Room to improve

North African airlines need to expand their domestic services despite benefiting from strong investment and locations

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By  Barbara Cockburn Published  June 1, 2006

|~||~||~|Increasing trade and tourism ties with Europe, China, North America and the Middle East have allowed North African airlines to update and expand their fleets and services. With violence and political issues being resolved and the area becoming increasingly liberalised, the region’s airlines, large and small, are re-equipping their short-haul fleets as manufacturers eagerly eye what they consider a lucrative market for the next 10 to 20 years. Although North African airlines are reaping the rewards of their geographical locations and continued investment, there is one vital aspect that is not being taken full advantage of. Although the region has the highest level of prosperous airlines in the continent, the growing problem is that the states have still not invested in development of their domestic networks. This, in turn, could seriously damage the future of North African airlines, especially as European countries such as Air France, are expanding their destinations across Africa. But before looking at the domestic problem, let us not forget how far North African airlines have come in recent years. Most of the economies in the region are doing very well, growing at above average world rates. This is likely to spur the continued growth of airline traffic with other continents. Boeing and Airbus believe North African airlines have successfully arranged their own financing, with government export credit agencies offering mechanisms to support exports and backing by banks. North African airlines are acquiring aircraft using finance and operating leases and have demonstrated the financial capability to support both types of transactions. Fleet Expansion David Dufrenois, Airbus’s sales director for North Africa, is extremely excited about the growth in the region and the business being picked up by the European manufacturer. He says: “Most North African airlines are currently experiencing solid growth, overall stimulated by a renewed European tourism market, a strong equipment and infrastructure investment program and the first developments of open sky policies, like in Morocco.” When asked about the growth areas in the region he adds: “According to Airbus definition of North Africa, certainly the growth areas are where airlines manage to benefit from their geographical position regarding traffic between Europe and Sub Sahara countries.” All North African airlines are either renewing or increasing their fleets with more efficient aircraft, because their improved financial position allows them to do so. Dufrenois added that TunisAir operates 18 Airbus aircraft, Nouvelair nine, Air Algerie five, Afriqiyah Airways four, Lybian Arab Airlines three, Royal Air Maroc two, Atlas Blue one, and the most recent orders have been with Air Algerie with five A330-200s. Boeing has also placed itself firmly in the North African market and has picked up several large orders recently. Lee Monson, vice president of sales, Middle East and Africa, Boeing commercial, says: “This past year Egypt Air signed an agreement for up to 12 737-NGs (Next Generation) and we are in discussions with other 737 operators who are flying the 737 Classic family about how best to bridge to the 737 NG family. We have been very successful with our customers who have made this transition, as they come to rely on the high utilisation capabilities and dispatch reliability that has been a token of the 737’s success. Next month, we will deliver the first NG 737-800 to Atlas Blue in Morocco.” Airports Airport developments are another sign that the region is rapidly expanding. Governments themselves have identified the need to develop long-term travel and tourism developments and are therefore sizing their airport infrastructure accordingly. The new airport at Algiers opened last January, followed by the extension of Casablanca’s Mohamed V airport. A new terminal was opened in Marrakech for the low-cost airline Atlas Blue. This terminal also recently celebrated the arrival of its first A321. Last year, Air France returned to Algeria after an absence of almost a decade and in January, British Airways began flying to Algiers. As violence falls and foreign investment returns to the oil and gas rich country, business in the region has rocketed. Improvement However, take a further look into North African aviation and one will find certain room for improvement. Airlines are still struggling to gain a firm grip over domestic flights. Elijah Chingosho, technical and training director for the African Airlines Association, says a lack of direct services between North Africa and the rest of the continent is hampering integration, trade and tourism in the poorest continent. “There is no doubt that North African carriers are thriving but they have extremely poor links with the rest of the continent. A trip from Niamey to Khartoum can take three days, unless it’s made through Europe. Most of the Northern countries are very badly connected to the rest of Africa. It’s time to stop paying lip service and act to improve the situation,” he says. According to AFRAA, Air France has become the only aerial bridge linking most African-French-speaking countries with Europe and most parts of the world. The connections were forecast to improve after African governments agreed in 2000 to allow flexibility in the granting of traffic rights, multiple designation of airlines and to remove a limit on flight frequencies to bolster trade and integration. But many African ministers say their governments have practically ignored the deal. Although North African airlines are well-equipped and provide long-haul flights to several worldwide destinations they should be looking at expanding their services throughout Africa before European carriers start to take over, especially with the start of the European Union’s single airspace, under which European carriers can fly to Africa from any airport. Competition North Africa also faces tough competition not only from Europe but its neighbours, the Middle East. Emirates Airline has emerged as a strong threat to the airlines, but the group refused to comment on its plans in the region. However, North African airlines stand a good chance of fighting off competition and making a strong mark in the world market. The airlines have fought off weak currencies, lower yields and rising fuel costs. According to Hadi Akoum, Airbus’ vice-president for Africa, African carriers are paying up to three times the price of fuel compared to airlines in Europe, making them difficult to compete on an even scale. Over the last few months operating costs for North African airlines has risen by 35%, threatening the survival of weak carriers. Airlines However companies, such as EgyptAir, have risen to the challenges through forward thinking and initiative. EygptAir has been restructured into a number of strategic operating units and its operational efficiency has improved remarkably under the leadership of Atef Abd Elhamid, EgyptAir’s chairman. The airline continues to modernise its facilities; for example, the company has set up engineering, maintenanceand and training facilities, including a simulator for the Boeing 777 and Airbus 320. Elhamid said: “Through continued growth, we have recently placed an order for 12 NG 737-800 Boeing aircraft to enable the company to compete on a truly global scale.” Royal Air Maroc (RAM), Morocco’s national carrier, is also expected to develop significantly. The airline benefits from significant tourist inflows serving more than 60 destinations in 30 countries in Europe, Africa, North America and the Middle East, operating more than 44,000 flights per year. The airline has been split into several strategic business units so as to direct its focus into specific areas and thereby sharpening its competitive edge. RAM, in particular, has set its sights for expansion into sub-Saharan Africa. Mohamed Berrada, RAM’s chairman and CEO, explained: “We have a 51% shareholding in Air Senegal International, a fast-growing airline in West Africa which is capitalising on the markets created by the demise of Air Afrique. During the past six months, RAM has expanded significantly into sub-Saharan Africa and we have created partnerships with airlines such as Camair and Air Gabon.” Last year Royal Air Maroc announced the firm order agreement for four 787 Dreamliners, with an option for the purchase of one additional aircraft. The first 787 is scheduled for delivery in late 2008. Tackling the lack of domestic presence, RAM made substantial progress last year. The company earned Euro 150 million in revenue from its operations in Africa last year, an increase of 68% compared to the 2004 financial year, says Saâd Azzouzi, a senior airline official. “In 2005, the earnings from Africa will stand at Euro 150 million out of a total business turnover of Euro 840 million. Therefore, Africa accounts for nearly 20% of the group’s global business turnover,” he says. He indicated that in 2006, RAM projects a growth of 75% due to its association with other African airlines as is already the case with Air Senegal International and Air Gabon International. He affirmed that besides Cameroon, Burkina Faso, Togo and Benin, RAM plans to introduce flights to Ghana, Congo, Equatorial Guinea and DR Congo between 2007 and 2008. The Future The aviation industry in North Africa is likely to have a very bright future. The reason behind this is the economic growth, which is creating discretional income enabling people to travel, the increased trade among the countries in North Africa as well as with the rest of the world. Peace and stability in these countries and the well-developed tourist infrastructure will see increased growth in tourist arrivals. For example, Egypt is experiencing record-breaking growth in tourist numbers, achieving a total of 8.6 million visitors in 2005, and poised to welcome an additional one million in 2006. Some low cost airlines are emerging in some countries, particularly Morocco, and this is further likely to generate new traffic. Boeing’s Monson believes the aviation industry in North Africa will closely mirror the annual growth that we have forecasted for Africa of more than 5%. There is a renewed interest in North Africa as a tourist locale which should impact air travel to the region in a positive way. There is also growing financial investment and development in North Africa that will drive increased air travel. However, the trend of increasing fuel costs, if continued, will pose great challenges for these airlines. Global liberalisation is another challenge. Although significant progress has been made, North African airlines still need to increase the implementation of the Yamoussoukro Decision (the liberalisation instrument for North African countries). If this does not occur, competition from airlines operating from regions, such as the European Union, who operate from a liberalised environment, will become increasingly difficult. Progress also needs to be made to expand domestic flights. David Dufrenois, Airbus, says: “A steady growth of domestic travel would be a determinant factor of good health of the North African aviation industry.” ||**||

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