Aviation: Open Skies is unfair as we control only 35% of the Beirut Air Traffic laments ME Airlines
Lebanon’s Middle East Airlines (MEA) expects to acquire up to 14 replacement aircraft and increase its fleet size to 20 aircraft by 2021 as it works to overcome serious competitive disadvantages posed by its hub’s open skies policy, explained the airline’s head of commercial strategy and alliances, Walid Abillama.
“Our open skies policy is actually very unfair for us,” he told AIN during an interview at MEA’s headquarters at Beirut’s Rafic Hariri International Airport (RHIA). “Other carriers are free to add capacity. If we ask to increase our frequencies, they complain that they are not able to get slots. When an airline comes to your base, you cannot take advantage of their network. The ‘Big Three’ [Gulf carriers] are the biggest airlines in the world. We are a minority at Beirut. We have only 35 percent market share at RHIA.”
Referring to traffic originating from the United Arab Emirates into Beirut, Abillama said Emirates operates three Boeing 777s a day, FlyDubai two flights a day, and Etihad another two, for a total of seven. “We operate three flights a day to Dubai and one to Abu Dhabi,” he noted. “That’s seven for them and four for us. Turkish Airlines operates four flights, Pegasus two, and Atlas Jet one. We have two flights a day to Turkey. Saudi Arabia is a similar situation.”
MEA operates 13 Airbus A320s and five A330s. It plans to replace up to nine A320s with A321s, and four or five A330s with A330neos, which carry 40 more seats. “The net effect could be a total fleet of 20 aircraft in 2021,” said Abillama.
In 2002, MEA flew eight aircraft and carried just over 1 million passengers. “Now we have eighteen aircraft and carry 3 million; activity has more than doubled,” he said. “In 2018, we had a load factor of 80 percent. This figure was under 60 percent 20 years ago.” The fleet averages 6.3 years of age.
Although MEA owns seven of the A320s outright and all five A330s, Abillama said owning aircraft versus leasing them didn’t pose an important choice for him. “I am in the travel market. I don’t [worry about] the airplane market,” he explained. “The airline’s success is what happens in the terminal. Our job is to carry passengers safely from point A to B on a quality service—and make money at the same time.”
MEA’s passenger numbers increased 6.5 percent in 2018, while revenues rose slightly less than 6 percent. “We made less profit last year, because fuel prices were higher than in 2017,” he said.
Historically, MEA reached its maximum size in 1974, before the start of the Lebanese civil war, which lasted from 1975 to 1990. In 1997, losses peaked at $90 million a year and the company came under new management in 1998. Its fleet composition, network, and destinations all changed. MEA’s first year of profitability since 1975 came in 2002. “Since then, we have been profitable every year,” he said. “We are making money.”
Typical of the slightly contrarian Lebanese way of seeing the world, Abillama takes a wry view of the Boeing-Airbus duopoly. “They are not competing; they are coordinating the way they [initiate] new models,” he said. “They always launch a new model in the middle of the life-cycle of the other OEMs. The Boeing 787 came out in the middle of the life of the A330. The A350 arrived in the middle of the 787’s. The choice is a new model, or the other guy’s mature model. It’s a choice they always give you.”
But he made clear that MEA harbored no immediate plans to stray from Airbus. “We need to be simple. It’s essential for profitability,” he said. “Our pricing fluctuates a lot. It depends on supply and demand. That allows us to maintain 80 percent load factor with low-fare passengers. We have changed our commercial procedures drastically with flexible pricing and policies.”
MEA maintains several codeshare agreements with airlines both inside the Sky Team alliance and outside. Its network traffic goes 30 percent to Western Europe; 30 percent to Mediterranean locations such as Turkey, Greece, Egypt, Iraq, Jordan, and Cyprus; 30 percent to the Gulf; and 10 percent to West Africa, including Nigeria, Ivory Coast, and Ghana, where a significant Lebanese business presence exists.
Although MEA does not offer flights to North America, Abillama noted a thriving business in Lebanese passengers traveling to and from the U.S. MEA maintains what Abillama called “special pro-rate agreements” with U.S. carriers United, American, and Delta. “We give them tickets on MEA flights, and they sell our seats,” he said. “We compete in North America without flying there.
“In business-to-business, there is a lot of traffic between Lebanon and the U.S. This gives us a product that is mixed-ticket. Passengers will get a ticket combined [between more than one airline]. Airplanes meet to exchange passengers. We give the U.S. carriers an amount they can use…Codeshare transfers all rights to a single airline; sharing licensing of passengers between two airlines means you can’t dump all the loyalty onto one airline.”
Despite eight years of conflict in Syria, the Lebanese economy remains relatively stable. In addition to a sizeable Palestinian minority, Lebanon’s refugee count rose to 1 million Syrians due to the war.
“Political stability is starting to return, but it’s not great,” said Abillama. “We don’t count nationalities. Traffic is always growing. The airport is expanding because of the growth. Tourists from France, the Netherlands, Spain, Germany, as well as low-cost carriers are coming back from Europe—and the Gulf.”
He further explained that the nature of the market makes it difficult to decide the moment to push for growth against when to stand still. “If the Middle East is healthy, we’ll see growth,” he said. “If it’s not, well, then it will not grow. I think we will always make money because we do our job well. Making money has nothing to do with size. But if you stay small when you should be growing, it could wipe you out. It is about knowing when to grow to make money.”
He said his top priority lies with retaining the loyalty of the 4 million-strong Lebanese market. “In the old days, most of the Beirut traffic was Lebanese living outside Lebanon,” he explained. “Now it’s mostly Lebanese who live in Lebanon. That’s good for us, because of the loyalty factor. Lebanese commute to Europe, the U.S., and the Gulf to run their businesses. The world has changed. It’s no longer about the diaspora. Now, it’s a mix. These guys need to come home tonight and be back tomorrow.”
by Peter Shaw-Smith