Thursday, July 29, 2010

EgyptAir sets course for raised profits

Wednesday, Jul 28, 2010

EgyptAir, in spite of a tough environment with declining profits, is pressing ahead with the expansion of its fleet and is adding destinations in a bid to lift market share and entrench Cairo as a gateway to Africa - one of the world's fastest-growing markets.

The Egyptian flag carrier posted profits of $100m in the financial year ending in June 2009, a 20 per cent drop over the year before. Figures for the year ending June 2010 have yet to be released.

Profits, however, are likely to have have been affected by lingering effects of the global downturn, swine flu hitting the hajj season and the eruption of the Icelandic volcano.

But Hussein Massoud, the chairman of EgyptAir said that with the world emerging from recession, profits should reach $130m this year on revenue of $3bn.

"We are expecting a better performance also because our fleet has increased and our product has improved," he told the Financial Times. "We have new aircraft and our network has expanded in two ways: we are adding new destinations and we are increasing frequencies to existing destinations."

He said the company had taken advantage of the recession to bring forward delivery slots for aircraft to enter service earlier.

EgyptAir has undergone an overhaul during the past few years with a corporate re-engineering in 2002, a doubling of its fleet from 32 to 66 aircraft and upgraded standards in maintenance and service. The company is run independently and does not benefit from state subsidies. It raises its own finance to pay for the modernisation of its fleet.

These changes earned EgyptAir an invitation to join Star Alliance, which it has been a member of since 2008. The alliance is the biggest grouping in global aviation, comprised of 28 international airlines including Lufthansa and Singapore Airlines, which code share - book space on the flights of other partner airlines - so giving passengers a vast network flying to destinations worldwide.

The Egyptian carrier, which has been adding destinations in Africa, most recently Dar es Salaam in Tanzania and Abuja in Nigeria, wants to turn Cairo into a gateway to the continent, benefiting from passenger traffic generated by its alliance partners.

"It is a coup for EgyptAir to become part of Star Alliance, with whom it can code share significantly and offer more to their travellers," said Fadi Majdalani, partner in Booz & Company, the global management consulting firm. "It will also be a positive pressure in the sense they will need to upgrade all their services."

He said that joining the alliance can help maintain profits and market share as competition intensifies.

"National carriers like EgyptAir are facing competition from the top and the bottom of the market," said Mr Majdalani. "From the bottom there are low-cost carriers [such as Air Arabia and Jazeera] and at the top there are the premium companies offering services of a much better quality like Etihad and Emirates."

Mr Massoud acknowledged that EgyptAir is feeling the competition, which is "fierce and likely to get even more so. This is a tough market with slim profit margins," he said. "It is a battle for existence."

To protect its national carrier, Egypt has been hesitant about opening up its skies. Low-cost carriers are allowed to operate from some airports, but not Cairo, where EgyptAir accounts for half the traffic.

"We can debate the pace of liberalisation, but it should happen," said Mr Majdalani. "If you don't liberalise, you constrain the whole economy. Egypt is a low-income country with a growing per capita income. Low-cost airlines will not necessarily compete with EgyptAir but they will create their own market."

By Heba Saleh in Cairo

© Copyright The Financial Times Ltd 2010