EgyptAir aims for turnaround after deadly crash and hijacking

Last month’s deadly crash, coming on the heels of a hijacked flight, is sure to result in cancellations for the airline, making the new chairman’s job a daunting challenge – particularly in the midst of a restructuring.

Passengers evacuate the hijacked EgyptAir Airbus 320 plane at Larnaca airport, Cyprus, on March 29, 2016. Yiannis Kourtoglou / Reuters

Africa’s largest airline by passenger numbers has been in the headlines for all the wrong reasons these past few months.

On May 19, EgyptAir Flight 804 crashed into the Mediterra­nean killing all 66 passengers and crew on board. The incident is under investigation and Egyptian authorities say it will take time. They have, however, alluded that it was probably an act of terrorism rather than a technical failure.

On March 29, another EgyptAir flight, this time from Alexandria to Cairo, was hijacked by a man who claimed to be wearing an explosives belt. The man forced the pilot to fly to Cyprus, with everyone on board taken hostage. His motives are still unclear, but the Cyprus foreign ministry stated that he was “psychologically unstable”, and Egyptian authorities were blunt in saying: “He’s not a terrorist, he’s an idiot.” The passengers were freed and no one was harmed, but the reputation of Egypt’s national carrier was affected.

“The crash will affect EgyptAir, as people will be postponing or cancelling their flights,” says Paul Hayes, a safety specialist at aviation consultancy Ascend Worldwide in London.

It will also hit tourism to Egypt. Mark Martin, the founder and chief executive of Martin Consulting in Dubai, says: “Tourism has been a key revenue earner for Egypt – be it to visit the pyramids or to Sharm El Sheikh. A lot will depend on the aircraft incident investigation and the court of inquiry that gets set up by the Egyptian authorities to determine the actual cause of the crash”.

The accident will also be a huge test for Safwat Mosallam, who took over in March as the chairman and chief executive of the EgyptAir Holding Company.

His predecessor, Sherif Fathi Attia, told The National in October: “I believe that the strategy going forward is growth, growth, growth.” He said the aim for the next 10 years was going to be recapturing lost market share, increasing long-haul flights and foc­using on Cairo as a hub thanks to the city’s strategic location. He said 18 per cent of Egypt­Air’s passengers were transiting through Cairo. He wanted to double this number by the end of the decade.

The airline sought to capitalise on the increase in global travel that began eight years ago – Egypt­Air was the first regional airline to join the prestigious Star Alliance, which includes the likes of Singapore Airlines, Lufthansa and Air New Zealand.

But since the Egyptian uprising of 2011 that ousted the former president, Hosni Mubarak, poli­tical turmoil in the country has hit the tourism industry hard and caused ticket sales to fall – EgyptAir has accumulated US$1 billion in losses since the uprising.

In an attempt to turn the losses around, EgyptAir hired Sabre Airline Solutions, an airline advisory firm in Texas, to prepare a restructuring plan for the carrier. The plan, which started in 2014, aimed to return EgyptAir to pro­fitability by the middle of this year. When The National contacted Sabre for an update on the plan, the consultancy declined to comment.

The recent EgyptAir crash raises bigger concerns over its effect on Egypt’s tourism industry, the backbone of the country’s economy. Tourism fell by 40 per cent in the first quarter this year when compared with last year.

Last month’s crash was the third incident in less than a year to affect tourism. In October, a Russian Metrojet plane exploded mid-air. ISIL claimed responsibility for the attack and Egypt took several measures to secure its airports. It appointed a foreign consultancy, Control Risks, for the job.

The Capa Centre for Aviation says Egypt and the countries whose airlines serve it are working to restore “business as usual”. But this will require reassurances that Egypt’s aviation security system is reliable.

It is important to note that the UK government has not raised security concerns about Sharm El Sheikh, but its advice is against travelling there by air. All flights between Russia and Egypt continue to be suspended. This is specifically because of concerns about aviation sec­urity, according to Capa.

Before the events of 2011, international seat capacity to Egypt for a number of years grew at double digits. Between 2006 and 2010 the number of scheduled international seats to Egypt grew at a compound average growth rate (CAGR) of 15 per cent, according to OAG, an air travel intelligence company.

After 2011, there was a period of virtually stagnant capacity. International capacity returned to growth last year, before being interrupted by recent events.

The CAGR in seat numbers from 2010 to 2015 was less than 4 per cent, says OAG, and predicts international seat numbers to fall by 4 per cent this summer.

“This capacity reduction is mainly because 19 airlines that flew to Egypt in summer 2015 do not currently plan scheduled services in summer 2016,” says Capa in a recent report. “The 67 airlines that are flying to Egypt this summer collectively plan a capacity increase of 5 per cent over last summer.”

However, EgyptAir plans a 13 per cent increase in seat capacity versus last summer, while the Saudi carrier Saudia says it will increase capacity by 7 per cent. Other airlines that plan to increase seat capacity this summer include: Etihad Airways, by 37 per cent; Emirates, by 22 per cent; and Air Arabia, by 22 per cent.

Some European carriers, on the other hand, will cut capacity to Egypt this summer. Turkish Airlines says it will reduce seat numbers by 10 per cent, Condor by 40 per cent, Thomson Airways by 72 per cent, Monarch by 64 per cent, Air France by 15 per cent and airberlin by 40 per cent.

“Russian and UK airlines are the biggest contributors to the fall in capacity this summer, while Egyptian airlines and many from other countries in the Middle East are set to grow on international routes to Egypt,” says Capa.

“The Egypt tourism market has in the past demonstrated its powers of recovery and is likely to do so again.”