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Air Access: Turkish Delight?

17 juin 2015, 11:46

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«We need to attract as many of the super-connectors as possible, avoiding any undue concentration.»

 

On a flight from Paris last month, I read an article about the major American airlines mounting an attack against the four “superconnectors”, which are Emirates,Turkish, Qatar, and Etihad. Their gripe was that these airlines benefit from an unfair advantage in the form of subsidies, cheap loans, etc. The attack is unfair, and unlikely to lead anywhere. Many airlines in the United States have had recourse to Chapter 11 protection and restructuring, with the Government injecting over USD 70 Billion into Delta, United, and American Airlines in recent years…

 

What piqued my curiosity was the mention of Turkish Airlines, and as a Director of Beachcomber (although the views expressed here are my own), I started digging. I have also once been to Istanbul when a cruise stopped there, and was spellbound by the skyline and the city.

 

There had been a brief announcement about one year ago that Turkish Airlines (TA) would fly here, and then we heard nothing. What my modest inquiries revealed was nothing short of a great success story.

 

Air traffic through the two Istanbul airports exceeded 60 Million passengers in 2013 (As a comparison, Dubai is now the busiest airport in the world, with around 75 Million passengers). Given space constraints at these airports, a third one is being built, to increase capacity to 90 M by 2018, and to exceed 150 M during the 2020’s!! Growth in passenger traffic over the past five years has been around 14% annually, and is expected to be around 11% between now and 2023, more than doubling traffic by then.

 

Turkish Airlines is described as a well-run, profitable airline with a modern fleet. It served 243 destinations in 2013, out of which 203 were international, the second highest in the world after Delta. It flies to a staggering 84 cities within Europe! By 2020, when Istanbul will host the Olympic Games, the airline is projected to fly to some 350 destinations, with a fleet which will double in size from its present 200 aircraft. For the first quarter 2015, revenues were 1.95 Billion Euros, and profit a mouth-watering 135 Million Euros.

 

This looks very much like a partner with whom we should be linking our destiny: another major airline, with a fantastic network in Europe and Central Asia, flying modern aircraft, tapping into new markets, using a major hub strategically located at the junction of Europe and Asia. This is just what the doctor would order for our tourism industry.

 

MARKING TIME

 

We have marked time for some years, whilst Seychelles and Maldives, and recently Sri Lanka, have romped ahead. The ex-PM’s “objective” of 2 Million tourists by 2015 was never credible because I am not sure anyone knew how we would get there. Now is the time to talk tourism policy, air access, and get real objectives and action plans on the table. The new Government has already made some very encouraging declarations, and we are starting to see a pick-up. The strategy needs to be sharpened, and supported by concrete measures.

 

We could learn from Morocco, where they announce ambitious five-year projections, put in place policies to achieve them, monitor progress regularly, adjust and correct, allowing for new internal or extraneous circumstances. They have now exceeded the 10 Million tourist mark. The lesson is that strategy implementation is as important as strategy formulation.

 

I tried to find out what had happened to the interest apparently shown by TA to fly here, and the answer, always difficult to prove of course, was that both MK and EK may have lobbied against. The issue of air access is a whole can of worms, exacerbated by the reported hedging losses of Air Mauritius (MK), and its weakened financial muscle. Passions are running high.

 

AIR ACCESS POLICY – BONE OF CONTENTION

 

Statistics show that MK still carries over 40% of tourists, whilst Emirates (EK) have crept up to exceed 20%.

 

Defenders of MK’s position have spoken against EK bringing in a third daily service, which would weaken MK’s position, and express concern at the emerging dominance of EK. It is also believed that EK lobbies hard to stop other super-connectors from flying here, which makes plain business sense for that airline. The former new entrant (EK), who fought hard to gain access against the entrenched position of MK, is now in the reverse position of seeking to preserve its own entrenched position against new entrants. The revolutionaries of yesterday become the reactionaries of today.

 

An opposite and interesting view is that we should do nothing to ruffle EK’s feathers, as they are a substantial business partner. Indeed. This makes apparent sense….but if we are worried about antagonizing an airline which brings in 20% of our tourists, we will be petrified to the point of paralysis if they ever get up to 30 % or more!!

 

What started for me as an inquiry into Turkish delights soon came up against the diverging interests of airlines and hoteliers regarding air access. If not answers, I can perhaps add some  new angles to the debate.

 

Many believe that MK has long “dictated” our air access policy. This may have helped in the past, and one can see some virtue in protecting the national airline, which often opens up new routes which only become profitable after 2-3 years. The statement last week that EK was just feeding off the markets of MK is another salvo aimed at perpetuating MK’s grip on air access. The accusation appears to me simplistic at best, misguided at worst. The success of the super-connectors is largely due to great management, modern aircraft, operational efficiency, excellent hubs for connections, and a wonderful customer experience. In fact, thank Heavens that MK didn’t have it all its way, and past Governments have allowed EK to reach the level it has, with its modern fleet of A380’s, providing better options to an increasingly discerning tourist market.

 

But we need to go further “upstream” in our thought process, and ask ourselves what development strategy we wish to have? What is the role of tourism in our national agenda? And drilling a bit deeper on the tourism front, what kind of tourism do we wish to have? There is no point gloating about the island being an upmarket destination, if the air access policy, infrastructure, and other internal conditions are not satisfied. We are already known as a discount destination. We have fantastic six-star hotels, great IRS villas which add to up market capacity, alongside low quality offerings that produce little or no added value to the country. Where do we wish our tourists to come from? Who are the emerging travelling nations with cash to spend, and what are their expectations?

 

And whilst we also wish to become a trade and investment platform between Asia and Africa, business travel has hardly ever been mentioned when we discussed air access. The announcement by Minister Xavier Duval last Thursday, that up to 18 flights will stop here from China on the way to Africa, each week, is great news indeed. There is also some osmosis between the tourism and business travel segments. Countless businessmen end up bringing their families as tourists, and many tourists end up doing business here.

 

To collect all the facts and answer these questions, there are institutions in place within the orbit of Government and the private sector which carry out the research and feed it into our policy making machinery.

 

However, I wonder whether we also need a change in mindset. Have we, for decades, adopted more of a “supply-driven” approach to tourism. We identify some markets; we use MK as our “fer de lance” into these countries, often alongside their own national carriers (Air France, British Airways, for example), carry out aggressive promotional campaigns, and hope for the best. It worked for a long time. However, the world is littered with people, companies, and countries, which believed that the future will be very much like the past.

 

Is it time for a different mindset, more demand-driven. We take the attractions of Mauritius for granted. What can we do more to create demand, to improve our destination, to bring it to the level expected of our target tourist market? Do we have the right road infrastructure? Caudan to Quay D round-about is a daily nightmare for tourists from the North wanting to come into Port Louis. Are we sure we have law and order under control? People don’t travel 10,000 kms to get their purses stolen, or beaten up. Personal safety and security is an aspect often overlooked. If we had another Kaya riot within a few months of the first, our tourism industry would have been written off for ten years, as has happened in Kenya, Jamaica, amongst other places. This requires some urgent social issues addressed, especially drug-related, and special action in favor of the under-privileged groups. This industry is much more fragile than we think. Do we have enough alternative themes besides sandy beaches? Is our environmental protection solid enough? Is the regulation of pleasure craft stringent enough? Too many incidents recently, with tourists killed by speed boats, or swept overboard by high waves, throw doubt over the quality of services offered to tourists.

 

On the business side, our strategic location, the construction of smart cities, including the Omnicane airport hub, our network of double taxation treaties, membership of COMESA and SADC, should help to drive business opportunities, as witnessed by the renewed interest of the Chinese in reviving Jing Fei.

 

BRAND MAURITIUS

 

Once we make sure that the conditions are in place, institutional, infrastructural, and social, you have an enhanced product which we can go out to promote. Sadly, the initiative to define a national brand was a great idea which misfired. We need to have another go. The success of “Incredible India”, “Malaysia, Truly Asia”, amongst others, (not forgetting “Do Buy in Dubai…”), shows what country brands can achieve. I believe we should organize a nationwide competition to define the new brand. I have another reason for proposing this. Through a National Branding campaign, you also create countrywide awareness, you provoke thought on a large scale as to what this country stands for, and build a surge so that we can ALL live up to the values which define the new brand. Daily press reports of scams and scandals show that this country has been heading fast down the road to ethical and moral decrepitude. Moral bankruptcy is not a fertile soil in which to sow the seeds of sustainable success. There is a need for a new departure, to uphold the values of hard work, honesty, reliability and hospitality. This will redefine the lenses through which the world sees us. And all this put together, suitably communicated, will create its own demand for tourist and business travel. A new departure will be just around the corner. But where have we been all these years?

 

THE PARIS-CDG HUB

 

 

 

A comparison of tourist arrivals for Mauritius and Maldives from 2006 to 2014 is given in Table 1.

 

During these eight years, excluding the Chinese market which is huge in Maldives, tourist arrivals increased by 46% there. In Mauritius it increased by 24%. (Table 2)

 

 

The French market dropped 20% from a peak in 2010 to well below 2008 levels. The Italian market has all but disappeared. The German and UK markets are flat.

 

Part of the reason could be the aftermath of the 2008 financial crisis in Europe. Other important reasons are seat capacity which is lower, the Paris CDG hub, and the removal of direct flights.

 

In Paris Charles de Gaulle, we have a poor hub, which we combine with old aircraft, a customer experience which is average at best, ordinary food, and below par inflight entertainment. A pretty suicidal combination, if you ask me.

 

Just Google “worst airports in Europe”, and Paris CDG comes top. A report about 2-3 years ago rated Paris CDG as amongst the worst in percentage of bags lost / delayed in transit. I know that many people come here to lie on the beach with hardly any clothes on, but as you dive into your on-board dinner, washed down by a glass of Chardonnay, it is reassuring if youknow that your toothbrush will arrive at your destination at the same time as your teeth.

 

This hub is just not suited to the up-market traveler. Even to the mass market, whether you are flying from Madrid, Milan, or Munich, you are effectively going North or West first, away from your final destination. People don’t like to waste their valuable vacation time flying a few hours in the wrong direction.

 

Dubaioffers a solution to these travelers, many of whom would otherwise not choose Mauritius, hence, in my view the tenuousness of the accusation that all EK is doing is eating out of MK’s dinner plate.

 

Turkish would offer an attractive hub too, as tourists from most of Europe would be stopping there on their way down towards us. It may even offer a better option than EK to those who don’t wish to break their journey and their sleep after 6 hours. These travelers would have a short leg to Istanbul, before settling into their 10-hour snooze down to Mauritius. And Turkish would tap into the Eastern Europe and Central Asian markets.

 

Other reasons for the drop or the stagnation we have witnessed from Germany, and Italy, are the result of removing direct flights. I understand the argument that these flights were making losses. However, if we are in a new demand-driven paradigm, and flying more economical aircraft, this may well change. People prefer to fly direct any time.

 

AIR MAURITIUS – QUO VADIS?

 

Our national airline is not an end in itself. It can be an instrument of national policy. Some people argue that it was the Government which was often made an instrument of MK’s policy, the tail wagging the dog, as it were.

 

Somewhere, following a fantastic success story until the mid-nineties, MK lost its way.

 

Not surprising. Since the departure of Sir Harry in 1996, we have had six Chief Executives. Six!! Hang on, I think I miscounted. We’ve had seven. Seven!! Wait a minute! I left out the 92-day “CEO in transit”! That makes it EIGHT CEO’s in less than 20 years!! Some of the appointees had talent. Others were on the average side of average. Often, there was not even a hint of a due process, nor any pretense that the right man was being sought for the job. You cannot even run a tabajie like this.

 

The hedging losses in 2008 and more recently must have depleted reserves to danger levels. This does not help.

 

With a new paradigm, demand-rather than supply-driven, when new clienteles will want to visit the island and do business with us and through us, first prize is to have a national airline which is solid, and drives growth for tourist and business traffic. This first prize is out of reach. It won’t happen. There has to be considerable doubt as to whether MK can continue to play a pivotal role going forward, without the national interest suffering in the process. If even the major American carriers like American, Delta and United, as well as the European carriers, are having trouble competing with the super-connectors, it would be crazy to expect that we stand much of a chance. The fate of Mauritius and the fate of MK should gradually be de-linked, but that need not be a disaster for MK.

 

Let us look at just a few numbers. Assume an 8% annual compound growth in tourist arrivals, in my view achievable, if we get all the above right, and through a new brand, and a fresh combination of direct routes and new hubs. In six years’ time, we will welcome an additional 600,000 tourists! That is 50,000 additional tourists monthly on average, ignoring the peaks and troughs to keep it simple. Part of the growth will come from China no doubt, and perhaps India, but much of it will come from our traditional European markets, plus the potential new markets as yet barely tapped of Eastern Europe and the Central Asian basin. (My earlier comments regarding upgrading our road and other infrastructure, tackling environmental and security issues, takes on its full meaning when you plug in an additional 600,000 tourists visiting our shores annually).

 

The current hotel capacity, along with the IRS villas and other holiday accommodation, is adequate to cope with this number. But we will need 40 additional flights each week! Who is going to fly these?

 

MK buying six new aircraft for delivery as from 2017, to replace the old A340’s which will by then be even more outdated and uneconomical, will hardly make a dent on this problem.

 

But allowing new entrants and new hubs, will take us there. This need not signal the death of MK. In fact, with a buoyant demand, there has to be ample scope for MK to redefine and restructure itself, and profit from the boon. Its market share will decline, but it can still be our number one airline, carrying more passengers than it currently does. EK could certainly take up some of the additional volume, and put more bums on its seats, even if its market share remains at around the 20 - 22% mark.

 

NEW AIRLINES –THREATS OR OPPORTUNITIES?

 

Let us imagine what would happen if we allowed TA to fly here. The first impact is a much wider promotional footprint. Such airlines connect with millions of tourists, with their executive clubs consisting of a huge number of high net worth individuals, a juicy market for us. In practice, there is always a time gap between building awareness of a new destination, and people actually deciding to fly there.

 

Let us now look at what drives the buying decision from the tourist perspective. He / she goes through the following three steps, especially now with more bookings made on line. First, people choose their destination. Then, they choose the hotel. Only as a third step do they pick the flight, and they will then choose according to convenience, price, quality of hubs, direct or not. So, a wider promotion of the island, by new entrants, can also benefit MK, provided it gets its act together.

 

The days of protecting markets for entrenched players should be numbered.

 

There is another reason why a lower dependency on MK wouldn’t be such a bad thing. Right now, if MK sneezes, the country catches a cold. Notwithstanding the present Government’s praiseworthy attempts at recruiting the right caliber CEO, and generally putting order in the house, there is always the danger that future Governments will want to play The Sorcerer’s Apprentice with the national airline. We need to spare the country any future risk of pneumonia.

 

CONCLUSION

 

In my modest opinion, the new first prize could therefore be a policy of attracting as many of the super-connectors as possible, avoiding any undue concentration, and tapping into the markets of a broad range of airlines.

 

This is not such a tall order, although we have to get a few things right first, before we enter this new dawn.

 

As a start, I would get Turkish if they are keen. I think we will be delighted.