Royal Jordanian is grappling with the double whammy of the Israel-Gaza war that has dampened bookings in the first quarter of 2024 and jet delivery delays by Airbus that have hampered its fleet renewal plans, its chief executive said.
The Amman-based airline has been hit by operational difficulties and financial losses with the Israel-Gaza war continuing for nearly six months.
In the first quarter of 2024, which is typically a slow period of the year, Royal Jordanian recorded “very weak” travel bookings as, along with the reduction in travel during Ramadan, the war has deterred European tourists, the airline's vice chairman and chief executive Samer Majali told The National.
“We expected that the situation would be finished but it has continued with more ferocity,” he said.
chief executive, Royal Jordanian
Tourism in countries close to Israel and Palestine is taking a hit because of the incorrect perception that they are all one conflict zone, Mr Al Majali said.
“They lump the region as a homogenous unit, which is unfair and bad. It's like saying if there's a tragic killing in a supermarket in the US, then don’t visit America. This is what happens to us,” he said.
To mitigate the loss of European inbound traffic to Amman, Royal Jordanian is seeking to carry more transit travellers and more Umrah pilgrims, a strategy that has had “some success but not 100 per cent”.
“We are tracking according to budget in the first quarter of this year, which is better than last year, but lower than what we should be doing,” Mr Majali said, citing the impact of the war that began on October 7.
Load factors stand at 70 per cent to 75 per cent in the first quarter, which is under the airline's target of 75 to 80 per cent, he said.
Forward bookings for travel in the summer will be mainly driven by tourists from the Middle East visiting Jordan and Jordanian expats visiting home, Mr Majali said.
The airline boss is hopeful that conditions will improve in the third and fourth quarter of 2024 amid increasing international calls to end the fighting.
Famine, displacement and increasing deaths of mostly Palestinian women and children have culminated in a humanitarian catastrophe in Gaza. More than 32,500 Palestinians have been killed and 74,899 injured across Gaza since the war began, health authorities in the enclave said.
The UN's special rapporteur to Palestine has said Israel's war in Gaza meets the definition of genocide. On March 25, the UN Security Council adopted a resolution that demands an immediate humanitarian ceasefire during Ramadan.
Airbus delays
The Amman-based airline has also been affected by “major delays” of six to 10 months by Airbus, particularly regarding deliveries of its A320neo and A321neo aircraft, which have hindered its plans to phase out the classic version of the narrow-body jets, Mr Majali said.
“The bulk of the fleet renewal should’ve happened by May, but it got delayed to the end of this year and into early next year.
“Airbus has said 'we're very sorry'. They said there are delays with Pratt & Whitney and the seat manufacturer.”
Royal Jordanian's A320neo jets are powered by Pratt & Whitney's geared turbofan (GTF) engines.
While all engine makers face problems with new turbines, the operating conditions in the Middle East due to heat, humidity and dust have a “major negative impact” on new-technology engines, Mr Majali said.
Asked about the aircraft handover delays, an Airbus spokesman told The National: “The industry continues to operate in a global complex environment.
“We are always in conversations with our customers about their fleet needs and, where applicable, next delivery schedules. The content of those talks and corresponding agreements we keep confidential.”
The global aviation industry is grappling with severe supply chain constraints, making it difficult for airlines to ramp up operations to meet a continuing rebound in travel demand.
Major aerospace suppliers, aircraft manufacturers and engine makers have struggled to keep up with the rebound after the sharp downturn in travel during the Covid-19 pandemic led to job losses and an industrywide shortage in skilled aviation workers and parts.
Supply chain 'disaster'
The supply chain bottleneck is the “biggest issue” Royal Jordanian is facing, Mr Majali said. It encompasses a shortage of parts for existing planes, longer turnaround times for engine repairs, as well as delays on aircraft seat production and the delivery of new planes.
“The supply chain across the industry is a disaster,” he said, echoing the frustration of global airline chiefs.
“The supply chain for aeroplane parts and products on new and old planes are affected by 50 per cent to 100 per cent delays.”
Mr Majali said extending the lease agreements on existing aircraft poses a “serious problem”.
“If there is a delay of a new plane, then you have to extend the lease on old planes otherwise there is a capacity gap.
“We had a big problem in extending the re-delivery of old planes to leasing companies.
“That’s been very challenging because leasing companies want old planes back to re-lease them to other airlines.
“There's high demand for old planes because there are not enough new ones,” he said.
“Extending the lease on aeroplanes involves a lot of cost because the prices are up. These delivery delays have impacted airlines substantially.”
However, there is “no serious compensation” paid to lessors or airlines as the manufacturers “protect themselves very well” on contract clauses about the supply chain, leaving airlines with big cost burdens, he said.
The airlines are “the weakest link” in the global aviation chain as problems at plane makers and engine manufacturers get “dumped” on carriers, leaving airlines with “limited” profitability.
Airports, air traffic control providers and jet fuel suppliers are largely monopolies who “exploit their position” and charge airlines high fees, Mr Majali added.
Optimistic outlook
While Royal Jordanian has presented to the board a budget estimating a loss of 9 million Jordanian dinars ($12.7 million) in 2024, it is aiming to break even or make a “small profit” if the geopolitical situation improves, Mr Majali said.
Last year, the airline made a loss of 8.5 million dinars following a “dramatic reduction” in passenger traffic due to the Gaza war.
In September 2023, the airline had forecast a full-year profit of about 12 million dinars to 13 million dinars.
But this was before the outbreak of war in October, which brought a 25 per cent to 30 per cent fall in inbound traffic of mainly tourists, Mr Majali said.
The airline had to reroute its flights over Egypt and Syria, instead of west over Gaza, for security reasons. This expensive diversion reduced revenue and increased costs.
The airline will not ask for government support to cope with the war-related losses as it had previously fixed its capital equity base and is “managing” in the current circumstances, Mr Majali said.
This year, the airline expects to carry 3.9 million passengers, slightly up from 3.5 million last year, as it opens new destinations to unlock growth.
It has opened routes to Manchester, Stanstead, Brussels and AlUla.
It is considering new destinations in Germany in the second half of the year, with Munich and Berlin among the possibilities, Mr Majali said. It also aims to resume flights to Libya to cater to “medical tourism”.
Fleet renewal plans
Royal Jordanian is also at the start of its fleet renewal programme designed to replace older aircraft models with newer, fuel-efficient ones.
In January, the airline took delivery of its first two Embraer E195-E2 aircraft which can carry 120 passengers, which it deploys mainly in the Middle East region and on select flights to Europe.
Another three Embraer jets will arrive in April, June and July, and the five Embraer aircraft will be used to phase out the older model of E1 jets by the fourth quarter of 2024.
The airline will also receive three Airbus A320neos by the end of this year. In 2025, it will take 13 A320neos, two Boeing 787 Dreamliners and between one and three additional E195-E2 regional jets from Embraer.
“By the end of 2025, almost all of our narrow-body and regional fleet will be brand new,” Mr Majali said.
Cargo plans
On the cargo business, Royal Jordanian has taken delivery of an A321 freighter that will start operations next week, Mr Majali said.
The airline may introduce more freighters to its fleet, depending on cargo demand.
“Once we assess our experience with this aeroplane, next year [we might] introduce a second A321 freighter and maybe an A330 freighter.
“We are testing the waters now and might add more freighters.”
