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Abu Dhabi, UAEMonday 19 November 2018

Exclusive: Oman's budget carrier SalamAir aims for profitability by end of 2019 and considers IPO 

The airline is studying 20 new routes to expand its network by 2020, CEO says

SalamAir CEO Captain Mohamed Ahmed. Oman's budget carrier will become profitable by 2019-end and is targeting a public listing once it builds scale. Courtesy SalamAir
SalamAir CEO Captain Mohamed Ahmed. Oman's budget carrier will become profitable by 2019-end and is targeting a public listing once it builds scale. Courtesy SalamAir

Oman's budget carrier SalamAir is aiming for profitability by the end of 2019, with a target to list its shares by 2024, as it swells its fleet with re-engined Airbus single-aisle jets.

The carrier plans to add 11 A320 Neo aircraft within 5 years to the three leased planes it currently operates and six to be delivered by 2019, Mohamed Ahmed, chief executive of SalamAir, said in an interview. It is studying 20 new destinations, including points in East Africa, for the next phase of its network expansion by 2020.

"The aim was to be profitable within 3 years of operating, so we're on target to become profitable by the end of 2019," Mr Ahmed said. "An initial public offering is on the cards after the next five years."

Launched in January 2017, SalamAir has expanded its network to 12 destinations. It began with domestic routes to Muscat, Salalah and Sohar before expanding regionally with flights to Dubai, Jeddah, Karachi, Multan, Sialkot, Shiraz and in eastern Europe with Tbilisi and Baku. Last week, SalamAir said it will add six A320 Neos to its fleet, taking delivery of one purchased jet in the fourth quarter and five leased planes by the first quarter of 2019.

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The upgraded aircraft have a 6-hour flying radius and the carrier is studying new destinations in India, Iran and East Africa, Mr Ahmed said.

"There's always demand from Dar-Essalam, Zanzibar, Nairobi and Addis Abba, a mix of business travel and visiting family or friends because of the African community that lives here," he said. "There's also demand for connecting India and Africa."

Oman, a historically traditional trade route situated at the crossroads between East and West, has a large East African diaspora and its neutral political ties with its surrounding neighbours has meant easier access to traffic rights.

SalamAir is planning services to Khartoum next month, Abu Dhabi-Salalah this summer and targeting Dakha, Kathmandu, Riyadh, Kuwait City, Najaf and Alexandria by September, he said. Government negotiations are underway for traffic rights to Cairo.

With growing Chinese investments in the Arabian Gulf, including Oman's industrial city of Duqm, SalamAir sees opportunities for expanding into China with larger A321 jets once these projects come to fruition in five years, he said.

The budget carrier expects to carry more than 1 million passengers this year with a load factor--a measure of seats filled--of just over 70 per cent as it expands into the Middle East and North Africa region, Mr Ahmed said. It will add 3 new jets every year and carry 500,000 more passengers each year in the next few years.

A rise in oil prices this year has increased SalamAir's fuel bill by 30 per cent in the first half of 2018 compared to the same period last year and it may impose a higher fuel surcharge if oil prices increase further.

"In the short term, we've taken a hit," Mr Ahmed said. "But higher fuel prices mean a better economy, more government spending and more travel."

Global airline profit will be slashed 12 per cent this year as average oil prices reach $60 a barrel, the International Air Transport Association said in its forecast report in June.

SalamAir, the second operator after state-owned Oman Air, will "complement" the legacy carrier by "snychronising" efforts for joint cost savings and operational efficiencies while avoiding overlaps on most routes, Mr Ahmed said.

SalamAir, owned by Muscat National Development and Investment Company (ASAAS) and private investors, will introduce some additional frills starting November including meals and priority check-in.

The carrier, which operates from Muscat International Airport, has no plans to operate from new hubs in other cities but is "open to that option," Mr Ahmed said.

SalamAir is "absolutely not" considering low-cost long-haul operations given the competition from neighbouring Gulf giants Emirates and Etihad, he said.

The airline is in talks with its shareholders, local and international banks to seek the "best deals" for financing its aircraft deliveries, he said, declining to reveal how much it would raise.

"One of our major objectives is growing the tourism sector," he said.

Oman is focusing on attracting tourists to diversify its oil revenues as it seeks to narrow a budget deficit.

The sultanate plans to boost visitor numbers to 11.7 million from 3.3 million currently and create 500,000 jobs in tourism for Omanis by 2040.