The timing could have been better, and it shouldn't have been done with the threat of bankruptcy hanging overhead. But other than that, Royal Nepal Airlines has made what is probably one of its wisest decisions in recent times by scrapping its flights to Europe.
With its medium-range narrow-body 757s, Royal Nepal Airlines was badly over-extended flying to Frankfurt, Paris and London. When it bought the brand new 757s in 1985, flying them on long-haul intercontinental routes was never part of the plan. But those were days when it was the only airline flying direct to Nepal from Europe and for a time the routes actually made a profit, especially when it was serviced by an Airbus 310 leased from Hapag Llyod. The initial cash flow generated by European flights helped pay off the loans for the 757s.
But bad planning, questionable appointments of general sales agents and mismanagement ensured that the airline actually lost money even if the flights were full-due to overheads for crew layovers in Frankfurt and Dubai and the huge cuts for agents commissions and freebies.
The plan then was to develop Royal Nepal into a strong regional airline flying profitable short routes, picking up passengers on code-sharing arrangements with bigger international airlines from hubs in Bangkok, Singapore, Hong Kong and Dubai as well as service Indian cities with frequent turnarounds. This strategy is still valid today, in fact some argue that is the only way the airline will survive in the short-term. But the airlines' top managers ask: is there the political will not to interfere?
"We can't do anything unless the government tells us what to do, or gives us a free hand to do what we think we should," one senior Royal Nepal executive told us. The result is a badly-ailing airline that is not the priority of its owner, the government, except when it can be milked for kickbacks.
Cancelling Europe was a difficult decision for Royal Nepal, because as Nepal's flag carrier, it also flew to Europe with an implied responsibility of helping boost the nation's image and tourism. But since the slide began in the early 1990s, the airline had actually contributed to harming that image by being what no airline should be: unreliable, inhospitable and rudderless. RNAC had earned the label: "Royal Nepal Always Cancelled".
Political interference in top management and appointments turned the airline into an employment agency, giving it one of the highest staff-per-aircraft ratios anywhere in the world and possibly the most de-moralised as well. In fact it is surprising that despite the political excess baggage and all the internal drag, the airline flies at all.
To be sure, not everything can be blamed on politicians. Royal Nepal's managers have taken the cue from their seniors and have contributed to the rot. The mess has accumulated, and the airline is trailing a debt of Rs2.5 billion. Even the Nepal Oil Corporation at times refuses to refuel Royal Nepal jets because of a huge backlog of payments. Royal Nepal's share of passengers to and from Nepal has plummeted from about 54 percent in 1994 to less than 30 percent.
Ironically, jettisoning Europe has not only staved off the haemmorhage, but also turned the airline into the regional carrier it should have been all along. "We were not making money even when we were flying full to London and back even in those early days," says Mohan Khanal, Royal Nepal's director of External and Public Affairs. "Our losses in the sector have always been high, even at 90-95 percent occupancy, and this time it just became too difficult to hold out."
Strangely, no one was told how bad things were until about six months ago, when management had just leased a second jet (a widebody 767 from Lauda Air) and was preparing a summer schedule for four jets. But political instability and the royal massacre destroyed what was left of the tourism industry. The books began looking really grim, the Lauda deal was terminated and later, the lease for the China Southwest 757 as well.
Down to its two old workhorses, the airline is pressing the 757s to do 23 regional destinations each week-including Osaka, Shanghai, Hong Kong, Bangkok and India (Delhi, Mumbai and Bangalore). From 19 aircraft in 1991, including four jets, today the airline is down to nine aircraft-two jets and seven Twin Otters of which four are grounded because they are cannibalised for parts.
Royal Nepal's failure to service passengers on domestic routes has been covered up by private airlines, which to a large extent depend on larger planes bringing in more tourists. Says Narayan Singh Pun, Managing Director at Necon Air, who also runs his own helicopter service, Karnali Air: "A reliable and widely connected national airline is crucial for tourism, which is today our major industry so there are no excuses for cutting flights."
Even today, Royal Nepal's problems are not insurmountable. What it needs is the right environment and the freedom to become more businesslike. "Give us the aircraft we need and let us run as a business, and we can turn the airline around in two years," says a senior airline official. To do that, the first thing would be cut the airline free from political interference. The airline has had 18 bosses in 10 years, and a run down of names of recent directors at the airline tells all: businessmen with conflict of interest, political cronies, and sidekicks of the powerful.
The next step would be to look for joint venture partners, to give the much-needed boost to staff and company morale. And finally what Royal Nepal badly needs is an injection of cash-about Rs3 billion to help it pay back debt and for re-building its tattered image. For the moment, say travel industry insiders, privatisation of Royal Nepal may not be the answer since given the government's recent record of privatisation, there is sure to be major graft. For the moment, all the airline needs is to be left alone.
"It takes almost a year for our ministry to decide anything," says Pun, also a Nepali Congress MP. "That is just not how you run an airline." For now no foreign airline would be interested in RNAC and I don't blame them for that," says Pun. The travel industry was livid when the airline stopped its Europe flights just as the autumn tourist season was picking up. But Narendra Bajracharya of the Hotel Association of Nepal sees a silver lining: "It makes sense for a company to say it wants to reduce losses but more important is thinking about how to get the airline back to its feet soon." Bajracharya says Royal Nepal should now turn itself into an effective carrier bringing in tourists from regional hubs. However, the tourist slump that is expected as a fallout from the terrorist attacks in the United States this week may hurt prospects all around.