With a new regional venture, a consultancy and plans to invest in an African carrier, Air Mauritius is taking an increasingly aggressive stance in exploiting its standing in the region.
When Air Mauritius chairman and managing director Nashir Mallam-Hasham arrived at his new desk a little over a year ago he received, in his own words, a 'nasty shock'. The airline's 1997 results certainly do not make for pleasant reading. After-tax profit fell from Rs610 million (US$25.6 million) in 1996 to Rs57 million in the year to 31 March 1997, with a resulting slash in operating margin from 12.3 per cent to 1.03 per cent. But after 18 years with British Aerospace, Mallam-Hasham found the situation worse than he had anticipated. Sitting in his airy office at the top of Air Mauritius's new headquarters in Port Louis, he recalls his first days in the job. 'During the first three weeks I took a footprint of the company and found that not only had profits fallen tenfold but cash reserves were severely depleted,' he says.
But the ambitious new chairman grabbed the bull by the horns and implemented a wide ranging overhaul of the entire company. 'The first thing I did was take all the directors on a weekend retreat and banged their heads together,' he smiles. His aggressive style of governance seems to be paying off on the bottom line: In February the airline announced a trebling of its first-half net profit to September 1997 to $4.6 million and the payment of an interim dividend for the first time.
But the sorry state of Air Mauritius in its last full reporting year was largely due to exceptional circumstances. Mallam-Hasham is anxious to emphasise that the situation was not the making of ex-chairman and managing director Sir Harry Tirvengadum. Sir Harry had been with the airline since the 1970s but when the present Labour government came to power in Mauritius in late 1995, under prime minister Sir Navin Ramgoolam, it looked increasingly likely that he would leave. Mallam-Hasham and Ramgoolam are close personal friends and, between leaving British Aerospace and joining Air Mauritius, Mallam-Hasham worked directly for the prime minister as his aviation expert. Mallam-Hasham was, therefore, the heir apparent and was appointed chairman on February 17, 1997. Sir Harry has now taken up the chairmanship of Air Afrique.
The exceptional events that hit the company so hard in 1997 included a fire on an Airbus A340 while on the ground in Mauritius. The accident, which is still being investigated, was compounded by the fact that the airline was not covered for the loss of revenue. The aircraft was out of action from 14 October 1996 to 13 June 1997 and a replacement A340 had to be leased from Gulf Air for three months. Air Mauritius also ended the lease of a L.1011 from Caribjet early because of its poor performance. This led to litigation which has now been resolved. The airline also had a Boeing 767-300 on lease from Royal Brunei Airlines during the year.
The parity of the Mauritian rupee against the US dollar was a major source of woe. The appreciation of the dollar against the rupee contributed to the airline's 23.5 per cent rise in fuel prices while the cost of the three leased aircraft doubled in 1997 to Rs896 million. 'We were hit by a double whammy as our revenues are in a basket of eurocurrencies,' says Mallam-Hasham.
The recent interim results have given the airline the impetus to put 1997 behind it and concentrate on the future. Potential stakes in several African carriers, some changes in geographical emphasis in the route network, a new tieup with Air France and the complete overhaul of regional operations are all in the offing.
Regional services have long been a headache for Air Mauritius. It is located due east of Madagascar with its closest neighbour, Reunion, situated 230 km to the southwest. The local routes to Madagascar, Moroni, Reunion and Rodrigues are not profitable and the Air Mauritius fleet, consisting of long-haul A340s and 767s and ATR42s, is not suited to regional services. The solution has been to launch a separate regional carrier - the Indian Ocean Alliance. 'This will increase the efficiency of these services and release Air Mauritius from having to service these low density routes,' says Mallam-Hasham. The new airline will be a joint venture between Air Mauritius, Air Seychelles, Air Madagascar, the Comoros Islands and Air France. It will lease two aircraft, either 737s or A319s under an accord expected to be signed by mid-year.The business community has long been demanding improved regional services and there were plans for a separate regional carrier, African Island Airways, to be set up in Mauritius (see box).
But Air Mauritius' regional aspirations do not stop there. Mallam-Hasham remains determined to acquire a stake in an African carrier, having recently been unsuccessful in his bid for Air Mozambique. Air Mauritius bid with a local partner for the 51 per cent stake in the airline (valued at around $22.1 million). The privatisation has since been shelved. He is now targeting a majority stake in two other potential candidates - Air Madagascar and Uganda Airlines. New York-based consultants SH&E were appointed to advise the Madagascan government on the sell-off in March this year. Air Madagascar has one 747-200, two 737-200s and one 737-300 and an Eximbank loan on the 747 will need to be repaid before privatisation can go ahead.
Air Mauritius has prequalified for the Uganda Airlines sell-off along with British Airways, Sabena and Alliance Air/South African Airways.
These acquisition plans are underscored by the third branch of Mallam-Hasham's regional strategy, a regional air transport management consultancy. The establishment of this company is a clear sign of the aggressive stance Mallam-Hasham intends to take in terms of exploiting Air Mauritius's standing in the region (he has already been appointed to the board of Air Namibia). 'We are constantly being asked to assist in airline management in this region,' he says. The new company, Consulting for African and Regional Air Transportation (Carat), will be based in Port Louis and is a joint venture with local management consultancy De Chazal du Mee (DCDM). It will be headed by former finance minister Rama Sithanen who was director of planning at Air Mauritius for 10 years.
Carat will trade on Air Mauritius' reputation and will advise African airlines on aeropolitical matters, strategic planning, risk management, business re-engineering, management, outsourcing and information technology. 'If Air Mauritius does not assist the region it will be detrimental to the country and to the airline. I strongly believe in regional cooperation,' says Mallam Hasham. 'We will overhaul these airlines and put a remedial plan in action,' he says, adding that Air Mauritius will be looking for strategic alliances and may also take a stake of up to 40 per cent in potential customers. 'Our objective is to fill a gap in these types of services for Africa,' says Mallam Hasham. 'This is a good example of South/ South cooperation where, until now, all the expertise has come from the North.'
'With these types of consultancies it is not necessarily the airline that is the key to success,' says Brian Cannadine at Speedwing in London. 'It is the consultancy firm that is involved that is of most importance'. DCDM are not aviation specialists, but they represent Andersen Worldwide throughout Africa. Carat will be counting on local expertise and cultural links to help it compete against names like SH&E.
Meanwhile, Mallam-Hasham is shaping the route network with plans to increase the airline's Indian routes - Bombay and Delhi - and a boost in services to another key destination - South Africa. Air-India and Gulf Air pulled out of South Africa in late 1997 and Air Mauritius is keen to pick up the business. The airline now flies to Johannesburg, Cape Town and Durban.
So far the effect on the airline of the widespread economic chaos in Asia has been reasonably muted. Air Mauritius flies to Kuala Lumpur and Singapore, having replaced its twice weekly flight to Hong Kong, a joint venture with Cathay Pacific, with its own weekly service in October last year. The Jakarta service was stopped at the beginning of 1998. 'There was very little business coming from the Far East even before the financial crisis,' explains Mallam-Hasham. He is, however, very eager to start a service to Shanghai. 'There is an important and sizeable traffic segment from our region as well as from mainland China,' he says. 'The establishment of air links would stimulate traffic.'
Air Mauritius is still pursuing access to Japan, which Mallam-Hasham hopes would be a healthy source of tourist traffic: 80 per cent of Air Mauritius passengers are tourists.
The extent to which the currency crisis in Asia will indirectly affect Air Mauritus - by making Asian holidays extremely cheap in comparison with the island - remains unclear. Tourism in Mauritius remains tightly controlled and there are still no charter services to the island. Most hotels concentrate on mid-to high-price holiday packages. While it is not an exclusively luxury destination such as, for example, Mustique, Mauritius has been very careful to preserve a quality image. So far this strategy has been extremely successful, but the impact on business from Europe of comparable holidays in Asian destinations like Bali, at vastly cheaper cost, is an unknown quantity. It is also difficult to see how potential traffic from Japan or Shanghai will not be affected by far cheaper alternatives much closer to home.
The airline's most important market by far is Europe. It flies to London, Manchester, Paris, Brussels, Frankfurt, Vienna, Rome, Munich, Zurich and Geneva. It is also considering adding Amsterdam and ran a limited service to Spain last summer.
France accounts for 27 per cent of European traffic, partly because of its obvious cultural links with the island, and Mallam-Hasham plans to boost service to Paris through a strategic alliance with Air France announced on 3 April this year. The carriers each operate five services a week between the two destinations and plan to develop connections at their main hubs and implement codesharing, joint purchasing and airport handling. Air France is a 7.7 per cent shareholder in Air Mauritius but the agreement does not envisage an equity swap.The carriers forecast annual traffic between the two destinations of 400,000 by 2001, a forecast made after the Asian currency crisis kicked in.
Along with his overhaul of the route network, Mallam-Hasham is reevaluating the Air Mauritius fleet, comprising five A340s, two 767s and three ATR42s. Another A340 is due in 1999. The short-haul gap has been addressed by the Indian Ocean Alliance but the 10-year old 767s need replacing. 'There is an argument for commonality in the fleet, and replacing the Boeings with Airbuses, but we have not made any decision so far,' he says. When that decision is made, the aircraft will most probably be financed through a tax lease. The airline took delivery of an A340 in 1997 on a German tax lease and the next A340 will also be funded on a tax lease.
After the success of his first year, Mallam-Hasham is not resting on his laurels. He has created a product definition and review panel and plans to upgrade first and business class. He is also targeting on-time departures and has put in place a cost containment programme.
Mallam-Hasham's aggressive management style has shaken up Air Mauritius and successfully reversed the negative effects of 1997. His plans for the region are ambitious, but any catalyst for regional cooperation in Africa can only be positive.