Wednesday, January 25, 2012

Expansion by Acquisition, A New GCC/MENA Trend

Etihad Airways just announce its acquisition of a 40% stake in Air Seychelles for US$ 20 Millions. As a result the flights to Mahe will increase from four (4) weekly to daily and several European flights out of Abu Dhabi will carry a joint flight numbers in addition to the presence of Air Seychelles in Etihad sales offices. This follows Etihad's 29.2% stake in Airberlin a month ago.

Not to be left out Qatar Airways has announced that they have selected a target airline in Europe for a major equity stake to be announced in due time. Qatar Airways already has a 35% share of Cargolux.

THY Turkish airlines is interested in LOT polish airlines.

It is worth remembering that Emirates had a 40% stake in Air Lanka for 10 years with a management contract which was terminated in 2008 and Emirates subsequently sold its shares back to the government.

Tuesday, January 24, 2012

2012 An Exciting Beginning

The Chinese New Year is upon us and the Year of the Dragon is supposed to be much better than last year.
Well, it looks like it maybe so. January has been an interesting month with lots of exciting news for the region.

The opening of the Saudi Domestic and International market tops the list. The Kingdom of Saudi Arabia is a large market with a population of 27 Millions and 27 domestic airports, effectively served domestically by two airlines; Saudi Arabian Airlines, the national carrier and NAS Air a low cost carrier. As early as April 2011 General Authority of Civil Aviation (GACA) has declared its intention to liberalise the market in order to better serve the consumers by allowing foreign airlines especially those from the GCC to operate domestically and internationally subject to bilaterals. This January GACA declared that by April 2012 they will issue an RFP for interested airlines wishing to participate. In the meantime airlines like Emirates and Gulf Air among others have shown interest and are in discussion with the authority.

Qatar Airways has indicated that they have identified a European take over target, but they are not saying which airline (maybe Czech Airlines). keeping in mind that the airline has acquired 35% of Cargolux last year and right after Etihad's 29.21% in AirBerlin, who by the way inaugurated their first flight into Abu Dhabi on 16 January 2012. It appears that THY Turkish Airlines maybe interested in acquiring LOT Polish Airlines.
That will make a total of five (5) airlines in Europe that have been bought (BA/BMI) or a large stake acquired in them (Qatar Airways/Cargolux and Etihad/Airberlin) or are targeted.

On a more sobering note, Gulf Air ruled out its privatisation effort for the time being due to the events in Bahrain and it will probably be looking for the Saudi market to improve its financial position. This is a reversal of the trend of privatising airlines in the region, keeping in mind that Kuwait Airways privatisation was put on hold in October 2011pending restructuring of the airline.

2012 maybe a tough a year but for sure it is going to be an interesting one.

Saturday, January 21, 2012

2012 ... A Tough Year

Is 2012 going to be a repeat of 2011? The chances are yes. Not much has changed except a lot of issues of 2011 are going to be resolved one way or another. The uncertainty that prevailed in 2011 is still with us and in some cases it is getting worse.

2012 is full of geopolitical issues affecting the region
- Tunis, Egypt, Morocco and Libya will be governed by Islamists, who for decades were in the opposition.
   They will face the test of governing, the realities of the world and the well being of their people and
   economies. With the exception of Libya the other three depend heavily on tourism and the test will be the
   balancing act between beliefs and pragmatism.
- Syria remains a problem with no apparent solution in sight in the mean time casting shadows on Lebanon.
- Yemen is still the same with very little movement in spite of the accords signed in Riyadh.
- Iraq seems destined to even more political instability that may end up in its break up.
- Iran's threats to close the Straits of Hormuz could lead to a major conflict coupled with the nuclear
  capability problem with  Israel threatening to bomb Iran's nuclear installations.
- The Palestinian Israeli conflict that keeps worsening with the intransigent position of Israel relative to the
   Peace Process and Palestinian Statehood.
- The Euro zone debt crisis deepens with the downgrading of France, Austria and others including the
   European Financial Stability Facility (ESFS) leading Europe into recession and potential country defaults
   affecting tourism to the region.

On the other hand there are some good news
- Dubai and Abu Dhabi are developing into destinations of their own attracting more and more visitors.
- Saudi Arabia is embarking on an interesting experiment in airline liberalization by allowing GCC and other
   foreign airlines to operate domestic and international flights from the Kingdom.
- The airlines of the region are still expanding into new markets mainly South America, Africa and the CIS.
- Cargo operations are on the rise and with the reconstruction in Libya and hopefully Iraq will cause an
   increase in regional cargo operations.
- GCC airlines are expanding by acquisition with Etihad and Airberlin following Qatar Airways and Cargolux
   in 2011. Qatar Airways indicated that they have identified a target airline in Europe for acquisition. Who
   knows, Royal Jordanian may revive the plans of a merger with an airline a la Air France/KLM model.
- India is allowing Foreign Direct Investments (FDI) in its ailing airlines and hopefully more restructuring
   of the industry. India remains a large and expanding market that attracts not only Oneworld and Star
   Alliance but every GCC airline.

In a nutshell nothing changed from 2011.
- The capacity of the MENA/GCC airlines will increase and so would their networks through additional
  aircraft deliveries and mergers and acquisitions.
- Kuwait Airways will hopefully restructure.
- Saudi Arabia will launch its new initiative allowing regional airlines to expand within the Kingdom by
  operating domestically and internationally and allowing carriers to serve more and more destinations.
- Cargo is assuming a higher importance with airlines like Emirates, Etihad, Qatar Airways and Royal

Will the airlines of the region make profits, probably if everyone in the neighborhood behaves.
"Plus ca change, plus c'est la meme chose" (The more things change, the more they remain the same).

Wishing you all a prosperous and safe 2012.

Friday, January 13, 2012

EU ETS .... Is It Worth It

The  EU seems ready to bring the airline industry to a stand still over the Emission Trading Scheme (ETS).

ETS is not a bad idea and the airline industry should share the burden, nobody objects to that. The airline industry along with aircraft and engine manufacturers have always striven to produce more fuel efficient aircraft to meet invariably the ever fluctuating and rising oil prices and the effort is still going on with aircraft like the B787 and A350 producing efficiencies and reduction of emissions approaching 20%.

The EU has introduced an ETS that affects all airlines operating within Europe and in and out of Europe regardless of nationality or country of registry, and to add to the problem the funds levied by the EU governments do not have to be used to fund research or projects related to aviation or even the environment. It is only recommended that governments fund these projects, and with the euro zone debt crisis and a looming recession we all know where the funds will go to the general budget.

Several countries during the last ICAO meeting requested the EU to suspend its ETS and look at a global ETS that is more equitable. The EU rejected that proposal and insisted that it will go ahead with its planned scheme. The European Court of Justice rejected a law suit, that ETS infringes on the sovereignty of other nations and contravenes the Chicago Convention in regards to the taxation of international aviation, on the basis that the EU is not a signatory to the Chicago Convention, as if the EU member states are not.

Countries (China, India, Brazil, USA, Russia, Japan and the list goes on and on) opposing the EU ETS have prohibited their airlines from participating and the EU declared that they will ban any airline, not participating, from operating into Europe.

Really, and the EU thinks that the rest of the world will turn the other cheek and accept. There will be a reciprocal ban against all EU airlines., and Europe will be the biggest loser.

I am sure things will not get to that point and cooler heads will prevail and an acceptable solution will be reached, hopefully.

Monday, January 9, 2012

Airlines In India An Industry In Crisis

I am not an expert on Indian aviation but I have learnt a lot following Bangalore Aviation. Two news items attracted my attention last week;

The first is Star Alliance asking Air India again to join and BA initiating procedures for Kingfisher to join
Oneworld. Considering that both airlines are financial disasters only shows the importance of the Indian market
to airline alliances. This is not surprising considering the growth rate of the Indian economy in the last few
years. The Indian economy is slowing down but it is still growing at a respectable 7% annually.

The second is the report of the DG of the Civil Aviation Authority on the state of Kingfisher and his statement that there is a reasonable case for withdrawing their AOC. Also sited in the report for safety problems are Air India Express, Indigo, SpiceJet, GoAir, Jet Airways and JetLite. In essence this is an indication of failed government policies.

The government has failed to date, to resolve the financial problems of Air India. Air India is operating at levels well below its costs while resisting all efforts of restructuring while still incurring high losses. Air India has been offering low fares driving the competition. Further, the government has failed to improve the aviation infrastructure to meet the demand of a more affluent middle class for air travel, in spite of the high taxes levied on tickets.

What is most worrying is when the top regulator in the country cites almost all the airlines in India of a "patchy track record on passenger safety"; this begs the question of the level of safety oversight the DGCA has been exercising on a day to day basis.

It is great that the CEOs of Kingfisher and Air India Express and indeed all the other CEOs to be hauled in front  of the DG to be admonished for their failings and to explain their recovery plans. What is needed is for the DGCA to step up the oversight over the airlines and for the government to resolve the issue of Air India.

Thursday, January 5, 2012

The Joys Of Flying With Etihad

I have travelled with Etihad Airways before, they were short trips and in Business. This time I travelled to Chicago, a 15 hours plus flight going and a 13 hours plus coming back on an AA code share ticket. Of course being an AA frequent flyer did not mean anything in this case.

 It is one thing calling your passengers "GUESTS" another thing meaning it. The flight to Chicago started all wrong, the itinerary said Terminal 1, but it really was Terminal 3, meaning a nice walk across the airport pulling luggage, a good exercise before a long flight.

Check in at Abu Dhabi was slow and in Chicago extremely slow with only 3 agents at check in, granted it was basically for connecting passengers, it took almost an hour before things started moving along. The staff in Abu Dhabi were "Firm" almost to the point of rudeness.

In Chicago I had the dubious honourof having my boarding pass endorsed with "SSSS". This means that the airline is asking the TSA to perform extra security checks on yours truly; probably because I asked if it was possible to change seats. In all fairness to the TSA, the extra security check went smoothly, I had an extra pat down, not very invasive, and my laptop and carry on luggage were tested for explosive traces. Needless to say, I passed with flying colors.

The boarding, both times was long. Hand luggage which was weighed prior to check in at Chicago was reweighed at boarding, or so it was announced.

The cabin crew did not smile much but were courteous but not very approachable.

This has not been my worst experience but definitely not the best. Would I do it again, probably not.  


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