Interview: Egyptair group chairman Hussein Massoud

Cairo
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With the end of a renewal phase in sight, EgyptAir Group chairman and chief executive Hussein Massoud is turning the focus onto capitalising on its key geographic advantage

For EgyptAir the pieces of the jigsaw are coming together. There is group profitability, Star Alliance membership, a new dedicated terminal at its Cairo base and investment in new aircraft, bringing its fleet and onboard product bang up to date. Indeed, by the time IATA's annual general meeting rolls into Cairo next summer, itself another sign of EgyptAir's growing presence on the global stage, the carrier will have all but renewed its fleet.

Yet this is just the start. Current fleet plans largely focus on renewal, but growth is on the long-term horizon. "EgyptAir has to be bigger," says Hussein Massoud, chief executive and chairman of EgyptAir's holding company. "We have ambitious plans from 2014 to 2020 and from 2020 to 2025. These will be decided by the end of the year, but I think it will be a very ambitious plan. The key opportunity for us is that we will enlarge our network, either by adding new destinations or by increasing frequencies. We have a special chance concerning Africa. I think we have a good product, with more cause for customer satisfaction."

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Like the country itself, EgyptAir has a long history. The airline dates back nearly 80 years. But it is the transformation begun in the first half of the last decade that has laid the foundations for today's strategy. This created a holding structure in which the airline is the largest of nine subsidiaries, and a change in ethos to focus more on business traffic. The airline was previously built around leisure and ethnic traffic, reflecting the dynamic tourism and population of Egypt. Its network was revamped, fleet modernisation initiated with Airbus A330-200s and a path began that ultimately led to alliance membership. By October 2007 EgyptAir was Star Alliance bound and just nine months later it formally joined. It has since emerged as one of the more enthusiastic alliance members.

Nowhere is this more evident than at Cairo's Terminal 3, which opened just under two years ago and helps drive EgyptAir's hub aspirations. Cairo became the first Star Alliance home carrier airport to feature a dedicated Star Alliance-branded lounge. EgyptAir still owns and operates it, but brands it Star Alliance. "One of the priorities of Star Alliance is its move-under-one-roof concept," says Massoud. "With a dedicated EgyptAir and Star Alliance terminal, we had a very good opportunity from day one.

"With Star Alliance we think we are the gate to Africa," he adds. The carrier works closely with Star member South African Airways to connect Africa to other Star hubs through Cairo - and could develop this further with a connection in central Africa if Ethiopian Airlines' Star Alliance interest comes to fruition. EgyptAir, which has just added flights to Dar es Salaam in Tanzania, Nigerian city Abuja and most recently to Juba in southern Sudan, now has 17 destinations in Africa. "We are looking to double this over the next five years, or maybe four," says Massoud. "This is where we will grow."

This role builds on Egypt's location, straddling the top of Africa and the Middle East, with Europe above it. It puts much of the three continents firmly on its radar within a five hour flight time and its location is a recurring theme when Massoud talks of the strength of the carrier. "We have a very competitive geographical location," he says.

To build on this position and with its Star role in mind, EgyptAir adjusted its network and fleet strategy accordingly. "We give more attention to short- and medium-haul routes and we increased our single-aisle fleet," he explains. It replaced part of its Boeing 777-300 order to take eight more 737-800s. "Our plan is more destinations in the medium- and short-haul market. We will also increase frequencies to key destinations like London Heathrow, Paris, Amsterdam and Istanbul."

New 737-800 flights to Copenhagen will begin in October, marking a return to the Danish capital after six years. "This time the game has changed," says Capt Alaa Ashour, chairman and chief executive of the EgyptAir mainline operation. "The route has changed, the partner [now Star Alliance member SAS] has changed, the whole elements have changed."

HOLDING FIRM 

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EgyptAir's holding group includes operating airlines EgyptAir, EgyptAir Cargo and regional unit EgyptAir Express. Its ground, in-flight and engineering services subsidiaries support these operations, while tourism, duty free and medical services are among its other interests. "Each is a profit centre and we get the benefits from synergies," says Massoud, crediting this as contributing to turning from a loss-making to a profitable operation. It netted profits of 573 million Egyptian pounds ($100 million) to June 2009 and aims to lift profits for the year ahead. "EgyptAir is our black horse, it represents around three-quarters of revenues, but we rely on synergies between the subsidiaries. We have to grow all the subsidiaries to get better results," he says, adding there are no plans for any sell-offs. "If we think any are not of benefit to the others, we will get rid of it. But for the time being, that is not in our thinking."
On long-haul the carrier serves a number of routes and is likely to add to its North American destinations - currently it serves New York JFK - when it adds its last two 777-300ERs next year. North American Star Alliance partner hubs in Chicago, Toronto and Washington are all candidates. "We are concentrating our long-haul operations on the profitable and prestige routes," says Massoud. "And we use the huge network of Star Alliance for routes we couldn't, or wouldn't want to, operate ourselves.

"The main objective of Star Alliance is to offer better services for the passenger so we'd like to use much [of the new 737-800 capacity] to Africa. We want the passenger of Star Alliance not to feel any different when travelling from Cairo to Africa. Our objective is to enhance our in-flight service with a new product to match the requirements of Star Alliance."

While many carriers slowed capacity plans in the crisis, EgyptAir sped up its fleet renewal. August saw the first of five A330-300s arrive - a year earlier than planned. The remainder follow next year. The A330s are part of a swathe of deliveries which has already seen two 777-300s arrive this year. Four more 777-300s and eight 737-800s will follow over the next 18 months. "We have got the benefits of the recession," says Massoud of the new arrivals. "We signed the contract with Boeing [for 737-800s] last July and we receive the first aircraft within 13 months." The timing looks opportune, given the swelling of the manufacturer orders book at the recent Farnborough air show.

There is also an enhanced onboard product. The carrier, which offers a two-class cabin system, is focusing on raising standards in the business cabin. Its new A330-300s feature lie-flat seats in business class, a new Panasonic in-flight entertainment system and OnAir's in-flight wi-fi service and mobile connectivity. Its 737-800s will feature an enlarged business cabin, with 24 seats in a generous 48in (122cm) pitch to create wider cabin feeling, in a bid to increase its premium revenues.

"All our marketing campaigns, everything we invest is in the business class, which then feeds into the economy cabin," explains Ashour. "People know they get a premium class product and that they will get value for money in business class. This is how we are trying to be competitive with the aggressive competition in the market."

Massoud adds: "We have enhanced and upgraded our product; this gives us a chance to increase the yield. We have restructured our pricing system and we have not forgotten about the cost-cutting side. That remains very important. We identify the big areas of cost and then we decide how to apply cost savings." Distribution is one potential area where the carrier hopes for savings by increasing online bookings by upgrading its website.

Ashour and Massoud have been in their current positions since September last year, although both were already established figures at the carrier. Ashour has been a pilot at the airline since 1988 (see box story) while Massoud - after a 20-year career in the Egyptian air force and heading aviation companies Smart Aviation and Mitrage - was vice-chairman of the holding company for a year and a half before taking on the top job.

Massoud says his objective on taking the role has been to "keep, but enhance and upgrade" the company's reputation. But before he could look at the long term, he faced a more immediate issue. EgyptAir in the summer of 2009 was given a warning by the European Commission that it risked being placed on its blacklist of international carriers banned from operating in EU airspace because of safety concerns in several areas of its operation. "It's the first challenge I faced because EgyptAir was confronting a very bad situation," says Massoud. "Concerning safety, we did not have a problem," he says, characterising the problems as smaller issues that reflected a different cultural approach. "This had to change to be with international norms. We had a misunderstanding between our

 WALKING THE TALK

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Heading the airline since September 2009 is Capt Alaa Ashour, who as a pilot with EgyptAir for more than 20 years has flown just about every type it has operated during that period. As the carrier strives to enhance service levels to ensure it remains competitive and meets business travellers requirements, he stresses the need for the leadership to set an example in attention to detail. Indeed while the carrier is state-owned, he stresses it is run as a private business.

"Managers from the top level show how much they care about the detail. Nothing is left unturned, everything has been reviewed," Ashour explains. "The employees started to feel that everything matters, everything was important and that the customer is number one. Employees must trust management. People know that the management is on top of everything and there is a very well defined vision and good communications. This is how we drive the change. We walk the talk."

Ashour himself remains a regular on the EgyptAir flight deck and hopes there will be more opportunities to fly now that much of the heavy strategy work on EgyptAir's long-term plan has been finalised. "Maybe I will have more time to fly," he says. "I try to do one flight a week, or at least every two weeks." And besides a love of flying, he believes there are strategic benefits to him continuing to fly. "It is an advantage being chairman and chief executive and at the same time flying. I get to see what is going on day to day. It keeps me in touch with everything, because I do it myself and I know what is going on. I work with everybody - pilots, cabin crew, ground staff."

culture and the culture [of the EU]."

Continued dialogue between the EC and the Egyptian authorities has helped allay concerns, evident by the absence of EgyptAir from subsequent EC safety updates. In March this year the EC reported the Egyptian air safety authorities were carrying out its responsibilities correctly and that it would it continue to co-operate closely with the Egyptian authorities to ensure the proposed improvements could be implemented. "Since last October we didn't have a single significant remark," says Massoud of the monitoring of the airline. He also highlights IOSA certificates for 2004, 2006 and 2008 and European Aviation Safety Agency reports in 2006, 2008 and this year.

Neither was the issue damaging to its customer proposition, as passenger numbers jumped 8% to 7.2 million in 2009. This, in part, also reflected Africa and the Middle East being relatively unscathed from the economic crisis. "EgyptAir was not affected as much by the recession because of our geographic location, traffic seasonality, large number of expatriate workers and our increased destinations," says Massoud. "We still saw yields down, but were still profitable."

Massoud identifies the economy as the biggest factor in the year ahead. "The improving economic situation of Egypt undoubtedly affects the situation of Egypt. There is a direct relation between GDP and the air transport industry," he says. But while the economic picture is relatively bright for Africa and the Middle East, the carrier is not untouched by Europe's economic woes. "Around 30% of our revenues are attached to Europe. So we'll be affected. But I think next year Europe will start growing again and will recover much faster than anyone thinks."

He also sees a number of challenges aside from economic factors, with Massoud highlighting fuel price fluctuations and the increased presence of low-cost carriers among them. The fledgling low-cost carrier sector in the Middle East continues to grow, and in Egypt was stepped up in June when Air Arabia Egypt launched flights. The carrier, established by Air Arabia in co-operation with Cairo travel firm Travco Group, is operating flights out of Alexandria. "We have to change our structure a little bit, we have to react," acknowledges Massoud, pointing to the growing share of low-cost carrier traffic in the market. He does not give specific plans, but notes: "We have to get non-traditional solutions."

Ashour also points to the challenge the carrier will ultimately face from Open Skies developments, low-cost carriers for example are still to gain access to Cairo International airport. Ashour says the carrier must prepare and plan to be ready for Open Skies and the new competition and opportunities this brings.

The challenging competitive landscape, together with the opportunities its location, Star membership and new fleet brings, will drive EgyptAir's development. Work on the new long-term strategy is being finalised and should be complete by year-end. The expansion could see a 72-aircraft fleet in 2012 expand by a quarter in the next strategic phase, building an operation capable of both tapping the potential from its location, while defending its market. Just as Egypt's most famous landmark the Pyramids has for centuries brought both admirers and raiders, so EgyptAir in the years ahead aims to be ready for both.