AIR TRANSPORT THE MAN IN THE MIDDLE... Middle East Airlines (MEA) bas fought off regional instability, domestic strife and rampant competition to become a highly profitable, niche flag-carrier. Chairman Mohamad El-Hout shows Martin Rivers why biggest isn’t always best. Our vital statistics Transforming aviation efficiency eT arene iat ae 260 airlines worldwide, and 70 aviation trade businesses, accept ‘our repair tag EMM echinique AW Technique eal +1514 339 5100 44 7831 583 205 or +1 877 780 2008, carver Middle East Airines (MEA) filed to post one single annual profit ‘When net losses peaked at $87 milion in 1997, tho country’s exasperated Central Bank gave Mohamad ELHout its chief of financial asset development, the unenviable task of finding a ‘manager fo rehabilitate theatine Apparently unimpressed with thecandidateshe proposed, it then handed El-Hout the stil-less enviable task of Fixing MEA himself By anyones standards, the unwitting chairman has performed phenomenally well. MEA has been profitable in each of the 13 years following his 2001 restructuring programme ~a slash-and-burn overhaul that grounded loss making routes and shrank the workforce by about 40%, despite strong union opposition, Financial results for 2015 have yet to be announced pose following Lebanon's civil war, flag J sd “a Roc wero See ied 1,200 Perea one 4 tI EY aa. ea 7 Restructuring neveris completed! Youhaveto do thingsallthe ine.” said EL-ITout, when asked if the tough days of cutbacks are now behind MEA, But the major part ofthe restructuring was implemented in 2001, and it stayed in 2002 and ‘onwards. In 2015 we agreed the productivity of ‘ur pilots and our cabin crew. We have reached agreement withthe unions for ive years, inwhich ‘wehavemade some improvement inthe [cost per] ASK (available seat kilometre, a measure of capacity.” ‘Continual cost-refinement isthe mant ‘MEA ~asmall player the Gulf aviation market ‘with ost 18 aircraft 10 its name, ‘The 71-year-old flag-cartier not only has to contend with fierce competition from younger, larger rivals in the United Arab Emirates and Qatar. Hs home base of Beirut is also on the doorstep of the region's ugliest and deadliest Fumanitarsan crisis ~ the Five year-old iil war in pra, which has, todate, extinguished more than 250.000lives. Naturalspringboaré Alter hostilities broke out in 2011, the Syrian exodus provided an uncomfortable boon for Lebanon's flag-carie. Beinst isa mere 85-ile drive from Damascus, making it a natural springboard for international lights, given the ear otal closure of Syrian airspace, “Ths inflx of refugees helped to offset a sharp drop in European tourists visting Lebanon, ‘contributing to average anal passenger growth 0f6-79% tthesirlne. Hiowover, as Syrian footfall began waning last year. MEA continued expanding it footprint “The in passengers is not due to the Syrians,” El-Hout emphasised, “We also don't havea lot of tourists coming tothe country. But wwe do have the Lebanese diaspora and we have the Lebanese [eitizens} that ate travelling more, “An estimated 8-14 milion Lebanese currently live outside theirethnic homelarl, at least double the domestic population, which creates huge demand for visting fiends and relatives (VFR) ‘rai ‘This natural advantage has, a mes, carried a sting in the til, motivating the launch of il ‘advised long-haul routes suchas So Paulo, Brazil ‘and Sydney, Austral But ElHout insisted the flag-carrier has learned from past mistakes, "We don't follow Lebanese [psople] around the work, We followLEBANON “We don’t follow Lebanese people around the world. We follow economic routes.’ MOHAMAD EL-HOUT economic routes," he said of its refined “approach. “Although we like the Lebanese, any route should be [Financially] beneficial. Long: haul is not what we are looking, for. I's a very sensitive market. I’snot easy. Thecompetition e so huge and we are living in an unstable ‘Of more interest is what the chairman calls genuine traffic’ a sideswipe at MEAS larger Gulfrivals. which are dependent on sth freedom ‘connecting flows that originate and end in foreign makes. “We have built ur network ina way where there i real economic activity between Lebanon and that country” he continued “We don't operate aircraft to bring passengers from London to Bangkok or London to India, ‘Why should I goto India when [Air] Arabia are lying there, Ftihad, Qatar, everybody? What should I do there if don't have real traffic? We need to have genuine traffic between Lebanon and any other country ~ atleast 60% or 70% ‘genuine aff.” This focus on economically selsufficient routes has delivered impressive returns, In 2007 and 2008, during the global financial crisis, MEA Posted the strongest net profits of its post- restructuring era: $62 milion and $92 milion respective In 2009 ~ described by the — International Ai “Transport Association (IATA) as the “worst year theindusiry hsever sen” it fllowed up witha record-breaking $107 million net profit. The airline's takings have not dipped below $61 millon since Network rationalisation was. key ingredient for this sustained financial ouperformance ‘When El-Hout took on the tp job nearly two decades ago, the flag-catrer served about 30 interatonal destinations, That Figure was slashed 1020 during the early yearsofhis tenure “and not simply by abandoning long haul routes, Brussels, ‘Zurich, Doha and even Damascus were among thestations aed. Having stripped operations tothe bare bones, EF-Hout then began re-evaluating short-haul ‘markets witha clan slate approach. The cautious ‘expansion that followed has sinee restored the numberof destinations to 29, “We have built our neiwork in a way [that allows us] toahsorbthe security situetion” hesaid ‘ofthe airline's risk off strategy.“ We expand slowly in order to enter markets in an efficient way without excess capacity or [being] obliged to dump [ticket] prices.” “Two counties in Lebanon's backyard—Irag nd Saudi Arabia ~ stood out as offering the best _rowth potential for MEA. Tra has almost triple its share of Arab origin tourism to Lebanon since 2008, sending more visitors than any other regional neighbour. In 2014, the arrival of 189,000 Iraqis helped Lebanon record is first annual growth in tourist, numbers since the Arab pring. Itis unclear ifthe rise of Daesh reversed tis progress as Lebanon’ ‘Tourism Ministey has not released Satis for 2013 Tir way MEA captated on (& the ton by opi ling out orAIR TRANSPORT ‘conmNUco FROMPAGE22 Iragi routes: Baghdad in 2009: Erbil in 2010: Najaf in 2015; and Basra in 2014. Theairine now ‘oporates an average of thece daly fights to Iraq, ‘with EL Hout promising additional frequencies to Baghdad inthe near future Steady growth has also been achieved in Saudi Arabia in recent times, ASK capacity to the kingdom nearly doubled in thesixyearsto March 2015, acconling to Flightglobal Innovata, with “Madina becoming the sirline’s fourth destination and frequencies rising fr each ofthe preexisting Points Jeddah, Riyadh and Dammam). Capacity ‘grew another 22% year-on-year in March 2015. “This is where the market exists" EL Tout said plainly. "If we have peace in Lebanon, we will increase frequencies o Saudi even more. Today ‘we have two flights per day [for eda and two for Riyadh]. we have peace, wensed four orfive lights per day” Expansion elsewhere has been equally measured. In 2015, for example, flights to ‘Armenia's capital, Yerevan, wore launched and Amman, Jordan becameathrice daly service. The following year, London became twice daily MEAs network for summer 2016 Features 12 destinations in Europe (including seasonal services to Copenhagen, Denmark and Nice Francey; 14 in the Middle East North Affica and the Caucasus: and three in west Africa (Lagos, [Nigeria Accra, Ghana Abidjan, Ivory Coast) Flights to Kano in northern Nigeria were suspended thisyear “We would like to increase frequencies o Lagos butwedon' havetherights,becauseit'slimitedto three fights per week,” EI-Hout sai, when asked about the next wave of grow planned by MEA. “We are considering Abuja instead of Kat [And we decided to operate to Khartoum, Sudan. But, unfortunately thishas been stopped because ‘ofthe currency [exchange] problems. We ae not [oing to oanjwbere that we eannot transfer our money” ‘Conservative route development atthe flag ‘carer matched in kind byt eet plan, MEA presently deploys 18aireraft for mainline ‘operations: 12 4520s, two A32Is and four ‘A530s. Following an amendment toits order book in January; the airline now has commitments for nine A321ne0s, one A320ne0, one AS202v0 and ‘one A330, ‘The later two units wil oth arvive this year — joining a newly inducted A320 — before the neos ‘come on-stream between 2018 and 2022 Despite the flux of new metal, however, net ‘growth willbe capped at just one unit per yearas MEA retires older models and preserves its average let age of six years. “Ifthe [geopolitical] situation slike this we ‘would like see one addtional plane every yea,” EL-Hout sad, confirming that two ofthe three deliveries scheduled for 2016 willbe replacement units. "If we have stability nthe [Levant] areaand in1.chanon, then we wilchange direction and we need toexpund much morequickly” ‘Adecision over wide body renewal wil also be made at some point inthe next two years. Bither the A330nco oF the Boeing Dreamliner 787-9 is “probably what weare looking for", E-Houtsai, though the A350 willakobecvaluated. The777 5 not considered stable, Looking beyond organic growth, MEA’ ascension tothe SkyTeam allan in 2012hasalso sharpened its fous on codesharing both within and outside the alliance ‘Our partners are SkyTeam but we cooperate with anybody who can create market valve oF make benefits to both companies,” the chairman alfrmed, “We signed codeshare agreement with [Oneworld member) Royal Jordanian in 2014, Now we have had some talks with [Star Alliance ‘momber] Turkish Airlines, We already signed a special prorateagreement with Turkishand weare talking about more cooperation.” “Moreover, three recent investments by 99% shareholder the Central Bank have allowed the flag-carir to broaden is gaze beyond mainline passenger operations In January, newly established businessjet ary, Cedar Exceative, took delivery of ts ctait~a nine-scat Embraer Legacy 500. LesANoN ‘The company asa second unit on option and, according to EL- Hout, twill consider managing airerait for independent business jet owns. Last summer, meanwhile, saw the opening of twonew facies. MEASS25 milion cargo centre has nearly tripled its freight capacity at Beirut Rafie Harti Intemational Airport - now capable ‘of handling 165,000 tonnes per year ~ as well as faddressing concems raised by both the Intemational Civil Aviation Organization and the European Union about security tthe od hub, “The new cargo centre meets all international standards,” EL Hout stressed. "We have passed. rmanyauditsthatarenot required for MEA, but we have asked todo them to make sure that we meet thosestandards, LLebanon’s first full fight simulator training centre also opened its doorsin 2015, featuring a next-generation CAE. 7000XR. The A520 simulator will reduce the cost of sending MEA pilots abroad for traning. as wel asallowing the Hlag-catrcr to branch into third-party services. El-Hout is candid about the challenges of ‘operating inthe Lebanese market, even when discounting the impact ofthe Syrian wat. Beirut’ fractured politcal cimate has hindered cfforts to ereate an independent civil aviation futhority, slowing regulatory reform and Prompting international concerns about ‘oversight. Political disagreements have also ‘derailed proposals for a new terminal at Rafie Hariri Airport under a build, operate and transfer (BOT) contract, dampening the hubs long-term growth prospects Regional vals ‘The unilateral declaration of ‘open skies” in Lebanon in 2000 his been another thorn in El Hout’ side. Although the chairman supports liberalisation, he believes that regional rivals are ‘exploiting open access to Beirut without reciprocating a their own huts, ‘Other countries say they have open skies but reallythey don't apply it,"he complained, singling ‘out the United Arab Emirates long considered a ‘champion of liberalisation ~ as one of the worst, ‘offenders. Now we have sc lights per day fom Dubat: three for FlyDubai and three for Emirates Airline, Wren we asked fora third {dally Beirut Dubail flight for MEA, they said, "You are welcome our brother, but we don’t have the [lacing] so, Andthen Emirates operated their additional frequency at exactly the same timeslot that we asked for! ‘As asl fish in the gigantic Gulf aviation pond, MEA seemsdestind toe brushed aside in this way by is bulkier competitors But ELHout has little interest in beefing up ‘operations for pride alone. ving kept MEA in the black for more than & decade, his winning formula is securing Beiruts future as specialised hub witha cost-efficient, nimble and risk-averse flag-carvier just what a shoek-prone country ike Lebanon needs. 34