Flying higher
Oman Aviation has a lot to offer in the days to come, as was indicated in 2006

For a company that completed 25 years of operation in 2006 and showed improved results during the year following the turnaround in 2004 and 2005, going down by two steps is a lot. Blame it on Oman Cables and OIB, Oman Aviation Services Co. (OAS) has found itself in the ninth place. However, for the third year in a row, Oman Aviation recorded impressive results and reported a profit of RO2.893 million in 2006 compared to RO1.006 million in 2005.

Oman Air recorded an all-round performance in all operational segments of its business. It carried 1.226 million passengers, an increase of 91,000 passengers or eight per cent over the previous year. The capacity growth at Oman Air is at a measured pace of two per cent which matched traffic growth of two per cent during the year 2006. The average seat factor across the network remained at a healthy level of 76%. The average aircraft utilisation remained high at 12.6 block hours per day per aircraft, one of the highest in the industry.

In Airport Service Group business, Oman Aviation handled 23,545 flights (an increase of 16 per cent), passenger movement of 4.521 million (an increase of 33 per cent), cargo tonnage of 67,700 metric tons (an increase of 22 per cent), and catered 4.237 million meals to airline passengers (an increase of 28 per cent over the previous year).

“Escalating fuel cost is one of the impediments to delivering a year-on-year improvement in earnings. However, Oman Air posted an improved performance in 2006 against the increase in fuel price which was higher by 19 per cent in comparison to the previous year. Fuel prices are expected to remain at current level at least in the short term. However, in view of supply side constraints and growing demand, we do not anticipate fuel prices to decline any further,” said H.E. Said Bin Hamdoon Bin Saif Al Harthy, Chairman, Oman Aviation.

Industry Scenario
IATA’s traffic results for 2006 indicate a global passenger growth of 5.9 per cent in comparison to 7.6 per cent in 2005. However, the global cargo growth rate increased to 4.6 per cent from 3.2 per cent during the previous year. Average passenger load factors in 2006 rose to 76 per cent up from 75.1 per cent during 2005. “The industry expects to post an operating profit of US $10.2 billion during 2006 with net losses at US $ 500 million. The industry’s cautious approach in building the capacity, cost reduction measures, and improved efficiencies have resulted in improved performance during 2006,” Al Harthy said.

Middle East continues to be the fastest growing region with the passenger and cargo recording an annual growth of 15.4 per cent and 16.1 per cent, respectively. Oman Air continued its focus on being a niche regional carrier with Muscat as its hub, and strengthened its presence in the Middle East and the Indian sub-continent. During the year, Oman Air flew more than 1.226 million passengers. New route of Amman was started and additional frequencies were deployed on profitable routes. In Airport Services business, the company handled 23,545 flights and 4.521 million passengers at Seeb airport. Flight movement was higher by 16% due to increased operations mainly by Gulf Air, Etihad Airways, Qatar Airways, Royal Jordanian, Saudi Arabian Airlines and Turkish Airlines.

Financial Performance
Net profit for 2006 was RO2.893 million compared to RO1.006 million in the previous year. Profit from operations was RO5.023 million compared to RO2.315 million in 2005. The adoption of IAS 37 with regard to maintenance provision and IAS 16 with regard to component depreciation had a favourable impact on the income statement.

Airport Services, which includes Ground Handling, Cargo Handling and Catering Services, witnessed enhanced profitability with the increase in passenger movement and catering uplift at Seeb airport. Scheduled services revenue was RO62.564 million, higher by RO5.769 million or 10% compared to the previous year. Passenger traffic rose by 91,000 passengers or 8%. This was achieved due to full year impact of the operations to Delhi and Hyderabad started in June 2005, new route of Amman in December 2006, and the increase in operations on certain profitable routes. The lease of 2 ATR 42 500 aircraft to Deccan Aviation Private Limited also brought in additional revenue. Air Charter Services recorded a revenue of RO5.089 million, a decrease of RO140,000 from the previous year on account of step-down charges applicable during the extension period as per our contract with PDO. PDO will upgrade the services to jet operations effective January 2008. Handling revenue for the year was RO12.079 million, an increase of RO2.515 million or 26% over the previous year’s revenue of RO9.564 million. Catering revenue during the year recorded RO6.104 million, an increase of RO1.378 million or 29% compared to RO 4.726 million reported in the previous year. Net Expenditure increased only by 9% from RO74.022 million to RO80.892 million, as against a 13% increase in revenue. The increase in cost is mainly on account of fuel which rose by RO2.816 million or 19%.

Outlook
The healthy growth of the carriers in the region is expected to continue for the next five years, with increase in passenger and freight traffic. The region has witnessed a rapid expansion and addition of capacity by major players. Expansion by other carriers on destinations presently served by Oman Air will pose a threat in terms of intense competition for market share and resultant decline in yields. However, with a sustained pursuit of its core plan to be a strong and quality niche regional airline, the Company is well geared to offset the adverse impact erosion of its market share. Oman Air will also further strengthen its presence on existing routes with a focus on high frequencies, on-time performance, quick turnarounds, convenient flight timings, good connectivity, and high standards of customer service, both on the ground and in the air. High fuel prices continue to be a threat and can negate improvements in all other areas. The proposed phased expansion of Seeb and Salalah airports will benefit the Airport Services business.

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