Friday, October 29, 2010

Unregulated Open Sky

Middle East Airlines (MEA), the national carrier of Lebanon is a very resilient airline. It has survived decades of internal and external strife. And, in spite of all these challenges, the airline modernized its fleet from the venerable B707 to a modern fleet of A320/A321 and A330, rebuilt its world class MRO (MASCO) and made profits.

This title "MEA Wants To Deprive You Of Cheap Flights To Beirut" on caught my attention. The Chairman of MEA in an article by the Daily Star (click to read article) warned that unregulated and loose open sky policy could hurt the carrier's profit but acknowledged that the current political climate is affecting traffic. 

Lebanon approved the open sky policy in 2001 and was probably the first Arab Country to do so. Beirut was the first destination for every startup company in the Gulf followed by Damascus, Alexandria and Amman. Beirut is served by 55 airlines.

The open sky policy benefited the travelling public by providing alternatives, reducing fares and stimulating traffic. Traffic from the Gulf is no longer seasonal but is steady for most of the year. The problem as MEA sees it, is an unregulated and loose policy. The government does not demand reciprocity. In the case of Turkey, the Turkish authorities should not place any conditions on MEA expanding its services, than those that are imposed on THY by the Lebanese authorities.

The interesting part is complaining about the unfair competition caused by Gulf carriers that are subsidized by their governments. In support of his argument, the chairman cited how some leading airlines were already complaining about Emirates, Etihad and Qatar Airways for the same reason. He also cited (price) dumping by foreign low cost airlines as another contributing factor to the difficulties of MEA.

There is a traffic demand from the Gulf to Beirut, it is not only Lebanese expatriates visiting home more often. Lebanon is a popular holiday destination for Gulf nationals and others living there.

I doubt very much that MEA was not filling the flights from the Gulf, especially in Summer or that they did not deploy extra capacity during the season. MEA has the advantage of a lower operating cost base which allowed the airline to provide low budget flights to Dubai and some European destinations. 

The whole idea of the Open Sky policy is to expand the market beyond the capability and capacity fielded by MEA in order to stimulate tourism,  and it works. It made Lebanon the most popular tourist destination in 2009 and as a result MEA  made a record of USD 105 millions in profits (no complaints of loose and unregulated policy).

The Chairman admitted that the current political climate has affected the airline's bookings by 40% in 2010. However, this should also have affected other carriers even more. MEA should have been able to compete effectively with its modern fleet, home base advantage and lower cost structure.

It is evident that the authorities should tighten the policy a little to provide MEA with a more level playing field when competing for other markets, but what MEA wants is a tighter control that will bring back the bilateral regime. This will limit the market and adversely affect tourism.This is a case of weighing what is good for an airline versus what is good for the country.

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