In 2003, Abu Dhabi announced the launch of Etihad Airways. It was only a matter of
time before Abu Dhabi also opted out of Gulf Air. When in 2005, Abu Dhabi finally announced
its decision to pull out of Gulf Air, no one was surprised. At this point, the governments
of Bahrain and Oman reiterated their commitment to stay with Gulf Air.
In early 2006, James Hogan renewed his contract for a further three-year period.
However, a few months later he announced that he would be leaving Gulf Air before the
end of the year as his work had been completed. He made this claim on the basis that
Project Falcon had been completed and all elements of the new strategy ‘Smart Airline,
Successful Business’ were in place. At that time media sources speculated that James
Hogan was leaving to pursue a career in another ‘Gulf airline’. (Gulfnews.com 2006).
Later in the year Hogan joined Abu Dhabi’s Etihad Airways as CEO.
Government of Oman’s Withdrawal from Gulf Air
In April 2007, Andre Dose, the former head of Swiss International Airways joined Gulf Air
as its new CEO.
12 Soon after, Bahrain announced that it would increase its stake in Gulf
Air from 50 per cent to 80 per cent through a cash infusion of BD 500 million (US$ 1325
million), thus reducing Oman’s stake to 20 per cent (Khaleej Times Online 2007a). Oman
10
Centre.
11
Centre.
12
Centre.
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Air’s CEO claimed that this was a one-sided move from Bahrain and that no one in Oman
Air was aware of it. However, he stated that Oman Air had given a letter of intent to Airbus
for the purchase of five Airbus 330-200 aircraft. These aircraft would be used on new
long-haul routes to London, Paris, Frankfurt, Munich, Singapore, Kuala Lumpur and
Jakarta. However, the new aircraft were not expected to be delivered before 2012 and according
to Ziad Al Haremi, the Chief Executive Officer (CEO) of Oman Air no aircraft
were presently available in the market even on lease (Gulfnews.com 2007c).
In May 2007, the Government of Oman announced that it was withdrawing from
Gulf Air. According to a spokesman from Gulf Air CEO’s office, Oman’s withdrawal would
take place in stages and it was still too soon to say how big a financial hit Bahrain would
take. He added that Bahrain buying Oman’s share in the airline had not been suggested.
One of the local newspapers reported that according to an economist who declined to be
named, the Bahraini side viewed the airline as a loss maker, implying thereby that Oman
could not expect any payment for its remaining stake in the airline. In addition, it was
reported that Oman had not paid the BD 25 million (US$ 66.25 million) to Gulf Air that
was due earlier in the year. Oman’s pullout from Gulf Air was expected to benefit Bahrain
in the long run because 100 per cent of the airline’s flights would now originate from
Bahrain as opposed to the earlier 70 per cent (Khaleej Times Online 2007c).
When the Government of Oman increased its stake in OAS from 34 per cent to 83 per
cent, the share capital of the company nearly quadrupled to RO 50 million (US$ 129 million).
According to Oman Air’s CEO, Ziad Al Haremi, the infusion of capital was required
to finance the purchase of new aircraft, each of which would cost about US$ 90 million.
He explained that these investments would put the airline in the red for at least the next
five years. Government support was necessary for such long-term investments (Khaleej
Times Online 2007d). According to Ziad, Oman Air was in the process of appointing two
consultants, one for re-branding and another for restructuring, and this could cost approximately
US$ 1 million. The future strategy of Oman Air would be focused on supporting
the government’s push for developing the tourism industry in the country. He clarified
that unlike Gulf Air, Oman Air did not intend to lower fares to compete with low-cost airlines.
According to him, this would drive the low-cost airlines out of the market. He believed
that low-cost airlines had created a segment for themselves and Oman Air was not
competing in that segment (Khaleej Times Online 2007b).
While government ownership has its benefits, there were also costs. The Government
of Bahrain was facing serious opposition to attempts to downsize Gulf Air. Concerns
were being expressed in political circles about the fallout of laying off locals. If Oman
Air’s restructuring involved downsizing, the government may be in a quandary, because
Oman Air had a sizable local workforce.
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While embarking on the strategy of long-haul flights to Europe and the Far East, Oman
Air would have to take into account the strategies of the other major airlines in the region,
namely, Emirates, Air Arabia, Etihad, Qatar Airways and Jazeera Airways. Besides
Gulf Air, flights to Europe were also operated by British Airways, Lufthansa and Swiss
International from Muscat. In addition, Oman Air faced strong competition from Air
India, Air India Express and Indian Airlines on its routes to the subcontinent. It was recently
announced that the Emirate of Ras Al Khaimah would launch its own airline by
the end of 2007 and all indications were that this would be a full-service carrier. Middle
Eastern skies were getting crowded.
C
OMPETITION
The air travel market in the Middle East in general and in Oman in particular consisted
broadly of four types of customers: expatriates travelling on leave, leisure travellers, business
travellers and tourists. Expatriates and their families constituted about a quarter of the
population of Oman (about 800,000). Expatriates on family status usually travelled on
leave in summer and winter when schools were closed. So this was mainly a seasonal
business and most of the traffic was to the Indian subcontinent. Even unmarried expatriates
preferred to travel in the summer because there was a general lull in the economy. Summer
(May to September) and winter (December to January) were usually the peak seasons.
Though expatriates were usually price conscious and looked for the cheapest fares, until
2006, airlines were able to hike up fares during the peak season. However, the entry of
low-cost carriers like Air Arabia, Air India Express and Jazeera Airways dampened the
ability of full service carriers to hike up fares during the peak season. During the offseason
the fares were usually low. Earlier, full-service airlines used to form a ‘yield management
committee’ (a euphemism for a cartel), and attempted to shore up fares during the
off-season. These attempts were invariably unsuccessful because of undercutting by one
member or the other as was typical in a market where supply outstriped demand.
Leisure travel was increasing among both expatriates and locals. However, this business
was also largely seasonal and coincided with the peak seasons for expatriate leave travel.
In summer, all airlines came out with attractive holiday packages. Leisure travel also peaked
during festival holidays (the two Eids which were the two major Muslim festivals).
Business travel was usually steady throughout the year, except for a dip during summer
when most expatriates were on leave. Oman was marketing itself as a premium tourist
destination and was attracting an increasing number of up-market tourists. Except for
the high-end business travel and up-market tourists, the main demand was for economy
seats.
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The Dubai route was very important for Oman Air, on which it had five daily flights.
These flights were used by business and leisure travellers.
Dubai was also accessible by road from Muscat. The cheapest Oman Air Muscat-Dubai
return fare was RO 60 (US$ 154) and the return bus fare was RO 8 (US$ 21). The level of
the cheapest fare indicated that Oman Air was not competing with road traffic in this
sector. Many other cities in the region like Abu Dhabi in UAE, Doha in Qatar and Makkah
and Medina in Saudi Arabia were also accessible by road. However, Oman Air fares were
not cheap enough to tempt someone who intended to drive, to fly.
In terms of geography, the direct air travel market in Oman could be divided into four
sectors: UK and Europe, Middle East, the Indian subcontinent and Far East. Oman Air
was operating in the Middle East and the Indian subcontinent sectors and proposing
to enter the UK and Europe and Far East sectors. Currently, British Airways, Gulf Air,
Lufthansa and Swiss International flew directly to UK and Europe. Except for one daily
non-stop flight to London by Gulf Air, all other flights to UK and Europe were via Dubai,
Abu Dhabi or Bahrain. While British Airways, Gulf Air and Swiss International had daily
flights, Lufthansa flew only four times a week. If Oman Air started direct flights to London,
Gulf Air could discontinue its daily non-stop Muscat-London flight. In the Far East sector
only Thai Airways flew three a times week to Bangkok via Karachi. Convenient connections
to almost all destinations in the world were available through Dubai and other hubs
in the region. The current distribution of flights from Muscat indicated that the market
for direct flights to UK and Europe and the Far East was not huge at present. This raised
the question of whether there was scope for additional flights to these sectors.
In the long-haul market, Oman Air had to compete with three types of airlines. The first
type were fellow Gulf airlines, some of which were heavily funded and supported by their
respective governments, like Qatar Airways and Etihad Airways (established by Qatar
and Abu Dhabi respectively) and Emirates which claimed to receive no subsidies from
the government. The second type was western airlines like British Airways, Lufthansa and
Swiss International: very large, with good networks and relatively good brand identities.
The third type of competition came from low-cost airlines like Air Arabia, Air India Express
and Jazeera Airways.
Since the markets served by these airlines were different in nature (European destinations
with passengers who were willing to pay a higher price for a premium service
versus subcontinent and low-cost airline passengers who chose flights based on just the
airfare), Oman Air could not afford to follow a single strategy to serve these markets, but
needed to have different strategies to compete with airlines that served these destinations.
Oman Air was starting its foray into the long-haul market with a daily non-stop flight
from Muscat to London Gatwick and a five times a week flight to Bangkok starting from
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November 2007. In its regional growth strategy, Oman Air had been successful in trying
out various routes and retaining only the profitable ones. Perhaps such an approach may
be successful in its entry into the long-haul market. The issue was one of aircraft utilization.
The challenge for Oman Air was to have a sufficient number of flights and routes
to fully utilize its new aircraft and at the same time avoid overcapacity and unviable load
factors. What follows is a closer look at some of Oman Air’s major competitors in the
region.
Emirates
Emirates was one of the fastest growing airlines in the world. It was launched in 1985
and as of October 2007 consisted of a fleet of 103 aircraft flying to ninety destinations in
fifty-nine countries. In addition, Emirates had placed orders for more than 100 new aircraft
(valued at US$ 30 billion) to support its future growth plans. Currently Emirates flew to
many destinations serviced by Oman Air from Dubai with convenient connections from
Muscat. In the year ending March 2007, the Emirates group made a profit of Dhs 3.5 billion
(US$ 942 million) on revenues of Dhs 31.3 billion (US$ 8.5 billion). By 2012 Emirates
expected to carry 33 million passengers in its fleet of 151 aircraft (including twelve
freighters).
13 Emirates was ranked as a four-star airline by Skytrax, an agency that tracks
airline service quality.
14 The growth of Emirates was closely linked to the development
of Dubai as an international financial and trading centre. Dubai followed an ‘open skies’
policy and intended to make Dubai International Airport a major hub for international
long-haul travel.
Air Arabia
Ranked as a three-star, low-cost airline, Air Arabia was based in Sharjah.
15 Modeled after
leading American and European low-cost airlines, Air Arabia’s mission was to offer the
lowest fare in the market without sacrificing on service and safety standards.
16 Muscat-
Sharjah fares started from as low as AED 99 (US$ 26.96). In line with its low-cost strategy,
Air Arabia operated a single type of aircraft, the Airbus A320-200 which was regularly
13
Emirates: About Emirates: The emirates story. Retrieved on 3 July 2007 from http://www.emirates.com/
om/AboutEmirates/TheEmiratesStory/TheEmiratesStory.asp
14
Skytrax.
15
Skytrax.
16
Airarabia.com.
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voted the most comfortable aircraft in the single aisle category. Since launching in October
2003, Air Arabia broke even within one year. Air Arabia was rapidly expanding its operations
and hoped to achieve a growth rate of 20 per cent every year for the next five years.
As of October 2007, Air Arabia flew to thirty-six destinations in nineteen countries. Connections
to these destinations were available through its daily flights from Muscat to Sharjah.
Etihad Airways
Set up as the national airline of United Arab Emirates, Etihad Airways was launched in
November 2003. Etihad was based in Abu Dhabi and aimed to be a premium airline that
treated its passengers as guests. It grew rapidly since its launch and as of September 2007
flew to forty-three destinations in Africa, Asia, Australia, Europe and North America. By
2010 it hopes to increase its service to seventy destinations.
17 (Exhibits 10 and 11). Etihad
had direct flights from Abu Dhabi to Muscat.
18 Etihad officials said that they were looking
at getting a share of the regional traffic as well as providing connections to Etihad flights.
Etihad’s long-term goal was to achieve 40 per cent transfer traffic, according to Nick
Howarth, manager of network planning. Company executives said they planned to focus
more on the local travel demand rather than building up a major transfer hub as Emirates
had done. Etihad Airways was headed by James Hogan, the former CEO of Gulf Air. Skytrax
ranked Etihad as a four-star airline.
19
Qatar Airways
The only Middle Eastern airline ranked as a five-star airline by Skytrax,
20 Qatar Airways
was established in 1993 and started operations in 1994. It was originally owned by the
royal family of Qatar, but was re-launched in 1997 under a new management team headed
by Abbas Al Baker. The Government of Qatar owned 50 per cent of the airline while the
other 50 per cent was owned by private investors. It had grown rapidly since its re-launch
and as of October 2007 flew to seventy-seven destinations in Africa, Asia, Europe and
North America.
21 The fleet consisted of fifty-two Airbus aircraft including a freighter and
a corporate jet available for wet lease and charter. Qatar Airways flew to almost all destinations
covered by Oman Air and connections were available from Muscat through its daily
17
Etihad.
18
Etihad.
19
Skytrax.
20
Skytrax.
21
Qatar.
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fight to Doha. Qatar had been giving very aggressive fares to various destinations. Qatar
Airways also had aggressive growth plans and orders had been placed to more than
double the fleet size to 115 aircraft by 2015.
22 Qatar Airways was expanding its network at
a breakneck speed.
From 16 June 2007 it started operating a direct flight from Doha to New York via Geneva.
From 19 July 2007, it also started a direct, non-stop flight to Washington DC from Doha
(Exhibit 12). Pending approval from the US Department of Transportation, Qatar Airways
was also looking to code share with United Airlines on their transatlantic flights from
London Heathrow, Paris, Zurich, Rome and Munich to Washington, Los Angeles, San
Francisco and Chicago. The code share would significantly help Qatar Airways gain access
to one of the world’s biggest air markets and, in turn, give United Airlines a wider reach
in the Middle East and beyond. The launch of Qatar Airways’ US flights was the highlight
of the airline’s route expansion programme during 2007, which had already seen Dar-es-
Salaam, Lagos, Bali, Ho Chi Minh City, Chennai, Geneva and New York added to the carrier’s
burgeoning network. On 27 November Qatar Airways would also start services to
the Swedish capital, Stockholm.
Jazeera Airways
Based in Kuwait and operating on the low-cost model, Jazeera started operations in October
2005.
23 It claimed to be Middle East’s only private airline. In 2007 Jazeera established
Dubai as a second hub with non-stop flights to cities in the Middle East and the Indian
subcontinent.
24 It flew to nineteen destinations in the Middle East, Africa and India.
Jazeera had direct flights from Muscat to Dubai and Kuwait, providing convenient connections
to other cities served by the airline. Jazeera was certified as a three-star low-cost
airline by Skytrax.
25
C
ONCLUSION
Oman Air’s recent financial performance indicated that its short-haul regional strategy
had been successful. The decision to enter the long-haul market put Oman Air in direct
competition with the other major airlines in the region. Ziad Al Haremi had already admitted
that entering the long-haul market would result in Oman Air making losses for
22
Qatar.
23
Jazeera.
24
Jazeera.
25
Skytrax.
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five years. The optimistic implication was that the new strategy would see Oman Air in
the black again in the long run. But this was by no means a foregone conclusion. The
future was fraught with uncertainties. Customer reviews of Oman Air’s service did not
indicate that the airline had been able to differentiate itself significantly from other
airlines in the region in terms of service or network. It was ranked as a three-star airline
by Skytrax.
26
It was believed that the incredible growth shown by Qatar Airways and Etihad was
underwritten by government subsidies, including fuel price subsidy. This level of government
support was possible because of the high oil prices seen in recent years (Exhibit 13).
Both Qatar and Abu Dhabi were major oil producers with relatively small populations.
Etihad and Qatar Airways appeared to be following in the footsteps of the highly successful
Emirates, which had the first mover advantage and was able to skillfully link its growth
to the development of Dubai as an international business center and a hub for long-haul
travel. In spite of their apparently unlimited resources, it remained to be seen how successful
Qatar and Abu Dhabi would be in repeating Dubai’s success. High oil prices and the
consequent increase in national wealth had also encouraged relatively small Gulf countries
like Ras Al Khaimah to start their own airlines. Except for Emirates, none of the other
long-haul airlines in the region were claiming to be profitable and some like Gulf Air
were in the doldrums.
Just like any other country in the Middle East, Oman was also solely dependent on
crude oil and related products for its survival. The country’s GDP, infrastructure and social
projects were dependent on oil wealth. Unlike its neighbouring countries in the region,
Oman did not have enormous oil resources (Exhibits 14 and 15). In fact, a Royal Dutch
Shell (part owner of PDO—Petroleum Development Oman) report revealed in 2004 that
Oman’s oil reserves would start dwindling around 2025 (Gerth and Labaton 2004). If this
happened, the government’s financial support to Oman Air would be affected, because
at that time the government’s priorities would be different.
Governments fund and support their national airlines all over the world. The Middle
East was no exception to this phenomenon. All airlines in the region received financial
support from their governments (except Emirates which was owned by Dubai). While
the oil prices were high it would not be a problem for these countries to support their national
airlines. However, if the oil prices decline, then all the airlines in the region would
be in trouble, including Oman Air.
26
Skytrax.
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R
EFERENCES
Business Today. 2001. ‘Bumpy ride’, 22–24 March.
Gerth, J. and S. Labaton. 2004. ‘Oman’s Oil Yield Long in Decline, Shell Data Show’
New York Times,
8 April.
Gulfnews.com. 2006 ‘James Hogan in surprise resignation from Gulf Air’, (7 September). Retrieved
from http://archive.gulfnews.com/articles/06/07/0910052405.html on 15 July 2007.
———. 2007a. ‘Bahrain now sole owner of Gulf Air’, (6 March). Retrieved from http://archive.
gulfnews.com/ articles/ 07/05/06/10123309.html on 22 June 2007.
———. 2007b. ‘Picking up the pieces’, (17 May). Retrieved from http://archive.gulfnews.com/
articles/ 07/05/17/10125792.html on 15 July 2007.
Gulfnews.com. 2007c. ‘Oman Unaware of Bahrain’s Gulf Air move’, (3 April). Retrieved from
http://gulfnews. com/business/Aviation/10115527.html on 15 July 2007.
Khaleej Times Online. 2007a. ‘Gulf Air says Bahrain to raise stake to 80 pct’, (16 March). Retrieved
from http://www.khaleejtimes.com/DisplayArticleNew.asp?section=business&xfile=data/
business/2007/march/ business_march466.xml on 15 July 2007.
———. 2007b. ‘Oman Air to buy five Airbus aircraft’, (3 April). Retrieved from http://www.
khaleejtimes.com/DisplayArticleNew.asp?section=business&xfile=data/business/2007/
april/business_april56.xml on 15 July 2007.
———. 2007c. ‘Oman’s Gulf Air pull out to benefit Bahrain in long-run’, (7 May). Retrieved from
http://www.khaleejtimes.com/DisplayArticleNew.asp?section=business&xfile=data/
business/2007/may/business_may239.xml on 15 July 2007.
———. 2007d. ‘OAS to hold EGM on Wednesday’, (19 February). Retrieved from http://www.
khaleejtimes.com/DisplayArticleNew.asp?section=business&xfile=data/business/2007/
february/business_february538.xml on 15 July 2007.
Radler, M. 2005. ‘Global reserves, oil production show small increases for 2005’,
Oil & Gas Journal:
December 19.
Times of Oman. 2006. ‘Oman Air e-ticketing Soars’, 1 April.
——— . 2007. ‘Oman Air Proposes 20-Year Development Program’, 6 July.
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Exhibit 1
Oman Air Revenue and Profit/Loss Statement
(In RO ’000)
Year Total Revenue Profit/(Loss)
2006 85,915 2,893
2005 63,713 1,006
2004 54,031 628
2003 50,495 1,394
2002 47,728 544
2001 40,195 (2,486)
2000 39,724 (3,666)
Source:
Adapted from various annual reports of Oman Aviation Services, the
parent company of Oman Air.
Note:
1 Omani Rial (OR) is equivalent to US$ 2.5 (fixed exchange).
Exhibit 2
Gulf Air Revenue and Profit/Loss Statement
(In BD’M ’000)
Year Total Revenue Profit/(Loss)
2006 (NA) (130)
2005 (NA) (NA)
2004 476.3 1.5
2003 384.6 (19.9)
2002 343.0 (40.7)
2001 342.2 (52.2)
2000 377.2 (39.2)
1999 360.3 (4.8)
1998 364.7 0.9
1997 380.2 17.3
1996 389.1 (34.6)
1995 372.0 (52.5)
Source:
Adapted from various annual reports of Gulf Air.
Note:
1 Bahraini Dinar (BD) is equivalent to US$ 2.65 (fixed exchange).
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Exhibit 3
Oman Air Passengers Carried
(in ‘000)
No. of Available Seat Revenue Passenger Load Factor
Year Passengers Kilometers Kilometers (in %)
2006 1,226 2,309 1,750 76
2005 1,135 2,271 1,715 76
2004 983 2,117 1,501 71
2003 927 2,117 1,405 66
2002 848 1,787 1,187 66
Source:
Oman Aviation Service Annual Report, 2006.
Exhibit 5
Seeb International Airport
Traffic Statistics
Year Total Passengers Total Freight (Tons) Total Aircraft Movement
2006 4,777,747 99,582 53,695
2005 3,778,578 76,043 44,445
2004 3,461,982 67,151 43,622
2003 2,886,487 48,630 42,330
2002 2,450,422 46,934 39,555
2001 2,697,032 73,078 38,955
2000 2,720,983 68,639 38,184
Source:
http://www.omanairports.com/seeb_trafficstatistics.asp. Retrieved on 28 July 2007.
Exhibit 4
New Board of Directors of Oman Aviation Services
(parent company of Oman Air) as of 3 July 2007
HE Ahmed bin Abdulnabi Macki, (Minister of National Economy & Deputy
Chairman of Financial Affairs & Energy Resources Council) (Chairman)
HE Shaikh Mohammed bin Abdullah Al Harthy,
(Minister of Transport and Communications) (Vice Chairman)
HE Lt. Gen. Malik bin Sulaiman Al Maamari,
(Inspector General of Police and Customs)
HE Darwish bin Ismail al Balushi, (Secretary-General of the Ministry of Finance)
HE Mohammed bin Hamdan al Toobi, (Tourism Ministry Under-Secretary)
HE Said Bin Hamdoon Al Harthy, (Representing Ministry of Transport and
Communications (Under-Secretary) and Mohammed Al Barwani, (A renowned
Omani businessman who was elected to represent the private shareholders).
Source:
http://www.omanair.aero/wy/aboutus/aboutus_media_center/about_media_presrelses/releases_
108.htm.
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Exhibit 8
IATA Operational Safety Audit (IOSA)
The IATA Operational Safety Audit (IOSA) Programme is an internationally recognized and accepted evaluation
system designed to assess the operational management and control systems of an airline. IOSA uses
internationally recognized quality audit principles, and is designed so that audits are conducted in a standardized
and consistent manner.
Exhibit 6
Oman Air Route Network (International)
Region/Countries Destination Cities
Oman Air direct flights from Seeb International Airport, Muscat:
Gulf Dubai, Abu Dhabi, Bahrain, Doha and Kuwait
India Mumbai, Delhi, Hyderabad, Kochi, Trivandrum,
Chennai (Madras), Jaipur and Lucknow
Bangladesh Chittagong
Middle East Cairo, Beirut and Amman
Oman Air direct flights from Salalah Airport:
Gulf Dubai
Code share destinations (with Gulf Air):
London, Frankfurt, Bangkok, Riyadh, Kuala Lumpur
and Jeddah
Oman Air Route Network (Domestic)
From To
Muscat Salalah
Muscat Kasab
Source:
http://www.omanair.aero/wy/aboutus/aboutus_network.htm.
Exhibit 7
Oman Air Route Network (Available Seats—Weekly)
Destination Region Countries Destinations Frequencies Seats
Indian subcontinent 4 13 70 14,098
Southeast Asia 4 4 15 3,972
Europe 1 1 10 2,150
Middle East 6 9 93 18,432
Total 15 27 188 38,652
Source:
Center for Asia Pacific Aviation and Official Airline Guide (OAG) for week of 5 March 2007.
(
Exhibit 8 contd )
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Inherent in the IOSA Programme is a degree of quality, integrity and security such that mutually interested
airlines and regulators can all comfortably accept IOSA audit reports. As a result, the industry will be in a
position to achieve the benefits of cost-efficiency through a significant reduction in audit redundancy.
Key Benefits
With the implementation and international acceptance of IOSA, airlines and regulators will achieve the following
benefits:
within the industry;
Source:
http://www.iata.org/WHIP/_Files/WgId_0200/IOSA_Overview.pdf.
(
Exhibit 8 contd )
Exhibit 9
Gulf Air Route Network (Available Seats—Weekly)
Destination Region Countries Destinations Frequencies Seats
Africa 3 3 17 3,368
Indian subcontinent 4 8 37 8,249
Southeast Asia 3 3 20 5,552
Europe 7 7 45 9,477
Middle East 10 15 231 39,445
Total 27 36 350 66,091
Source:
Center for Asia Pacific Aviation and Official Airline Guide (OAG) for week of 5 March 2007.
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Exhibit 10
Etihad Airways Route Network (Available Seats—Weekly)
Destination Region Countries Destinations Frequencies Seats
Africa 4 4 16 4,424
Subcontinent 4 8 44 12,110
Southeast Asia 4 4 30 10,662
Europe 5 7 53 15,959
Middle East 9 11 68 19,092
North America 1 1 7 2,513
Total 27 35 211 62,247
Source:
Center for Asia Pacific Aviation and Official Airline Guide (OAG) for week of 5 March 2007.
Exhibit 11
Etihad Airways Network Expansion—Summer 2007
Destination Weekly Frequency (New/Total) Date of Launch Aircraft
Jeddah 4/7 25-Mar-07 B777-300ER/A340-300
Sydney# 3/3 26-Mar-07 A340-500
Kuala Lumpur B777-300ERs
∗ 26-Mar-07
Trivandrum 3/3 31-May-07 A340-500
Brussels 3/3 01-Jun-07 A330-200
Toronto 3/3 01-Jun-07 A340-500
Delhi 4/7 01-Jun-07
Kochi 4/4 03-Jun-07 A340-500
Dublin FND Aug-07
Milan Malpensa FND Sep-07
Source:
Center for Asia Pacific Aviation and Airline Reports.
Notes:
#Increased to daily from 29 June 2007.
∗
Replacing smaller A340-300s with six times weekly basis.
FND = Frequency not disclosed.
Exhibit 12
Qatar Airways Network Expansion—Summer 2007
Destination Weekly Frequency (New/Total) Date of Launch
Chennai 7/7 24-Mar-07
Denpasar 4/4 24-Mar-07
Ho Chi Minh City 4/4 24-Mar-07
Washington n/a Summer-07
New York 4/4 28-Jun-07
Geneva 4/4 28-Jun-07
Stockholm 4/4 Nov-07
Source:
Center for Asia Pacific Aviation and Airline Reports.
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Exhibit 13
Crude Oil Price Movements
(US$ per barrel)
Year Oman Qatar Abu Dhabi Dubai
13 July 2007 69.78 73.24 74.38 76.54
6 July 2007 67.96 71.55 72.55 72.15
5 Jan 2007 57.16 59.90 61.39 62.31
6 Jan 2006 56.38 59.49 59.74 58.63
7 Jan 2005 35.48 38.14 38.74 38.25
2 Jan 2004 28.45 28.59 29.87 32.10
3 Jan 2003 27.71 28.03 28.37 35.03
6 Jan 1978 13.06 13.19 13.26 13.55
Source:
www.eia.doe.gov/.../petroleum/data_publications/weekly_petroleum_status_report/current/
pdf/table13.pdf
Exhibit 14
Largest Oil Reserves by Country, 2006
Rank Country Proved Reserves (Billion Barrels)
1 Saudi Arabia 264.3
2 Canada 178.8
3 Iran 132.5
4 Iraq 115.0
5 Kuwait 101.5
6 United Arab Emirates 97.8
7 Venezuela 79.7
8 Russia 60.0
9 Libya 39.1
10 Nigeria 35.9
11 United States 21.4
12 China 18.3
13 Qatar 15.2
14 Mexico 12.9
15 Algeria 11.4
16 Brazil 11.2
17 Kazakhstan 9.0
(
Exhibit 14 contd )
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A
SIAN JOURNAL OF MANAGEMENT CASES, 4(2), 2007: 117–141
Rank Country Proved Reserves (Billion Barrels)
18 Norway 7.7
19 Azerbaijan 7.0
20 India 5.8
Top 20 countries: 1,224.5 (95%)
Rest of the world: 68.1 (5%)
World total: 1,292.6
Sources:
Radler (2005) and the Energy Information Administration (EIA).
Note:
Proved reserves are estimated with reasonable certainty to be recoverable with present technology
and prices.
Exhibit 15
Largest Natural Gas Reserves by Country, 2006
Rank Country Proved Reserves (Billion Barrels)
1 Russia 1,680
2 Iran 971
3 Qatar 911
4 Saudi Arabia 241
5 United Arab Emirates 214
6 United States 193
7 Nigeria 185
8 Algeria 161
9 Venezuela 151
10 Iraq 112
11 Indonesia 98
12 Norway 84
13 Malaysia 75
14 Turkmenistan 71
15 Uzbekistan 66
16 Kazakhstan 65
17 Netherlands 62
18 Egypt 59
19 Canada 57
20 Kuwait 56
Top 20 countries: 5,510
Rest of the world: 602
World total: 6,112
Sources:
Radler (2005) and the Energy Information Administration (EIA).
Note:
Proved reserves are estimated with reasonable certainty to be recoverable with present technology
and prices.
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Exhibit 14 contd )Downloaded from http://ajc.sagepub.com at K.R.E.T'S TRIDENT INSTITUTE on April 11, 2010
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