CAIRO: The year 2010 is shaping up to be a banner one for Egypt’s air transport sector. Thanks to a worldwide industry rebound, steady passenger growth throughout the Arab world, continuing development of the country’s airport infrastructure and the recent entry of a host of low-cost carriers (LCCs) into the market, the months ahead look bright.
Earlier this month, the International Air Transport Association (IATA) revised its global forecast for the year. Whereas just three months ago it projected a $2.8 billion loss for the worldwide airline industry, it now projects a $2.5 billion profit. It expects Middle Eastern carriers to net $100 million, their first profit since 2005, which is a marked improvement over the $600 million they lost last year.
According to Brian Pearce, the IATA’s chief economist, Egypt is particularly well positioned to benefit from this turnaround. As he pointed out to Arabian Aerospace, the country’s overall economic growth “has been relatively robust. The Egyptian economy slowed down to a 4.7 percent [growth rate] last year, which is lower than we’ve seen before, but there was growth during a global recession.”
That growth has been reflected in the airline sector, where Egypt has proved to be something of an exception. Whereas most of the region’s national carriers fared poorly in 2009 — a year that many insiders have called the worst in the sector’s history — Egypt saw a 4 percent increase in scheduled departures. With the H1N1 pandemic behind them and with Egypt’s airport infrastructure continuing to develop, Pearce projects further growth in the months ahead.
On the basis of its actions, national carrier EgyptAir seems to agree with this assessment. It has recently taken delivery of its second Boeing 777-300 aircraft, and it intends to take delivery of two more 777s, as well as two A330s, later this year. It is also expanding its routes, adding non-stop service to Dubai in June and to Copenhagen in October.
Moreover, it recently announced a new code-sharing agreement with Turkish Airlines, which is itself expanding in the Egyptian market by adding service to Alexandria.
More important than EgyptAir’s growth, particularly in the medium to long term, is the recent entry of LCCs into the Egyptian market. First was Al Misria Universal Airlines, which began service in late 2009. Hassan Aziz, the company’s president and CEO, said that he wanted to take advantage of low prices during the global financial downturn to found a company that could tap growing demand in Egypt, the Arab world’s most populous country. Al Misria took possession of its first A320 in April 2009 and hopes to expand the fleet to 10 planes in five years.
Other investors agree with Aziz’s assessment. Two other new carriers, Nile Air and Nesma Airlines, plan to begin operations in the near future. Foreign LCCs have also begun to move into the Egyptian market. Flydubai has begun offering service to Alexandria, Luxor and Assiut, and Gulf Air has announced that it will begin serving Alexandria later this month.
But the biggest news is Air Arabia’s decision to add a third hub in Egypt. UAE carrier Air Arabia, the Arab world’s largest listed airline, formed a joint venture with Travco, the Egypt-based travel and hospitality group which is the biggest in the Middle East, in late 2009.
“Linking up with [an] established travel company like Travco rather than another airline made sense given the size of the international tourist market” in Egypt, said Air Arabian’s CEO, Adel Ali.
The plan is for Air Arabia to handle operations while Travco provides access to its network of tour operators, helps with marketing and assists with government relations.
The new carrier, which started operating this month with two A320s based out of Alexandria, plans to serve Europe, the Middle East and Africa and hopes to expand quickly. It expects to have four to six planes by the end of the year, and is already in discussions about adding another hub in Egypt by the Red Sea.
“Low-cost air travel represents 25 percent of the market in Europe, [and] a miniscule 7 percent in the Middle East,” Ali said. Furthermore, incomes are lower in the Middle East, making such travel particularly attractive. Given this market structure, Ali anticipates steady expansion of the LCC sector.
There will obviously be struggle over market share between the LCCs and incumbents, but, Pearce said, “because Egypt has a fast-growing economy I think there’s a scope to stimulate the market overall. It certainly means there’s more pressure for innovation and cost-cutting.”
While additional hurdles remain, including a dispute with Saudi Arabia over sharing airspace and the need to formulate a true “open skies” policy, much progress has been made so far and Egypt is well on its way to realizing its ambition of turning Cairo into a major air hub. –This article was published by Oxford Business Group on July 26, 2010.
