Feb. 13 (Bloomberg) -- Bahrain Air, the Persian Gulf country’s first privately owned airline, said it has suspended operations and will liquidate, succumbing to dwindling traffic and mounting competition from larger state-controlled carriers.
The “unstable political and security situation” in the country led to “sustained considerable financial losses,” Bahrain Air said in a statement, following an extraordinary general meeting for shareholders. The company said it suspended all flights yesterday, and any stranded passengers will have to make their own arrangements to reach their destinations.
Yesterday was “a sad day for all shareholders and employees, and for our loyal and valued guests,” the airline said on its website late yesterday.
Authorities in Bahrain asked the airline to suspend flights to several destinations when political unrest erupted in 2011, and the company said it had unsuccessfully sought compensations. Bahrain Air’s breakdown contrasts with the fortunes of Emirates, Etihad Airways and Qatar Airways Ltd., the state-owned Middle East companies that have expanded into global airlines to challenge established network carriers
Bahrain Air, which began operations in 2008 with flights to Dubai, suffered from the lack of traffic to and from Bahrain, and restrictions to operate on many routes have cost the carrier 4.5 million Bahrain dinars ($11.9 million) in lost revenues over the last 3 months, it said.
The company is run by Richard Nuttall, an airline executive with more than two decades of experience in the industry and stints at Kenya Airways Ltd. and Cathay Pacific Airways. Bahrain’s chairman is Sheikh Mohammed bin Abdullah Al Khalifah.
Shareholders decided to stop supporting the airline financially this week after the ministry of transportation demanded a payment of 4 million Bahraini dinars in return of opening some “minor” routes, it said. The airline, with about 300 employees, is now being required to make immediate payments on past government debts or face closure at the same time as authorities reduced its routes and frequency, it said.
Private airlines in the Gulf region face financial difficulties as they compete with state-owned carriers. Sama Airlines, a Saudi low-cost private carrier, closed down in August 2010 after a loss of 1 billion riyals ($266 million), while it received 200 million riyals as a loan from the government.
Bahrain Air and the other state-owned carrier, Gulf Air, both based in Manama, were among seven airlines shortlisted last year to bid for a license to offer domestic routes in the neighboring kingdom. Only Gulf Air, which received 185 million dinars in financial aid last year, was awarded a license by Saudi authorities to operate in Saudi Arabia.
Gulf Air, once the Middle East’s biggest carrier, will cut planes and jobs after quitting eight routes to focus on providing regional flights in the face of competition from Emirates, Etihad and Qatar Airways. The 63 year-old carrier said last month it will seek a 24 percent cost saving by the end of 2013 as it stops targeting transfer traffic, a market dominated by the big three Persian Gulf airlines, to concentrate on local point-to-point services.
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