Middle Eastern StarBy Cathy Buyck
Air Transport World, March 2010, p.20
EGYPTAIR HAS NO AMBITION TO BECOME A FIVE-STAR AIRLINE with exclusive first-class suites and luxury spas in its lounges, at least not for the present. Yet it is aiming to give its expansionistic Middle East and Gulf counterparts a cookie of their own dough with an increasingly effective strategy to source flow traffic over its Cairo hub supported by its membership in Star Alliance and a strong determination to gain, or regain, market share.
"We're facing intense competition from Gulf carriers and they have planned major capacity growth. Furthermore, we're disadvantaged in terms of resources but we have to deal with that," Alaa Ashour, chairman and CEO of the Cairo-based airline, states in down-to-earth fashion. However, he tells this magazine EgyptAir has some major assets to support its competitive prospects including a "long and strong history" as a flag carrier whose origins date back to 1932, low unit costs, a large home market (Egypt is the Middle East's most populous country with a population of more than 80 million), a homogeneous workforce and, last but not least, a government that applies an open skies policy only to its regional airports (see article p. 28). Foreign airline access to Cairo International remains regulated by bilaterals and it is a stronghold of the national carrier, which holds 60% of departure slots there, according to Ashour.
Despite this strong position, and no indication from the Ministry of Civil Aviation that it will change its stance on CAI, Ashour is convinced that EgyptAir has to prepare for open skies. "Liberalization in the Middle East, in Egypt, will come. We have to be ready," believes the 45-year-old pilot who was appointed chairman and CEO of the airline in September, signaling rejuvenation at the top. "We are doing our best to have a competitive product. This is one of the reasons why we are modernizing our fleet."
MS took delivery of 12 new 737-800s over the past two years and has firm orders for a further eight narrowbodies and orders and options for 14 widebodies for delivery between now and 2014 (see table, page 22).
Fourteen older aircraft including its 777-200s, 737-500s, A340s and some A320s will be retired, but as EgyptAir Holding Co. Chairman and CEO Hussein Massoud points out: "The market is not very attractive to sell them now. We have a contingency plan for some aircraft if we can't sell them. The A340s might get new interiors." By 2014, EgyptAir's fleet should comprise 72 aircraft compared to 64 at the end of 2009 and 32 in 2002.
This month, EgyptAir Airlines will take delivery of its first new 777-300ER, which will feature its first fully lie-flat beds and be the first aircraft to enter the fleet on an operating lease (from GECAS). All other mainline aircraft are owned. Regional affiliate EgyptAir Express deploys 12 owned E-170LRs while EgyptAir Cargo flies two A300B3-200Fs and two A300-600Fs. The three carriers operate under the same AOC but are managed separately and have their own P&L accounts. In aggregate, they operate some 1,200 weekly flights to 72 destinations worldwide.
Holistic TurnaroundIn fact, EgyptAir is doing a lot more than a fleet renewal. It launched a major corporate reengineering in 2002, when its structure was changed from a governmental organization into a holding company with subsidiaries. The move coincided with establishment of the Minister of Civil Aviation and the government's ambitious strategy to modernize and upgrade its airports and airline.
"The two are interconnected; overhauling [just] the airports or the airline would have made no sense as they affect each other," Massoud states. As a textbook example that the government's strategy is correct, he cites the synchronized joining of EgyptAir into Star Alliance in July 2008 and the opening of CAI's new Terminal 3 in December, enabling efficient hub functionality for both airport and airline.
EgyptAir's membership in Star, and the consequent adoption of all its standards, also "proves how committed we are to promote our company," he says, stressing that MS has changed "a lot" since it was given the right to operate without any interference from the government and the duty to do so without any financial backing. "It became a different airline," he asserts. EgyptAir Airlines indeed has come a long way since its incorporation. It established a 24-7 Integrated Operations Control Center, became the first airline on the African continent to be IOSA certified in 2004 and outlined a new network strategy initially with Sabre Airline Solutions Consulting and now with Seabury APG, resulting in a hub model connecting Africa, Europe and the Middle/Far East over CAI. Transfer traffic is 15%-20% at present and should reach 30%-40% in a couple of years. In March it will start assessing the third and final phase of its network optimization, which will lead to reorganization of its flight schedule into multiple banks from the next winter schedule compared to two at present.
It also modernized its IT infrastructure including a cutover from its in-house legacy passenger service system to Amadeus's Altea customer management solution, transferred its domestic operations to a new subsidiary in response to the liberalization of the domestic market in 2006, updated its frequent-flyer software and program, launched a new corporate identity with a more dynamic look and new aircraft livery in 2008, "and so much more and so much more to come," Ashour laughs.
In the next months, for instance, MS will be moving from the more segment-based PROS RMS revenue optimization tool to PROS' O&D Solution and it will enhance the functionality and usage of its Internet booking engine. At present, just 5%-6% of bookings are made online.
Competitive Unit CostThe new approach did deliver results, with a substantial improvement in all of its performance metrics. Compared to 2003-04, aircraft utilization rose from 9.25 daily block hr. to 11.01 in its most recent financial year ended June 30, 2009. Flight punctuality improved from 79.1% to 87.5% and passenger load factor lifted from 64% to 67.4%. The number of passengers carried grew from 4.5 million to 7.1 million excluding Express, which accounted for an additional 1.3 million boardings. Traffic more than doubled in the six-year period from 8.96 billion RPKs to 16.16 billion on an 85% hike in ASKs from 13.04 billion to 23.9 billion.
Its financial performance also improved. EgyptAir Airlines has been consistently profitable over the past five years after posting a net deficit of EGP247 million ($44.8 million) in its first year as an independent company. In fiscal 2007-08 it reported record earnings of EGP231.9 million on revenue of EGP9.3 billion, up 43% and 34% respectively over the prior year. For the year ended June 30, 2009, net earnings amounted to EGP207.6 million on revenue of EGP9.9 billion. "Many carriers faced difficulties or reported heavy losses during the financial crisis. Fortunately, we realized a profit in all our subsidiaries in the last financial year and even in the first half ended Dec. 31," Massoud boasts. The company does not publish half-year results, but the chairman indicates "results were better than anticipated and we foresee a full-year profit for fiscal 2009-10." Passengers carried in the first half decreased 4% compared to the year before as RPKs rose 3% on a 2% increase in ASKs.
EgyptAir has been affected by the industry downturn, he says, but not to the same extent as some carriers in Europe, the US and the Far East owing to its strategic location at the crossroad of Africa and the Mideast, steady Hajj and Umrah traffic, "which guarantees a part of our profit," and ethnic travel. Hajj and Umrah traffic represents up to 10% of international enplanements yearly, although this has been halved to 4.5% owing to H1N1. Networkwide yields fell about 8%-10% in FY08-09 and the first half of FY09-10. "We'll remain profitable but we are under extreme pressure," Ashour concedes. "Yields are going down and unit costs are going up owing to higher fuel prices and extensive product upgrades." He figures the year-on-year CASK increase will "not be less than 10%-15%" after years of a stable level at "between 5 and 8 dollar cents," which he accurately describes as "very competitive" for a full-service carrier.
While emphasizing that MS will stay loyal to its heritage as a full-service network carrier, Ashour argues that it has to target all segments and explore all options to grow revenue as yields stay under pressure. "We have to be flexible, innovative," he reasons. "There is no longer an exact model; everybody is a hybridLCCs and FSCs alike."
EgyptAir recently set up an in-house commercial R&D department and "will be rewriting its strategy," he says, cautioning, however, that unbundling "is a plan for the future." Its operations at Alexandria could become a noteworthy exception to its full-service philosophy owing to major inroads made by Mideast LCCs into Egypt's second-most-populous city.
"We'll strengthen the base in a 'smart' way," Ashour says, yielding that "maybe" a switch to a low-cost model is on the agenda. Changes are expected to take place from next winter's schedule. It currently flies from Alexandria El Nozha to Cairo and six destinations in the Middle East with a pair of A320s. EgyptAir Express operates to an additional seven domestic destinations.
Meanwhile, the carrier is moving forward with a comprehensive product upgrade throughout its fleet, including new catering and a reinforced "we care" service approach. At the end of January it commenced a vast training program for its 7,300-strong workforce, involving everybody from the call center to station managers to flight crew, about the importance of customer service. This will extend to all its related subsidiaries such as EgyptAir Maintenance & Engineering, EgyptAir Ground Services and EgyptAir In-flight Services.
Human Capital"We are investing a lot in human capital; it is part of our strategy. It's our objective to reach a better customer satisfaction through offering a good network, a good product and a good service. We would like EgyptAir to be recognized for a competitive customer service with the unique Egyptian spirit," Massoud explains, noting that "buying aircraft takes two to three years, building a new terminal takes two years, but building up human capital takes at least ten years."
With the arrival this month of its first 777-300ER, which will operate initially on the CAI-London Heathrow route, MS formally starts phasing out its first class that currently is available on the 777-200s and A340s. The 777-300ERs come in a two-class configuration, with 49 fully lie-flat seats in business and 291 seats in the economy cabin, which will be equipped with individual IFE units. Its new A330-300s will feature a similar configuration with 36 business class seats and 260 seats in economy.
"With the fully lie-flat seats we see no need for a first class," Ashour says. "It also reduces costs and complexities." Its new narrowbodies feature an equally comfortable layout, with 24 business class seats with a 48-in. pitch and 120 economy seats. All seats have individual IFE. "Demand in business is still very strong," Massoud confirms. The first four 737-800s had only 16 seats in business, but the number was upped on subsequent deliveries owing to strong demand. Those four will be refitted with an additional eight business class seats.
EgyptAir Airlines' winter timetable has it operating 441 weekly flights on its international network spanning 60 destinations in 44 countries. With 20 airports served, Europe remains its biggest market and "most profitable region," Massoud reveals. It serves 16 Mideast destinations and an equal number in Africa, but in line with its own and Star's network strategy it is looking to expand its footprint on the continent, mainly to West Africa. It is also in discussions with Star partner South African Airways about "cooperation to explore all possibilities to grow the African markets." Ashour remains tight-lipped about rumors that this could lead to a JV airline feeding EgyptAir's hub in the north and SAA in the south.
In general, MS adds two to three destinations per year. In 2009 it commenced four-times-weekly service to Abuja and Dar Es-Salam and a twice-weekly to Almaty. EgyptAir Express added Taba to its network. MS is doing a market analysis on several new destinations including Mauritius, Abidjan, Lusaka, Dakar, Douala, Toronto, Washington and Chicago. It aims to bring one new African and one new European destinationCopenhagen or Manchester online this summer, and an American destination in summer 2011
"We want to have a worldwide coverage with our own flights but we use codeshares and Star to get to destinations which make no commercial sense to fly on our own," concludes Massoud. "We are the national carrier of Egypt, but we have to be profitable."
Source:
ATW Online
