Arab Carriers Resent New Taxes and Seek Liberalization

 - November 12, 2011, 10:30 AM
The Arab Air Carriers Organization has 25 airline members from Algeria at the western end of North Africa to Yemen on the south tip of the Arabian Gulf. Some of its members have been directly impacted by the so-called Arab Spring uprisings.

Politicians viewing air transport as a soft target are the greatest threat to the air transport industry, according to Abdul Wahab Teffaha, secretary general of the Arab Air Carriers Organization (AACO). Speaking ahead of this week’s Dubai Air Show, Teffaha complained that seemingly arbitrary new taxes and fees are placing airlines under terrible pressure at a time when it is already hard to sustain a viable cost structure.

“There needs to be something done about taxes and charges,” Teffaha told AIN. “They are controlled by governments and they are unreasonable.” In his view, new or increased taxes on air transport pose even more of a challenge to carriers than factors such as rising fuel costs because, he claimed, they tend to come out of nowhere with politicians failing to provide any real justification or logic to support them.

AACO, which formed back in 1965, now has 25 airline members from around the Middle East region and collectively they operate around 767 aircraft. Teffaha is traveling from the organization’s Beirut, Lebanon headquarters to attend the Dubai show.

Teffaha’s views on Europe’s pending inclusion of aviation in its emissions trading scheme (EU ETS) have become well known in recent weeks. “I first said it to The New York Times–that we think EU ETS in its present form is definitely extraterritorial and impinges on sovereignty… regardless of the [European Court of Justice] Advocate General’s opinion–the bilaterals between EU states and other countries recognize the sovereignty of other states…and sovereignty is sovereignty, and is not changed unless people agree. And we didn’t agree.” [On October 6, the European Court of Justice’s Advocate General gave a preliminary legal opinion that stated that it is legal for the EU to impose ETS on non-European carriers.–Ed.]

“The EU is now facing the whole world–they don’t have the right… they need consensus through ICAO,” continued Teffaha. While saying that, “We [AACO members] are complying with ETS at the moment,” he added that the solution is “to do it in a structured way and not a patchwork [of schemes].

“Europe needs to understand that the power center of the world is spreading and is not concentrated in Europe and the U.S. anymore, so Europe needs to be much more humble,” he warned.

Regionals Desert

The Middle East is unusual in having relatively few airports (AACO members serve around 300), as well as large distances and low population densities. This partly explains why regional airlines have not emerged as strongly as they have done in Europe and North America.

So it is the established Middle Eastern operators that dominate and run regional routes, with a further barrier being the fact that deregulation has not yet take hold of the region as it previously did in the U.S. and Europe. Low-cost carriers don’t really exist either, and few purport to be LCCs as they are in fact hybrid carriers with complex product offerings and commercial strategies (for example, working with travel agency networks).  Examples include Air Arabia, flydubai and Jazeera Airways. Yet compared with Europe and the U.S., this represents very little activity over and above the majors. “The low-cost model in the Arab world is more Jet Blue [the U.S. operator] than Ryanair [in Europe],” said Teffaha.

The lack of deregulation in the Middle East is a market flaw that is firmly on AACO’s radar. Teffaha calls it the “overriding principle” and added that “AACO is definitely pushing for deregulation and a change of the regime of strict bilaterals.”

AACO’s members are working together to mutual benefit, cooperating in areas such as schedule coordination and joint fuel purchasing. The original idea was one that could have seen the formation of a grouping of six core members but after the nature of this was watered down, it was decided that any AACO member could participate.

“We have changed the modus operandi to include all AACO members in the grouping, and our role is to highlight the opportunities,” explained Teffaha. “We never wanted to establish an alliance–just to try to maximize the business opportunities for Arab airlines.”

Teffaha also said there are “absolutely” opportunities for other airlines such as those in Europe to cooperate with Arab carriers. He added that a third-party analysis company is being contracted to identify all the opportunities and the selection process is almost complete, with two companies shortlisted. “We will sign a contract before our AGM,” he told AIN. AACO’s 44th AGM will take place Abu Dhabi, from November 28 to 30.

The Eurozone Effect

Despite his resentment of perceived European political arrogance in the regulatory sphere, Teffaha does not deny the inevitable fallout on the Middle East from its neighbor’s mounting financial crisis. “The European situation definitely affects AACO carriers as Europe represents the second biggest area for traffic for the Arab world, at around one third,” said Teffaha. “So any economic woes affect the Arab carriers across the board.

“It’s a very serious crisis,” he continued. The latest data we have on capacity of Arab airlines into Europe shows a decline…so 2012 is going to be a very difficult year in Europe and because of the transition in the Arab world [following recent events]. However, we have ridden out storms before.”

But with the Middle East’s air transport sector in transition, Teffaha concluded by saying, “I hope that we will not be surprised by additional crises.”