Friday, May 21, 2010

MENA Airlines... Bucking The Trend

In the last decade or so the MENA airlines bucked the world airline industry trends, ever since 911, SARS, Avian Flu, H1N1 and even the current Recession. In every occasion the MENA airlines traffic and networks expanded, stayed profitable or sustained minimal losses. There are a few airlines that has always been high loss makers regardless of conditions like Kuwait Airways and Gulf Air to name a few.

The MENA airlines have a different way of achieving productivities and efficiencies than North American and European carriers. The conventional wisdom in North America and Europe is to downsize, lay off people and defer aircraft deliveries.

MENA region carriers actually react in the opposite way.
1. Aircraft deliveries are seldom deferred, but once delivered they are utilized because:
2. The airlines open up new stations that generate additional revenues and passenger uplift;
3. As traffic to North America and Europe reduces the intra MENA region traffic tends to increase and offset any losses on other routes.
The above achieve asset efficiencies

4. The airlines very seldom layoff personnel, except in cases of restructuring. They rely on recruitment freezes, attrition and unpaid leaves.
The above provides employee efficiencies and ensures the availability of highly trained and motivated staff when conditions change and the need to expand is urgent.

5. The airlines will look at means of reducing and realigning costs such as catering, overheads, and fuel to enhance their profitability.

The region suffers from the same world problems but reacts using different dynamics.

Tuesday, May 18, 2010

HUB MROs..... Dinosaurs Or Wave Of The Future.

To start, what is a Hub MRO? basically a one stop shop. In the 1970s and 1980s up until the mid 1990s most major legacy carriers operated large Maintenance and Engineering departments which took care of all their fleet maintenance requirements.

In the USA, it was cyclic with legacy carriers outsourcing some of their maintenance and downsizing with every downturn. Maintenance work was brought back in when airlines discovered they had no control over their fleet disposition when it was down for maintenance.

Europe took a more collaborative approach, with the introduction of the B747 and the other wide body aircraft, European legacy airlines formed Maintenance Consortia. KSSU (KLM, SAS, Swiss Air and UTA) and ATLAS (Air France, Lufthansa, Iberia, Sabena and Alitalia) these airlines shared the work along aircraft types (B747, A300 and DC10 and their associated engines and components). However, when the fleets expanded the lines were duplicated and eventually each carrier went on its own.

In the 1990s and 200s the Component OEMs and Engine manufacturers discovered a new revenue stream, repair and overhaul, essentially they competed with their own customers. It was very easy to control the market because the controlled technical data. Of course if you were a big airline and put in mega orders you could dictate to the OEMs whatever you wanted.

There are a dozen or so Hub MROs, mostly major airlines and a few MROs affiliated with other major carriers. Will they edge out the smaller niche MROs? probably not. Will they survive?depends on a few important factors:
1. Ability to finance expansion
2.Technical Support from Manufacturers
3. and the most important factor is a sustainable supply of efficient, cost effective and trained work force.

The human capital issue is going to be the detrimental factor, with all the discussion about the shortage of skilled technicians and engineers.

Thursday, May 13, 2010

Air Arabia vs flydubai.... Interesting Times

For starter's I have to admit I am an alumni of Air Arabia, I have spent four (4) years there witnessing its expansion, so I may be a little biased.

Air Arabia and flydubai are starting to look more like easyJet and Ryan Air. Starting from the equipment they fly to how they structure their fares.

Air Arabia is well established and is without any doubt the major force in establishing the LCC sector in MENA. The market is where it is because of Air Arabia and in the process it had to fight off almost every legacy airline in the region. It has revolutionized air travel by providing people with affordable air travel, not only at the traditional major destinations but at other under served population centers.

On the other hand flydubai enjoys the backing of the extensive network of Emirates who provides a link to connect with flydubai on its website. It also allows interlining, through check in and baggage handling throughout both networks.

As flydubai's fleet increases and it adds more destinations, it goes into head on competition with Air Arabia. Notwithstanding the wealth and buying power of the population, the UAE market is after all a finite market that is around five (5) to six (6) million people. This prompted the Air Arabia strategy of starting new subsidiary LCCs like Air Arabia Maroc and Air Arabia Egypt.

So the battle will have to be fought not only in the UAE but in the development of the markets in every station they both compete in. flydubai may have a slight advantage by capitalizing on Emirates ability to provide feed and visas, whereas Air Arabia has been present in these markets for years and knows them very well.

There is no doubt that the LCC segment in MENA will develop to eventually become 15% to 20% of the market. Air Arabia will probably remain the top airline in the segment for the coming few years with flydubai catching up as its fleet and network increase.

These are interesting times ahead to watch for as LCCs develop in the MENA region.


Wednesday, May 12, 2010

On The Way To Recovery... Gulf Air

Gulf Air seems to be on the way to recovery. In a statement to Reuters the CE of Gulf Air announced that in the last six months 500 jobs have been cut through attrition, non renewal of temporary contracts and a freeze on recruitment and have cut their total cost by 3% in the first quarter.

A voluntary redundancy and retirement scheme has been introduced to cover Bahrain nationals and nationals of the member states (Qatar, Oman and Abu Dhabi). The great news is that this has been accepted by the Gulf Air trade union ending months of contentious relationship with senior management.

Traditionally the Gulf Air trade union has been able to thwart several programs and plans that affected the well being of the staff. click here for related blog

With the labour issues behind him, Samer Majali can now concentrate on the real business of the turnaround and eventual privatisation of the airline.

Kudos to both the CE and the Trade Union to coming to an agreement that resolved months of disputes.

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