Saturday, October 30, 2010

State of the MENA Industry (Aviation)

On 19 October 2010 the Arab Air Carriers Organisation (AACO) held its 43rd AGM in Cairo. Mr Giovanni Basigniani DG/CEO of  IATA addressed the AACO AGM on 20 October 2010 (Click to read the full remarks). Over the last decade MENA went from 5% to 11% of the global passenger traffic. The MENA region has more than $200 billions in aircraft orders. This is an admirable performance and a great challenge to sustain these successes.

I will touch upon three (3) of the topics that Mr. Basignani talked about; Safety, Environment and Government Involvement.

In 2009 the hull loss rate of western built aircraft was 0.71 accidents per every million flights a 36% improvement over the last decade. MENA had no hull losses in 2006 but the rate jumped to 3.32 accidents per million flights in 2009, 4.6 times the world average (click here for the 2009 Aviation Safety Performance). MENA airlines have so far this year eight (8) accidents of which half of them were in Iran.
The growth of aviation in MENA should be accompanied with improved Safety. Global standards such as IOSA (IATA Operational Safety Audit) are important but the region must pay more attention to safety standards. AACO should play a greater role in bringing up safety standards by working closer with affected carriers.

Qatar Airways has been a pioneer in the region in alternative fuels. The region is committed to the reduction of carbon emissions with an average fleet age of 11 years compared to a global 13 years average, it is contributing to improved fuel efficiency. Implementation of performance based navigation at six airports in the region and improving en-route airspace in the gulf is saving thousands of tons in carbon emissions.
In the last ICAO General Assembly, Aviation as a sector managed to ensure that market distortions are removed and that emissions are accounted for once. How would that reflect on EU-ETS (European - Emission Trading Scheme) no one is sure. However, 120 countries have formally registered their opposition to EU-ETS.

Government Involvement
The airline industry should be allowed to operate like a normal business. Government interference with the bilateral system produces very low profit margins in good years and massive losses in bad ones. Import fuel taxes and unilateral runaway charges by airports should be curbed. The airlines should not become cash cows to governments and airport concessionaires, a balanced consultative approach should be the means to meeting end user needs. This is not endemic to MENA only but is also seen in Europe. Open skies agreements with Europe and the USA and continuing restrictions within the region, has meant that long and ultra long range traffic developed faster than intra regional traffic. Airlines should have the commercial freedom to fly where business is.

Thursday, October 28, 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.

Thursday, October 14, 2010

One Sided and Encroachment

Mr Clark sir, you did not have to put your job on the line over subsidies, I personally would like to thank you for your role in creating an airline that is scaring the daylight of so called major airlines and alliance leaders.

Air Canada contends that if the Canadian Government grants the UAE's request for additional landing rights for Emirates and Etihad, it will create a one sided agreement and of course no one seeks Dubai as a destination and there are no Canadians living here. Wake up Air Canada!!! This coming from a leading member of the Star Alliance comprising 28 airlines and a combined fleet and network many times larger than Emirates or Etihad.

I fail to see what Air France's CEO is talking about Emirates encroachment, both airlines have double dailies between Dubai and Paris, hardly very significant compared to Air France and its Sky Team alliance, 13 airlines.

Somehow European carriers have short memories, for years they used to fly passengers out of the GCC and MENA to the Americas, way before Emirates or Etihad where even formed.  So how come it was OK for them to do that and when some competition pops out they scream ENCROACHMNENT.

Emirates, had the foresight and took the risk of ordering aircraft, when every major airline in North America and Europe was reducing its fleet. Aircraft orders were made after 9/11 and SARS. Obviously, Emirates got good pricing which was translated into lower cost..

Emirates fares are not the lowest in the industry. However, Emirates provide a superior service and on board entertainment  and their flights are full most of the time. Obviously there is demand, that is not met by these majors in their respective markets, otherwise why would Emirates require increased frequencies and double dailies. The alliances need to look at a different way to compete with Emirates and by extension Etihad and Qatar Airways other than whining and running to their governments screaming One Sided and Encroachment

Tuesday, October 12, 2010

David turns Goliath, The Case of the Gulf Carriers.

In the news,  the UAE and Canada have a political dispute over additional flights for Emirates and Etihad to Canada. The new frequencies are opposed By Air Canada (I can understand this) because of its traffic to Frankfurt and the Canadian Government ( I don't get that one with Canadian investment and over 26000 Canadians expats in the UAE). This is the latest of a series of events that have seen France and Germany refuse additional frequencies for UAE and Qatari airlines and QANTAS accusations in the media of Emirates being unsafe.

To complicate things there is the move that calls on governments (USA, UK, France and Germany) to limit export credits to airlines spearheaded by 10 North American and European carriers including the ATA, AA, LH and AF among others because in their view it distorts their ability to compete fairly with the airlines benefiting from export.credits. Having a look at the three world alliances membership (Star alliance 28, Sky Team 13 and One world 11) totalling 52 carriers of which half of these benefited from export credits and in turn contributed billions of dollars to the revenue of the complaining majors. I fail to see how a small or medium sized carrier in Asia, Africa or MENA can affect or compete with an airline like AA, AF, BA or LH.
So mega carriers expect governments to stop providing airlines with financial assistance that is repayable and is designed to promote national industries and services because AA  or AF can not fairly compete with an airline in Africa or Asia, mind boggling isn't it.

But we digress, Emirates, Etihad and Qatar Airways are the champions of Ultra Long Range flights with aircraft capable of flying 16 + hours. they use them effectively to take you from the west coat of the USA to the east coast of Australia with one stop in Dubai, Abu Dhabi or Doha. All new aircraft with the latest entertainment systems. Well the three world alliances were created to do just that and seamlessly with the same level of service regardless of the carrier. Seamlessly was overstated there is nothing seamless when you step from an A340, B777 or B747 into a 40 passengers regional aircraft with a beat up interior and no service.

The issue put forward is simply Gulf Carriers get cheaper fuel, airport charges and taxes and therefore they can offer cheaper tickets according to AF CEO, oh as if European carriers never got subsidies or cash injections. One has to take into consideration that these carriers are not promoting only their flights but also their hubs as destination at their own cost, so it evens out. But then these European majors opposed carriers entry into their markets as far as I can remember and way way before Emirates, Etihad and Qatar Airways were even started. So it is old policy in a new guise

Is it that alliances can not compete with Ultra Long Range Flights, maybe not on all routes. Let us take LA or San Francisco to Sydney as an example, QANTAS can fly you through their Singapore hub, a one stop flight just like Emirates, and Singapore is as attractive as Dubai. So it boils down to efficiency and productivity of each carrier.

Finally, the Gulf Carriers can only compete on certain routes, while the USA domestic or intra European markets are effectively barred to them. The three carriers combined fleet and network are not even close to Delta or United.

It boils down to the fact that the major carriers are resisting to increase capacity and not willing to extract more productivity from their employees for fear of conflict with the unions. So, more of old policies in new guise.

Saturday, October 2, 2010

The Communication Gap

Ever since Mr. Steven Slater made his spectacular exit, the  relationship between passengers and Flight Attendants (FA) has come under scrutiny, but precious little has been done about it. Well, The Crew Lounge a podcast hosted by two FAs Sara Keagle and Bobby Laurie that discusses current industry news, listeners' questions and other related topics are now on Daytime TV Show with a mission statement;

To bridge the communication gap between flight attendants and their passengers and therefore create a more pleasant inflight experience for everyone.

Indeed, life at 40,000 feet has changed especially since 9/11 in terms of security requirements and the rapid development of technology related to mobility and connectivity (mobiles and other related hi tech gadgets). 

Flying is a stressful experience for a lot of people, add to this long lines at security check points, new rules about the carriage of liquids, new rules about baggage and carry on luggage and you have frayed nerves. 
On the other hand you have the FAs, who not only have to cope with ensuring that the aircraft safety and security requirements are met, but with a few other unpopular tasks (restricted movement in the cabin and of course the infamous switch your mobile off for take off among others) and ensuring that the cabin is secured for an on time departure.

The industry as a whole have failed in the last few years to reach out to passengers and explain how things have changed and most importantly the implications of these changes. If your mobile is switched on during take off you are basically putting your life and everyone else in danger because of interference with electronic equipment or jokes about security, bombs etc. can cause aircraft diversions and can land one in trouble and indeed in a foreign jail. There is no time during the pre take off briefing to explain all this. This is something that has to be done systematically outside an aircraft.

Aviation is such that any small incident will be reported by the media and most of the time blown out of proportion. And while not all passengers and FAs are angels or devils, there will always be the odd incident that will hit the news big time to remind us that there is a communication gap that we need to bridge, each in his own way and capacity.

Kudos Sara and Bobby for taking the effort to bridge the gap.


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