State airline Royal Jordanian may seek financial assistance from its government shareholder if the year-long Israel-Gaza war extends well into 2025, as a decline in inbound tourism slashes revenue and longer flight diversions add to its costs.
The Amman-based airline's mix of passenger traffic has changed, relying more on transit travellers, and its fares have dropped 15 per cent over the last year as the war continues, chief executive Samer Majali said in an interview at the Dead Sea in Jordan.
“In the end, something has to give. If this continues, a major rethink has to be done for the country's economy, not just RJ. We would need definitely support. Up to this point in time, we are managing and hopefully we will continue managing for a while,” he said.
“But if it continues deep into the next year, then we have to go back to the government – they are a major shareholder and they own 95 per cent of our shares – to say we need some relief.”
Royal Jordanian is no stranger to dealing with the impact of regional conflicts, having navigated the two Gulf wars in 1990 and 2003. Ripple effects from the Israel-Gaza war, now in its 14th month, are being felt across the travel and tourism sector of Jordan, whose border with Israel along the Red Sea and Dead Sea is lined with beach resorts.
In the week starting October 7, 2023, when the Gaza war broke out, Royal Jordanian recorded a 30 per cent decline in its bookings, while ticket rebates were a “big cash drain” on the company.
The airline started to recover slowly by increasing the proportion of transit traffic it funnels through its hub at Queen Alia International Airport. Before the war, its transit traffic was 35 per cent and its point-to-point traffic was 65 per cent. But that has now evened out, with the airline carrying 50 per cent transit and 50 per cent point-to-point traffic, Mr Majali said.
Passenger yield, or the average amount of revenue received per paying passenger per kilometre, on transit services is lower than point-to-point, so “we still have high seat factors and a high number of passengers but the yield is obviously far poorer”.
Still, the airline does not pay an additional war insurance premium because “we have a long record of working in this region … People just recognise our risk profile, mitigation efforts, our risk assessment”, Mr Majali said. “The only place we pay a premium is Moscow.”
Mounting cost burdens
At the same time, the airline is grappling with higher costs as it is forced to divert more flights for longer to avoid flying over Israeli airspace. Instead, it must divert either north over Syria, which adds 20 minutes to the flight, or west over Egypt, which adds 30 minutes.
The loss of inbound tourism is “really unfortunate” as Jordan remains a safe haven of stability between its warring neighbours, Mr Majali said, pointing to the calm at the Dead Sea location about 30km from Israel and Palestine.
After a year of the Gaza war, with the airline “working hard” on cost-saving measures and optimising capacity, Mr Majali expects the company's annual financial results in 2024 to be “close to” last year's losses.
The war, which began in the fourth quarter of the year, tipped the airline's earnings from a predicted annual net profit of $15 million to a net loss of around $11 million in 2023.
This year, the introduction of new fuel-efficient aircraft and softer fuel prices has been a “major help” for the airline.
Asked how a longer duration of the war would impact the airline, Mr Majali said: “We just have to live with it … there's not much you can do. The crisis is not in your hands. Fuel prices are not in your hands. Aircraft leases, aircraft insurances, airport charges are not in your hands.
“We are right in the middle of it. After Palestine and Lebanon, we are the third-worst country that has been hit [in terms of] aviation in particular but also the overall economy.”
Fleet renewal plans under way
Royal Jordanian is still forging ahead with its fleet renewal and route expansion plans, as it bets on tourist travel coming roaring back into Jordan after the Gaza war ends.
The airline has continued taking delivery of new aircraft, with five of a batch of eight Embraer E195-E2s now in service.
“They're doing very well and we're putting them even on longer-range flights, because the fuel-saving is quite considerable,” Mr Majali said, pointing to a 20 per cent fuel-saving compared to the aeroplanes' E190-E1 predecessors.
Royal Jordanian is operating the E2s, which replaced older Airbus A320s, on routes such as Amsterdam and Madrid.
The airline, like many of its international peers, is also facing jet delivery delays of six to 12 months from both Airbus and Boeing.
“It's disruptive because the new aeroplanes are cheaper [to operate] than the old ones,” Mr Majali said. “Savings on fuel, parts, reliability and maintenance costs are much greater than the additional cost of new machines. So it's actually damaging me not to have new aeroplanes.”
The airline expects a “major new fleet induction” in January when it will start receiving the first of 16 new Airbus aeroplanes and phasing out around 13 older Airbus aircraft. It will also receive two additional Embraer E2s next year.
Royal Jordanian will take delivery of two Boeing 787-9s, which were delayed from May 2025 to September and December of next year. Subsequent Boeing 787s deliveries will be delayed by another eight months.
Continuing to take delivery of new aircraft remains crucial for the airline, despite the slump in tourism traffic and the continuing war. “We have to be ready for any upturn,” Mr Majali said.
It would be a disadvantage “if suddenly there's a huge opportunity and you don't have the aeroplanes to fly, especially since the competition in the region is carrying on with [growth] plans regardless”.
The fleet development plans stretch into 2032, as new aircraft slots are difficult to get with long backlogs at Airbus and Boeing.
“You can't get aeroplanes now so you have to look that far ahead,” Mr Majali said. “The main growth element for us, after we get stability in the region, is tourism. It is probably the biggest double-digit growth we can see.”
Medical tourism in Jordan is a “big pull” for travellers in the region from Sudan, Libya, Yemen and Iraq, he said.
“A lot of people come here to get medical treatment, because it's a cheaper alternative to Europe, plus the language is easier so they bring their families,” he said.
New routes on the network map
The airline is planning new route launches and expects to start flights to the Libyan city of Benghazi soon and the Yemeni city of Aden within weeks, following airport security assessments, Mr Majali said.
This year it opened routes to London Stansted and Manchester, resumed flights to Berlin and Dusseldorf and started operations to Stockholm and the Libyan capital Tripoli.
In the long term, Mr Majali said he is optimistic about the potential for growth once the war ends.
“We keep on hoping that things will improve, we're assuming reasonable levels of growth, especially in tourism, once the situation calms down. And if it doesn't, then we just deal with it as we always do.”
