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Abdul Wahab Teffaha, Secretary General, AACO

Abdul Wahab Teffaha, Secretary General, AACO

» Interview | Monday, December 19, 2011 • Air News Times
ATN: You have been leading the organization since 1996 and you have seen the change from leading an organisation of the arab carriers being a kind of region carriers with just few of them being really strong ones to leading an organisation grouping some the most important carriers around the globe registering with huge growth over the last years. Do you believe that the arab airlines will continue to grow in the future?

AWT: One thing is sure: The geography will not change and this is probably the most important asset for a number of arab airlines. The fact that the arab airlines are using geography as an asset is not new. It did not start with Emirates or Etihad or Qatar Airways. It started actually well before that. It was started by KLM, British Airways, Air France, Swissair: they were the ones that started this business model, followed by Singapore and Cathay Pacific which are still using geography as a very important asset for the growth of their airlines. Techhnology is the second asset that has permitted a number of arab airlines to become global. I believe that these two factors will not change. Technology is going to improve – it will make the aircraft friendlier to long-haul operations with these 787 and A350- geography will not change and I am sure that the other attributes that the arab airlines are focusing on will not change either These attributes are also very important: The attribute of value for money which is maintaining great oversight on costs and providing the global customer with value for his money in terms of comparative prices and the quality of service so that the passenger is being looked at as a guest rather than a material customer; and there are also other attributes that I am sure will not change: the fact that the infrastructure in the arab world is developing with advanced planning, which permits the growth of the airline and the use of that infrastructure in keeping pace with the growth of the airline; so all of these attributes will continue to be there in the foreseeable future and therefore the growth of the arab airlines is going to continue for the next period. There is of course an added element to the above, which is the immaturity of the arab market. It is true that the arab airlines are playing a bigger role on the global scene but still within the arab world, which represents 35% of the total traffic for the arab airlines, the ratio of travelers to population is 1:3 while in Europe it is 1.1:1 and in the USA is 2:1; so still we are very far from being a mature market and the potential that exists and the possible traffic within the arab world is still very large and therefore I am extremely optimistic about the continuation of that growth not only on the global scene but also at an arab market level.

ATN: Do you see that this growing market will be covered by the legacy carriers of the Middle East of the gulf area or you see low – cost carriers more and more expanding in this area?

AWT: I think that in order to have that qualitative change in the arab world there needs to be what I am calling a “regulatory spring” and you will hear me saying that at the AACO AGM: you know the current change, the political change in the arab world is called “the arab spring” because of the revolution and changes demanded and so on. I think we need very badly, a regulatory spring, a change in the regulatory system that still governs the arab aviation. That change I am sure will happen. I have always been advocating that it should happen by design, and by will rather than by being enforced upon us. We are very close to Europe and the Euromediterranean area is expanding. Now together with the EU, there is Morocco, there is Jordan, Tunisia is being approached, Egypt, Lebanon. At the end of the day I think the Euromediterranean area is going to materialize. When it materializes without the internal market of the arab world being liberalised and without the airlines being prepared for competition the end result is not going to be easy for the airlines because It is higher political objectives, macroeconomic objectives and not the aviation objectives that are prompting the accession of certain arab countries to the EU single aviation market. I believe that we need to have the aviation as a contributor, a positive contributor to the changeover that is happening as we speak. Look at the European experience, the European experience didn’t start with US-EU Open Skies Agreement. It started with the three packages that were applied in Europe. It started even before that, it started by supporting airlines in order to restructure and be able to go into a liberal market, however, it started internally, it took ten years to complete and then it took another ten years in order to start dealing with other regions and so that the Open Skies would be equitable between the two regions (US-EU). What is happening in the arab world is a little bit imbalanced. If the arab countries do not see that it is extremely important for them to go through a radical change of the way they look at market access, they look at ownership and control at least at regional level, then what will happen is that we will go definitely into a more liberal environment but on a piece meal basis and the airlines are not going to be as healthy as they may be if they have and get access to market freely and they have and get access to capital freely That is a prerequisite for the radical change of the arab landscape. Low cost airlines up till now are using a hybrid model in the arab world, it is not a purely low-cost point-to-point model, or flying to secondary airports model because point-to-point would not make them meet their objectives and on the other hand, secondary airports are mostly used for pure domestic operations. For these two reasons and only once these limitations are opened then -definitely yes- there is opportunity for the pure low cost business model to arise rather than the current one which is a hybrid between low-cost and network operations.

ATN: What is AACO doing regarding deregulation?

AWT: In 2005 I was requested to make a presentation to one of the big global companies about aviation but from the perspective looking into it by what they called “ back to the future“. That was the theme of the conference. It was a very nice theme, so the title of my presentation was “remembering the future”. I told them that I presumed that we are in 2015 and looking back at what happened during those ten years. I was hoping then that by 2015 we would have reached a total single aviation market within the arab world. I think that I was a little bit optimistic. I think we still need to go through some changes. Again, total deregulation is not something that happens overnight. It is something that needs to be planned in stages, it needs to take into account the solidity or the health of the air transport sector in any individual country and it needs to look at the overarching objectives of what each country wants to do with its contribution to air transport and to its economy. Some airlines need to be restructured, some airlines need help in order to be restructured. We cannot just jump into the pool without learning how to swim first. So, if the government starts today with their total liberalisation plan, I think it needs almost a ten years’ period to see a single aviation market, AACO is promoting that amongst its member airlines, we have of course unity for that objective, everyone wants free market access, everyone wants free ownership and control rules but everyone wants that we don’t jump into that blindly, we need to go through a process of restructuring and management of change and circumstances so that all airlines are able to meet that new environment being ready and healthy.

ATN: Do you see more airlines from this area joining alliances and do you see the major gulf carriers such Etihad, Emirates, Qatar, Gulf Air joining over in the future?

AWT: First of all, let me answer the first part of your question. Yes, of course I see other airlines joining alliances. Alliances are a good bridge for the airlines to be able to expand their network without actually operating direct flights, through alliances they can avoid costs of direct operations and they can have their marketing reach extended. That’s perfect for airlines which have no plans to be totally global on their own. On the other hand, answering the second part of your question what I can say is only to repeat what Emirates is saying. Emirates has been very vocal repeatedly saying that “we have no plans to be in alliances” and this because for them the alliances do not add value since they are building global network on their own and by cooperating with the airlines: they build code shares, they build cooperation agreements with other airlines but they do it on a case by case basis rather than being exclusive to a group of airlines because, at least for SkyTeam and Star Alliance, one of the prerequisites is that you don’t cooperate or you don’t build code shares with members of another alliance. So, that is definitely a limitation on the choices an individual airline may take when dealing with other airlines. Alliances are not to be ignored definitely. They represent 65% of the total traffic in the world, but also the plans of the individual airlines to become global again are not to be ignored either because if one is able to create such a formidable network with one stop globally and provide enough control over the unit cost then it becomes a great value proposition for any customer. I don’t know whether Etihad or Qatar Airways will join an alliance or not. However, I accept that there are other examples of global airlines within alliances for instance Turkish which is a formidable global, truly global airline. They have many destinations, I see their ads saying 168 destinations, I am sure there are probably 50 destinations inside Turkey. Emirates says they have 110-115 destinations and these are global destinations. Now it is really up to the strategy and vision of the management of each of the airlines to be able to identify whether alliances add value or not. It is clear for Emirates as they have said time and time again, that they prefer to have cooperation with other airlines on a case by case basis and not to be tied to one exclusive alliance.

ATN: You mentioned the model of Emirates and a similar model is being trying by Etihad and Qatar that is to build with one connection flights to all over the world. Emirates is expanding usind so many A380s aircraft which means that they add some more capacity in the industry, Do you believe that this is a model that can be sustained over the next years? Are we now in the phase, as you said, that they are experiencing expansion and growth as the market (arab) is not mature yet. Do you believe that it could be possible to continue that way over the next decade?

AWT: There has to be a time when their market will reach maturity but we are far from it now. I truly believe that we should look at their past, to try to see what the future is going to be judging from the past. Up till now I have been hearing the same story about overcapacity, specifically for Emirates for the last fifteen years. Up till now, they are the number one airline at least in the arab world, in terms of load factor, they are expanding exponentially and they are able to meet the requirements of that expansion. Therefore, the deployment of ASKs has been oversubscribed by their RPKs that’s why their load factor is getting higher and higher. So, they have proven wrong everyone who said previously that there is overcapacity. I am not going to say something different because I believe that they are an excellent airline with excellent strategic planning and I believe that seems to also apply to Qatar Airways and Etihad because the attributes I mentioned above which these airlines enjoy enable them to continue their success story. I mean there are other airlines enjoying similar characteristics, such as Turkish Airlines, and the future is going to carry on with some new airlines finding the right balance and combination between these attributes. The attributes are providing them with an excellent potential and they are using that potential to the maximum. Now, hard luck to the airlines which can not compete with them. And I am sure there are many airlines which cannot compete with them but this is the story of aviation.

ATN: Do you believe that if we do see this deregulation of this arab market and interregional deregualtion there will arab airlines that will set bases in another places of the arab world or in another places like Europe, tnat is a different model similer to what Virgin is doing e.g. it has Virgin Australia, Virgin America to have these carriers covering all parts of the world?

AWT: Yes, why not. I think that the airline industry is being discriminated against as a normal business, and being prevented from behaving like any other business which has the ability to operate everywhere, the ability to merge, the ability to consolidate, that is how it is for any other business in the world. Qatar Airways have already started by the way such a presence. They have a big stake in Cargolux they were thinking of another venture in Europe but at the end of the day why not for Emirates operate in Europe, if it can compete, if it can provide value added services to the customers.or any other airline. Look at the banks, you see HSBC, you see Citibank, you see Mc Donald’s whatever. I mean they can operate everywhere with the same brand, they compete on the brand, they do not compete on the flag. The airline business has been very artificially discriminated against and prevented from behaving like a global business. Yes, absolutely and I see that in the future, it is not something that the governments will be able to prevent for a long period of time.

ATN: AACO has established Arabesk. What is the latest update about the programme?

AWT: Yes, actually we have changed the mode of branding Arabesk to the all inclusive rather than the all exclusive one. We started with a number of airlines just as a proof of concept that what we will be able to work on building up code shares, SPAs, and so on between the arab airlines which is something that is being done elsewhere and they do what was done by other airlines. We actually completed building code shares on all the trunk routes and between the airlines’ which established arabesk. Then we started talking about what is next, thinking about what do we do next and there was a decision by the executive committee of AACO that we go beyond the exclusivity, so what will happen starting next year actually, hopefully, I will be signing an agreement at the AGM to that effect with one of the technical providers because we need reports to identify where are these opportunities, threats, missed connections and so on, what we will do is we will distribute the reports to all AACO members and we will be convening meeting between them on periodical basis. These are bilateral meetings, we will provide an umbrella but the airlines will decide if they want to cooperate so we will not go to any antitrust area. So, we moved from all exclusive mode of branding of Arabesk and Arabesk has become a title for building up cooperation between arab airlines and airlines elsewhere. We are moving Arabesk into a different level which is not only between arab airlines and all of AACO members, but also it includes other airlines as well.

ATN: How easy is to have carriers that don’t have the same size inside AACO?

AWT: What we have focused on is the common ground: everybody is interested in reducing cost. Now reducing cost for Emirates at a certain magnitude is a certain number, for another airlines it is a much smaller magnitude. However, the percentage for all is still the same. It is important for both. The big will benefit from the small by increasing its size. The small will benefit from the big by also increasing its size. It is working very well because we understand that airlines will continue to compete, no matter what, even within alliances airlines compete and they cooperate on certain aspects and they compete on all the other aspects. So, it is exactly the same with AACO we identify certain areas where we can work together, we have cooperated and the other areaswe leave for competition.

ATN: Is there a new joint project in AACO?


AWT: Yes, there is, we have just launched a study amongst seven airlines- actually, it was supposed to be ten airlines but because of the situation in Libya and Yemen we decided that we will go with the study with the remaining seven- on the MRO, on managing the inventory, the study has stages and is being under way. That study has three phases: one, identify the current situation for the airlines, the second stage would be to identify opportunities of maximizing the management of the existing inventory, third stage is to maximize the use of MRO bases for the airlines in question, and the airlines are part of that study, the big league airlines..

ATN: What are the new items in your agenda on international cooperation between AACO with other organisations and governments?


AWT: Of course cooperation; at the end of the day AACO represents the interests of the airlines and it is very important that the interests of the airlines of the arab world are represented properly to the policy makers in the arab world and elsewhere. Our three major strategic issues that we are discussing at this point of time with the regulators everywhere with Europe with arab world or even internationally with IATA and ICAO are: number one the environment, the second issue is the euro-arab relations, regulatory relations and the third one is the issue of the stream lining of air routes, at least within the arab world, and the connection with SESAR project. On the environmental side we had a lot of discussions with EU, with EC and with arab transport ministers, the arab aviation commission amongst ourselves on the EU ETS and how we stand on that issue. Of course we believe that the EU ETS as it stands today, is definitely infringing on other countries’ sovereignty by applying on international non-EU airlines, regardless of what the advocate general said of the ECJ. He said “ no”, they have the right to do it but we still believe that they don’t have the right to do it. We still believe in a global system of sovereignty of states over their airspace. So, emissions over anyone other than the European states concerned is the business of the other state that the airline is flying over and not the responsibility of an EU state which is replacing through its ETS everyone else. Now that is our stand with regards to EU ETS, however, we don’t say we don’t want to do anything on the environment. Actually, the arab airlines are better situated for dealing with the environmental issues than any other airlines of the world, because simply we have the newest fleet, our emissions per ton kilometer are 20% less than the average emissions of the other airlines of the world. So, we are working on that front. We want to have the aviation industry responsible for its emissions, but not the way EU ETS is doing it. We want to have a global system done by ICAO, accepted by governments of the world . We dont’t want he Arab countries to deal with the environment and aviation in one way, and that the Asian countries do something different. This kind of action is not going to lead to any better environmental footprint, add to that the fact that the EU states will keep the money generated from the ETS in their coffers.The use of environment as another tax, that’s totally counterproductive. So, the environment is one major issue.

The other two issues are the regulatory situation within the Arab world, which needs to be liberated in the direction of a single arab aviation market, and between the arab world and Europe. Although we believe that the Euro-Mediterranean framework is good, but we believe it is less than what is required. We believe there are needs to be an EU-Arab framework for aviation, the EU-Med framework actually does not involve the Arabian peninsula. All the countries, Saudi Arabia, Yemen, the Gulf countries, are not part of the EU-Med. We believe that there are needs to be a framework, the EU-Arab framework in order to design the principles on which both regions need to build their relations in aviation. We’ve done some steps on that direction. With the EC we’ve discussed it. With the EC we have discussed it, with the Arab transport ministers and it’s moving in that direction. Hopefully, we will be able to achieve that within the next years. the last issue is air space mangement in the arab world which still has many diversions and twists and turns because of restricted areas.

ATN: What is the reason to have partner airlines?


AWT: Well, actually the reason is very simple. When two parties identify that they have a mutual interest why not be partners? They are not members of AACO, but they are partners like we have industry partners. And it is not the first time that happens. I mean, I know ALTA. They have a similar structure, that is that non-Latin American airlines can be members. Somehow, not actually members, may be associates or something like this. So, it’s a framework enabling us to build good networking opportunities good partnership and sometimes to add value to these airlines because we provide a framework of cooperation amongst airlines. Our target is not to have a global presence. Definitely not. Probably there are a number of airlines in the world, few in Asia, few in Europe, few in Africa that have vested interest to increase the cooperation with the Arab Airlines and with AACO. At the end of the day we are not going to go and ask airlines to join AACO as if we are a global association, that is not the objective. Probably there would be ten partner airlines eventually if not less with AACO.

ATN: What is the focus of this year’s AACO AGM?

AWT: As I said, there are the three strategic areas, one is the environment, the second one is the regulatory regime, the third one will be the issue of airspace management, because we have issues with the airspace management and the arab region. We don’t want to reach a bottle neck over some countries. We are about to reach this bottle neck because of the lack of proper investment and expanding that infrastructure and the lack of understanding by some governments on the use of the airspace. There are a lot of closed airspaces, because of military restrictions: I mean flying 36,000 feet over a military base will not provide you with anything you cannot see on Google maps, free of charge as if you are only 200 meters above of that. Thus, it is redundant to close airspaces because of military bases. We need above all to make governments understand that these closed airspaces are not really providing any value and the second step would be to achieve good cooperation between military and civil authorities in the airspace management and of course we have a number of suggestions to makle to the Arab ministers of transport, to ACAC, we have worked together with IATA, ICAO, and ACAC in order to approach that issue.

ATN: How do you see the future of aviation ten years from now, and what are the last thoughts you would like to share with the Air Transport News readers?

AWT: I see aviation as a global business. It has to be like this. I mean the current way of dealing with aviation is unsustainable and it is putting too many constraints, we see that a lot look at Europe for example. I mean Europe is the negative model for what has happened -and this happened in US, in the Arab world and Asia- in terms of the fragmentation of the industry, and the fragmentation of the airspace, and the fragmentation of decision making and so on. Europe has a lot of pluses, which is the creation of a single aviation market. Now we want to see the world following the good example of Europe and avoiding the bad example and I see this happening hopefully in 10 to 15 years’ time. The industry is like a roller coaster but a roller coaster with an expensive ticket. We keep sliding in and out of crisis because this is our structure. So, we need to change this structure by globalizing our business discipline.

For ATN I congratulate you on what you have built, it’s a very good newsletter covering the major issues of the aviation in the world, and I believe ATN has become an important resource for any manager who wants to be knowledgeable about what is happening around the world in aviation industry.
 
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Astra Smith write

12/20/2011 11:25:14 AM

Very good insight into the development in the Arab air space. Congrats ATN.
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