CEO INTERVIEWS
12/01/2010 - 00:00

CEO Interview - Market Forces

Mohamad El-Hout, Chairman-Director General of Middle East Airlines (MEA), says safeguards must be put in place to protect fair competition

What was your strategy when you took over at MEA?

There was a lot of work to do. We needed to improve in a number of key areas, starting with the network. We managed to optimize this simply by concentrating on the profitable destinations and closing any loss-making routes. This helped to stop the drain. We  stressed the point-to-point services and this enabled us to give our customers better timings and frequency.

The aircraft were important too. We needed a common fleet and the MEA image had to be boosted by getting rid of old and mostly leased planes. We bought new aircraft, which allowed us to build up equity.

We also worked hard on enhancing and implementing technology, particularly in key commercial areas such as pricing and revenue management. And, where viable, we spun off our subsidiaries.

But it wasn’t only about making changes. Any strategy has to involve inspiring confidence, so we also emphasized the strengths we had, such as safety, reliability, and the quality of our personnel.

Can you maintain positive results in a region that has some very strong players?

This is why it’s important to know what you do well, along with identifying possible improvements. We have to continue making our mark as the Lebanese hospitality airline and that means giving the best possible service to our customers. Of course, in business terms, we have to keep MEA as lean as we can and ensure we maintain our cost-conscious culture.

Our assessment is that the region will continue its strong growth in passenger and cargo traffic. So if you are a good carrier you should continue to do well. The conditions are right for sustained increases in volume. Countries in this region have invested in their infrastructure on the back of strong economic performance. All the signals are very positive.

What is the way forward for security?

Security questions should be handled by the relevant authorities. It is clear that security procedures have to be common to all countries. We cannot get to the point where normal airline operations are significantly affected, but we are already dangerously close. It is yet another area, like the weather, where airlines can be subject to excessive delays that are completely out of their control.

Does the international civil aviation organization (ICAO) agreement for a global approach to the environment mean the battle is won?

There are still a lot of negotiations ahead. Airlines and governments must continue working with the European Union on their emissions trading scheme (EU ETS). We have to find a solution in light of the ICAO agreement. Right now, we have to begin complying with the EU ETS. But the scheme is imposing a tax it has no right to impose. On  a Beirut-Paris flight, why should I pay the European Union for emissions that are generated over Lebanon?

There is also the question of where the money generated by the scheme will go. Is it being spent on the environment?

Usually, there is no transparency in such arrangements. Also, the EU ETS encourages speculation for buying or selling CO2 allowances. Fuel  prices are already plagued by speculators and adding the EU ETS to the mix will only make matters worse. Fuel and CO2 prices could fluctuate considerably, force complex hedging policies, and complicate long-term airline strategy.

The industry must continue its efforts under the auspices of ICAO and IATA to make the airline case clear. We cannot relax. Airlines make a significant contribution to the world economy and yet their emissions account for only 2% of man-made CO2 output. We have a clear, united position on the environment and there are public targets. We cannot let this be forgotten.

What are your thoughts on liberalization? Should markets open up without restrictions?

MEA is a big supporter of liberalization. There do, however, have to be safeguards in place when a market opens up. These are necessary to ensure fair competition and equal opportunities for all.

There must be strict rules concerning capacity “dumps”, price drops, and free entry to market. Too often airport slot availability is used as an obstacle to prevent true commercial freedom. There has to be reciprocity. It is the one thing I would change tomorrow, if I could.

We wanted to do a deal with the United Kingdom, which was keen to increase frequencies to Lebanon. But there was no slot availability at London Heathrow. It was the same thing with Turkey. They wanted to increase their flights to 28 a week and we were happy to agree if we could increase our flights in turn. But at Istanbul the only slots available were midnight or later, which would render the operation obsolete.

The number of flights between Kuwait and Beirut increased to eight a day at low load factors, which make this route unprofitable. We were obliged to increase our frequencies to protect our market even though we didn’t have the resources to waste, because otherwise we would have been forced out of the market.

So we agree with Open Skies, but there must be rules and regulations in place. For market mechanisms to work properly, the market needs to be able to correct itself. That can’t happen when the playing field isn’t level, otherwise distortions will become worse, and there will be huge losses, which won’t benefit anyone in the long run.

Can regional carriers survive in a consolidated industry?

As a regional, niche carrier, we can definitely survive if we have the opportunity to compete fairly. And that means normal market conditions. If we’re up against massive subsidization from governments—or if our market is open while a competitor’s is not—then there is a problem.

Working with partners is definitely one path towards a sustainable future, though. We have an extensive agreement with SN Brussels and we are working hard on our entry into SkyTeam. MEA’s cooperation with Air France stretches back over 12 years. MEA also has a number of reciprocal agreements with European and US carriers. The key is selecting the right partner for the right market.

Beirut Airport is now benefiting from Common Use Self-Service (CUSS) kiosks. Is technology the best hope for a sustainable future?

Technology is undoubtedly very important. CUSS take-up is improving all the time, although the numbers are not substantial yet. There is little doubt that technology can improve customer satisfaction and reduce an airline’s costs.

Nevertheless, the human factor will continue to make the real difference. For MEA, that means emphasizing Lebanese hospitality and concentrating on the quality of crew and ground staff. We are investing a lot of time and money in our human capital because ultimately there is no substitute for this. Yes, technology, new aircraft and frequencies will play their part. The true differentiator, though, is the human touch.

For more information visit Middle East Airlines

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