NAS - low on cost

There’s nothing stuffy about Simon Stewart, the chief executive of NAS Air. The former Army Air Corps and UK airline pilot epitomises the vibrant and agile brand that is creating something of a revolution among young Saudi business travellers.

NAS Air was created as a low-cost carrier (LCC) in 2007 but took on many of the bad habits of a legacy carrier. A new board came in to shake up the business and did just that. The headline-grabbing appointment of Maria Hanne as chief commercial officer demonstrated that the new owners were prepared to rattle established practices.

In July 2010 Stewart, the then head of safety management at easyJet in the UK, came in to challenge it some more.

The result has been creditable and research – NAS crunches numbers on just about everything – is showing that the changes are being noticed.

Although described as an LCC in some quarters, Stewart dismisses the idea. “We are more something of a hybrid,” he said. “We are like a cross between easyJet in its focus on market and cost and Virgin Atlantic in the approach towards customer services. It’s like a full service powered by an LCC engine.

“People have begun to see a difference when they step on our aircraft and are met with a smile and with help to get bags in the overhead bins. They value the experience of travelling with NAS Air. I think they are beginning to get us and understand what we mean by being a smart choice. We are a relatively small airline but we have a modern fleet offering good service with good on-time performance. It’s about value for money.”

Hanne, whose background includes time with Lufthansa and working as a consultant and interim manager restructuring ailing companies, thrives on the data.

“This is key for us. We can see a much greater picture by digging through the data and we are creating greater efficiencies in the business,” she said.

The airline’s fleet utilisation has improved from six hours daily now to more than 10. Hanne believes 11.5 hours will be achieved in the next year and Stewart is pushing for a 14-hour target. “It is possible,” he said. “We face some challenges that other budget airlines don’t. For example, the monopoly on ground handling in Saudi Arabia means we have little bargaining power when we want to push for faster turnaround times.”

NAS Air, like its former competitor SAMA, has been hit by what both airlines had described as ‘unfair regulations’ set by the Saudi government.

The airlines were both forced to undertake what are called public service obligation (PSO) routes, which are effectively unprofitable domestic routings but are necessary as part of a transport infrastructure that links the rural areas with the main cities of Jeddah and Riyadh.

As a quid pro quo, the Saudi government undertook to support the airlines by matching the fuel and other costs in the same way it does with the national carrier Saudi Airlines, which had passed over the loss-making PSO routes to the new private carriers.

However, the regulations to allow this have not changed and so, while the carriers began creating a domestic network, the support never arrived.

“Some of these routes were showing a minus 200 per cent cost over revenue,” said Hanne. Fares are capped by government regulation and NAS Air found itself having to pay for fuel at 117 per cent of the normal international price.

“We are in the ridiculous position of operating in one of the most oil rich nations in the world and yet we can buy our fuel cheaper in Khartoum or in India,” said Hanne. “We are paying significantly more for our fuel than Saudia. That is just not fair.”

The government has undertaken to get the regulations changed but, in the meantime, NAS Air has suspended some of its PSO routes and, instead, begun focusing on international connections.

“We are proud of being a Saudi company and proud of being the only privately-owned airline. We are confident that the regulation reform will happen but we are aggressively growing internationally,” Hanne said.

The pride in the Saudi origin is reflected in the new look of the airline, which now features the Saudi flag in the livery.

“That’s important for us. We see ourselves as being ambassadors for the new Saudi Arabia and for bringing Saudi business and Saudi culture into the places we go,” said Stewart.

“We are attracting new customers all the time from across four different sectors and we have seen a 25 per cent improvement in customer satisfaction. In Europe, cost is the principle driver but here it is a combination of things. We call ourselves the smart choice and promote the fact that there is an alternative to the legacy carrier and one that is fresh, energetic, exciting but also reliable.”

The four target groups include business, religious visitors, migrant workers and private and leisure travellers. “By not relying on a single group we have a spread of busy periods through the year,” Hanne explained.

The NAS management team has been introducing a series of step changes among the 1000-strong workforce. Effective communication is at the heart of the change programme, with the team strongly behind the belief that shared knowledge and goals throughout the company will bring a greater buy-in to the airline’s values and its mission to become a major regional player.

The emphasis on becoming more data driven means the airline will not make knee-jerk decisions to short-term events and will develop into new markets backed by sound information.

New routes in India were added in December with the airline now flying to Mumbai, Calicut, Cochin and Delhi. In 2011 it will add three new destinations in Turkey, additional routes to Egypt and to Pakistan, and Doha.

The Qatar capital could become a major route for NAS, as the airline is working towards introducing an interlining agreement with Qatar Airways, which would allow NAS passengers to travel from a secondary Saudi airport to the major capitals of the world on a single ticket.”

The management team at NAS Air is agile and adapts and updates its five-year plan on a frequent basis. While customers are marvelling at the approach by the on-board crew, behind the scenes there is a strong focus on revenue management.

“The earlier you book, the cheaper the price,” said Hanne. “But we have added some refinements where you can now select your seat online and pay a premium for a particular seat. This has gone down extremely well with our passengers.”

At the same time Stewart – and the airline’s COO, James Bothwell – have been working on cost-reduction and other efficiencies. “You need to be flexible and adaptable otherwise you die in this business,” Stewart said.

The company is about to launch a fuel efficiency initiative aimed at savings of between three and four per cent. Improvements to the web site and the whole online and social media activities mean that the airline is developing greater engagement with its customers.

“Because of the problem we have had with the government regulations, we have had to focus harder. That has made us leaner and, by the end of 2011, we will be leaner still – and with more routes,” Stewart said.

The financial performance has improved with the new team in place with revenues of SR200m ($57m) in 2008 more than doubling to $142m in 2009 and then around $257m in 2010.

“These improving results mean we will achieve break-even next year,” said Stewart.

The NAS Air fleet has two types. It has nine Airbus A320s and six Embraer E190s, having received two new Ejets in December. It will receive more Airbuses in 2012 and has a number of outstanding orders with both the French and the Brazilian manufacturers.

“The Embraers have been great for starting new routes,” Stewart said. “We started them on the new route to Dubai and that has now grown so we use the Airbus. They are also good for the thinner domestic routes.

The Airbus is ideal for the longer international flights like those to India. We see five hours as our range limitations and if you draw a circle with a five-hour range that is where we will grow our business in the future.”