My book on airline business models

The foreword of my yet to-be-published book "Black Holes in the Sky". It is all about the (financial) viability of airline models and since I believe that nobody actually bothers to read a foreword, I put it here so that it can have its brief moment of glory!

As always, you are most welcome to pass criticism but go easy on me, it is my first attempt to transgress myself into the higher league of credible published authors! 

Foreword
I learnt it the hard way. After twenty odd years in aviation, from being a humble pilot to eventually running airlines, with numerous nights spent in meetings with all kinds of stakeholders while applying all my enthusiasm for the trade, I have come to the conclusion, or should I say: the conclusion has been forced upon me, that the traditional airline model does not work in current times. Now I am not old enough – fortunately - that I am able to claim, or not, that airlines ever worked as viable business concepts, yet certainly modern economic times and the widely common go-with-the flow-airlines do not seem compatible.

Too many examples of failed airlines over the years quite possibly may prove my theory right whilst projected passenger perception at present does seem to support my thesis as well. Contrary to a few years back, when one either had the choice of taking the country’s flag carrier, the destination country’s flag carrier, a boat or a car only, passengers now generally are offered an abundance of travel options, ranging from various land transport means, over high-speed rail networks to various airline models. And behold our choices: the rise of the no-frills airlines in virtually every region of the world has indeed been a success story in itself.

The underlying tenor seems to be simple: a desire to get farther with less. Yet, contrary to the gurus of no-frills airline theories, there is still a business to be invented where lower revenues mean higher returns. When traditionally, or at least our parents so claim, love made the world go round, nowadays Wall Street rules the skies and the love-hate relationships in a boardroom of an airline alike. Returns on investment for both shareholders and customers have become more important than ever. And how do traditional full service carriers react to slumping demand for their services? They start lobbying with their respective governments and then simply go out of business.

Now, don’t get me wrong: I am an avid supporter of traditional airline business models. I believe them to be much more humane in every respect (apart, of course, from the few rotten apples one seems to find in any industry); more humane towards its passengers, suppliers and, most importantly, to its staff. Have you ever seen a Cabin Crew member smiling on his/her fourth rotation of the day? Hardly ever, probably, but when you encounter one it will be most likely on a flight of a traditional full service airline rather than a no-frills carrier.

Yet, this book is not about the battle between full service airlines against no-frill airlines. Many exceptionally well written books on this ghastly subject have been published already. So who would I be to contribute here even further when probably everything on this fascinating topic has already been said and undeniably said well? I recall doing long and painstaking research for my MBA-thesis and finding no relevant literature on my chosen topic – regional carriers in the Gulf Cooperation Countries – yet an abundance of literature on no-frills airlines. Even my thesis supervisor despaired over the lack of suitable research material and prodded me in true Greek fashion to amend my thesis topic ever so slightly to no-frills airlines (airlines is airlines was probably the rational thought behind it). I obviously refused in a similar Dutch fashion called stubbornness.

Indeed, this book is about a much broader, yet probably at least an equally important topic: what needs to be done to establish a successful and sustainable airline and potentially more importantly: how?

Is it indeed a question of starting with a billion and ending with a million, as the somewhat blunt anecdote in aviation for airline start-ups goes? Fortunately, a number of recent airline start-ups prove this saying wrong. So it might be just a case of getting an aircraft, an air operator’s certificate, a few crew members and off we go into the mighty blue sky? Well, this approach might work - if one is lucky - but generally, I would give the incumbent little chance of clearing the first obstacle after take-off, let alone reaching sustainable bridge capital rounds.

My professional life in aviation has brought me from failed, over hanging-in-there, to successful airlines. And while no two business models are alike – if there is only one thing you take from this book, please let it be that buying a business plan on the web with the idea of copy-pasting it onto your new airline really does never work – I have seen a number of similarities in the models of successful airlines, at which point I hear you say: “We all know that already. We have learnt all about successful corporations and the reasons behind their success stories.”

True, many MBA or similar professional education curricula teach the potential manager how to make a business work. What usually does not get taught though is one generally, and especially in any start-up where work hours never seem to end and salaries always seem be too low, has little time to reflect on the latest organizational behavior theories or how to market a product utilizing not only a large number of human resources, but also a long time and, more importantly, a hefty amount out of the limited marketing budget.

So, to give you at least one checklist that you could utilize in your organization, the successful airlines I have experienced all have a number of factors in common. These airlines preach:

• Passion,
• Accountability,
• Service,
• Integrity, and
• Teamwork.

Mind the word preach. It has become a common habit for organizations to print fashionable company values and stick them into fancy frames and onto the walls of the boardroom and the CEO’s office where they soon get dusted-in, if they are lucky, or indeed get over taped by the latest snapshots of the fancy management holidays on the Bahamas.

 

SAFETY! You thought I had forgotten about this ever so important topic, right? Actually, I have not. True, safety is certainly the most important business process in any company. Luckily, I know rather few companies that prefer a buck regardless the way it has been generated. And I do believe that our industry is a shining example when it comes to a safe environment. Yet, and let the flak begin, safety has become too rigid a process. Nowadays, safety often hampers valuable and right business processes by burdening them with over cautiousness consequently often making them lose their credibility and viability. Safety is paramount, no doubt about that. Lives and health depend on it. Nevertheless, safety should be common sense. No employee in his right mind would physically work on an active runway. And if he does, get him a job as an accountant or HR assistant far away from danger. Why do we need to send workers on courses where they are taught the procedures to dodge landing aircraft? It costs the airport a lot of money, often does not really improve the mind of the employee, and, most importantly, it does not make any common sense!

Unfortunately, large organizations, and airlines form no exception, lose their entrepreneurial spirit once they reach a more mature business stage. A common strategy seems to be to ‘go with the flow’ and start focusing more on the competition than to follow its own, hopefully, predetermined path to glory. Almost any mature airline suffers of this syndrome. Once it has become harder and harder to find viable routes, products, and services, the airline tends to benchmark itself financially against its nearest rival and determine its business plan accordingly. The usual immediate consequences? Mergers and acquisitions of some sort. Especially where the airline’s regional target audience is limited in size, we can observe this trend almost on a weekly basis.

 

If one were to be cynical, and believe me that the twenty odd years in airline management have indeed rendered me cynical, one could even argue that a merger between two airlines is the last and final stage of the newly formed airline. It is, so to speak, the beginning of the end. Exaggeration? Possibly, yet one only has to study airline history a little bit to realize that this statement - although certainly taken to the extreme - quite possibly could be true.

 

A word of warning though: if there is one thing that I have come to realize in my illustrious, and sometimes not so illustrious, career, it certainly is that applying a few elsewhere proven tactics do not necessarily generate success. So, as much as I would like to give you a foolproof recipe to airline success, this is not an achievable goal. This book, however, relies on my and aviation industry greater minds. So the least it does is to tell you how not to start an airline. And that, I believe, is already something. I wish I had something like this when I started my airlines. It probably would have prevented me from establishing quite a few failed concepts. But then, it also would have taken quite a bit of fun out of my life. So actually, I really have gotten the best out of two worlds: dodging the Black Holes in the Sky while having fun! Pretty good, really.

 

Alex de Vos

Dubai, October 2012

MBA Thesis: REGIONAL AIR PASSENGER SERVICES IN THE GCC: AN ECONOMIC VIABLE MODEL?

The executive summary of my MBA thesis. It took a long time to get to this stage and although I fully realize the shortcomings of my publication, I am still pretty proud of the achievement. After all, it is already hard enough to successfully balance your professional life with your personal life when you are setting-up airlines in remote/hostile areas for a living. Adding a full MBA study to a day that has only 24 hours is even more challenging. Apologies to my son for not being able to play "pirates" with me as often as he wanted to. I make it up to you!

As always, if you liked more information, please do not hesitate to contact me!

The Gulf Cooperation Council member states are nowadays at the forefront of aviation technology. A smart vision, in combination with funding generated by hydrocarbon generated wealth and strategic planning has led a number of GCC countries to become global aviation hubs. However, the prevailing airline models utilized in the region prominently miss the one of a dedicated regional air carrier. Traditionally, regional air carriers operating smaller aircraft are perceived as old-fashioned, even unsafe. In addition, with profit margins on regional airlines usually being smaller than with traditional long-haul carriers due to overhead spread, the model generally lacks of highly needed funding, be it seed or bridge capital.

As a potential consequence and with the exception of early aviation days in the GCC, there has been little interest in regional passenger air services. The aircraft used early on by airlines were mostly twin engine piston aircraft, such as the famous DC 3 that missed the range capabilities of current modern airliners. At the same time, European airlines, such as KLM, had already an extensive long range route network between Europe and the Far East with technical stops in the Middle East making it difficult for new airlines to enter the already served market.

Current legislation does not foresee for a firm definition of the term regional airline. Hence, this study establishes its own within relevant parameters as airlines operating the majority of their fleet in a passenger configuration of less than 108 seats or its weight equivalent in a cargo configuration. The typical route network consists of low-density scheduled routes usually with a flight-time of less than two hours.

This study evaluates the model of a so defined dedicated regional air carrier. It scrutinizes historic, present and future trends, financials, and threats to the model of a regional airline within the GCC. It relies on three detached sets of research data, namely an on-line to the general public living in the UAE distributed survey questionnaire, an in-depth interview with aviation experts living in the UAE, and the business plan drafted by Gulf Executive Aviation for Eastern Express, a start-up dedicated regional air carrier out of Fujairah, United Arab Emirates.

The so received data - the primary research questionnaire has been sampled according to the stratified random probability method with the strata in-line with the target audience groups established by Eastern Express - has been further analyzed and a best practice model including recommendations to current and potential regional airlines in the GCC has been established. In the discussion of this study, the evaluated model is compared with the one in the business plan by Gulf Executive Aviation, the outcome of which contributing to general regional carrier model in the GCC.

With aircraft capabilities and technology changing and improving, there is a realistic possibility that the GCC will be unable to rely on its current transit model for much longer. If the region wants to continue being at the forefront of aviation, alternatives need to be thought of and with the missing ground infrastructure for regional travel, dedicated regional airlines might very well be part of the alternative.

Yet a newly to be established air service dedicated to regional traffic would probably be not without risks to implement. Not only knows the GCC few secondary airports that are able to cater for smaller aircraft, the model has also not been tested before in the region making it a fairly high risk one for its shareholders. Operational and financial benchmarking for any start-up regional carrier is therefore almost impossible.

In addition, one can argue that at some point the already planned expansion of regional land services infrastructure will indeed be commissioned, taking away at least some share of the regional air service. Profitability could therefore very well be reduced to unsustainable levels if the projected demand exceeds reality.

In order to evaluate the (financial) risk of a dedicated regional airline in the GCC, this study frames its research questions asked as follows:

• Why has there historically been little interest by the established GCC carriers to address regional air passenger services?
• What are the key success factors for a regional airline within the GCC?
• Similarly, what are the main challenges for a new entrant to the regional air industry in the GCC?

The research outcome not only serves as a supporting model for existing and potential regional airlines in the GCC, it also enhances available literature on regional airlines in general. A highly needed objective since relevant literature and benchmarks on regional air carriers, and especially in the GCC region, are limited available.

Due to travel and time constraints, this study is limited to a potential UAE base of the regional operations. At the same time, it opens doors for further research into adjacent topics, such as regional airlines’ modus operandi worldwide and in the region, their key performance indicators, their alternatives (especially in the GCC), and their overall best practices model is needed.

One might argue that airline is airline, be it a long-haul, no-frills, or regional one. Yet, as this study shows, there are small but relevant differences between the three models. Especially when operational costs are concerned, where aircraft fuel costs within a regional airline is not capable of being spread-out over a large number of available seat-kilometers, directly influencing ticket prices.

As with any new entrant to an industry, challenges and threats are part of the business model. In the case of a dedicated regional airline in the GCC, this study concludes the following ones:

• Personal cars on short routes;
• Established airlines on longer routes; and potentially
• Potentially a perceived negative stigma of financially viable turbo-prop aircraft.

This study concludes that a dedicated regional air carrier in the GCC has good potential to be an economic viable model, albeit a risky one, if certain strategic parameters and key success factors are managed properly, them being:

• Frequency offered;
• Ticket price;
• Connectivity created;
• Aircraft type operated;
• Services offered; and
• Sales outlets strategy.

By doing so, the projected 800% increase in passenger numbers by the consultancy company Gulf Executive Aviation over a span of a few years only might certainly be realistic. Yet, at the same time, any dedicated regional airline is advised to focus on the essentials, the demand spectrum by the airline’s targeted audience, and to keep as flexible a model as possible in order to be able to adapt the business model, by nature always a smaller, and thus less static one than the one of the larger long-haul carriers, rapidly to changing market demands.

Change of flightpath for UAE airline

And here we go again... another sensationalistic masterpiece on us. Check-out the aircraft picture and the so-called quote by me out of context (by the way, the second time this quality newspaper has used exactly this out of context quote). Do journalists actually care what they write about? Here is the link: http://www.7daysindubai.com/Change-flightpath-UAE-airline/story-16442768-detail/story.html


A UAE airline that previously announced plans to operate the country’s first ever domestic air routes has said it’s inaugural flight will take-off next week - headed for war-torn Somalia. Attempts by Fujairah-based carrier Eastern Express to provide flights between the emirate and Abu Dhabi, have been stymied by delays.


Fleet delivery problems clipped the company’s wings when it tried to jet into UAE skies in the first quarter of this year.


​


A UAE airline that previously announced plans to operate the country’s first ever domestic air routes has said it’s inaugural flight will take-off next week - headed for war-torn Somalia.


Flying to highly troubled Somalia however - which has topped international think-tank the Fund for Peace’s ‘failed state’ index for the past five years - seems to present no such problems for the fledgling carrier. “There has always been a need for internal and regional flights in Somalia,” the airline’s business development manager Mike Carvath told 7DAYS.


“Somalia is a huge place but a lot of the country’s roads are unsafe and unsuitable.” Eastern Express will initially fly to Garowe in the north east of Somalia and the country’s main port of Basoso which serves the Gulf of Aden - the scene of numerous heists by ruthless Somali pirates.


However, Carvath is confident there will be no shortage of flyers from the UAE, particularly among the substantial number of Somalis living in Dubai. “We expect to get business from businessmen and their families,” he says. Eastern Express plans to serve Somalia twice a week - and is targeting 30 to 35 passengers per flight. However the firm will do so from Sharjah International Airport, rather than Fujairah.


The airline alsos plan to fly to Djibouti, Addis Ababa in Ethiopia, Nairobi in Kenya and - in time - the Somali capital of Mogadishu. Eastern Express admitted Fujairah-based domestic services to other emirates in the UAE were “still delayed” - but declined to say for how much longer.


In March this year, CEO Alex De Vos admitted to delegates at an aviation conference in Dubai that the delay of the carrier’s launch had “financial implications” for the Fujairah flyer, adding: “A lot of other businesses would have shut its doors and said ‘it’s just not worth it’ - yes, but we’re stupid.”

Appreciation time!

The Higher College of Technology - Fujairah awarded members of Eastern Express today for our contribution towards HCT's Marketing and Human Reosurces classes. Pretty nice, right?

And I must say that I was suitably impressed by the presentations on the respective subjects. Well done, ladies!

Living in the GCC?

For those of you who missed the chance to take part in my MBA dissertation because you do not reside within the UAE, here is your chance (but only if you live in the GCC, please). Don't say that I am not a nice guy!

http://freeonlinesurveys.com/s.asp?sid=3np7vx8zsgw7pkj27988

Thank you for your time!

Living in the UAE? Please take 5 minutes to fill-in the below questionnaire.

Dissertation time for my MBA! I would appreciate if you spare 5 minutes of your busy time and fill-in the questionnaire at the link provided below. Thank you!

MBA survey on GCC regional services

Speech during the Aviation Outlook MENA March 2012

Here I was, invited to give a presentation to my industry peers. Just after Emirates and Air Egypt Express, so the companies kept getting smaller. Good to know that after my presentation we all had lunch or else we would have ended with a model aircraft enthusiast.

My Business Development Manager was probably more nervous than I was since he expected me to spill the beans but obviously I did not. Unfortunately, I am unable to upload the slides I used during the speech. If you are interested in them, please drop me a line.
Good afternoon, Ladies and Gentlemen.

What a day it has been so far. After the coffee break, we started off with arguably the number 1 in the region, moved on to a regional carrier, and now we have reached domestic services. It is a good thing that there is no presentation after mine because we probably would be hearing about a bicycle service between the Dubai Mall and Burj Khalifa!

It is a real pleasure for a manager of a small start-up regional airline to speak alongside all these distinguished hosts and to interact with esteemed industry colleagues such as you. So first of all I would like to thank Terrapinn for inviting me here to speak and special thanks to Lynsey for her patience shown with me.

My name is Alex de Vos, and I am the CEO for Eastern Express in Fujairah, a start-up regional carrier for the UAE. Eastern Express has been incorporated last summer and is scheduled to launch operations on domestic and regional routes summer 2012.

So here I am, talking to you about UAE domestic services. Domestic services in a country that figures high on the economic and political world map yet at the same time has only twice the size of my home country, the Netherlands. And I am sure you all know that in Holland we have signs in our trains stating that it is forbidden to lean out of the window without having a passport on you since you would technically enter Germany.

Just last week I was at a seminar in Abu Dhabi and one of the UAE’s high profile consultants approached me. While taking me aside, he told me bluntly: “Alex, your project is not going to work. The country is too small and besides, your aircraft choice is all wrong.” Of course, I later found out that the very same consultant had secured a project with one of our competitors and that he had previously unsuccessfully tried to sell us a turbo-prop aircraft. The very same aircraft he is now convinced will not work on our routes. So I am obviously somewhat biased of his sincere intentions but nevertheless, his opinion seems to be the norm in the UAE.

So what would make us, and with us our stakeholders involved, think that domestic air services are going to work in such a small country? Bear with me for the next few minutes and I will tell you why domestic air services are indeed needed for the UAE in order to progress even further economically.

A long time ago, sometimes during the last century even, I, as all young lads, went to my father and asked him for career advice. “You want to make money, you go into banks or insurance” was his advice before he returned to his science section of the newspaper. And as all good lads, I ignored his advice completely and went into aviation. Why? Because I wanted to be surrounded by people like Bob Crandall.
Bob arguably is one of THE biggest names in aviation. He has been awarded with the Tony Jannus award; he has practically invented yield management, and he led an airline successfully through deregulation. Major achievements that keep inspiring most industry colleagues and they certainly keep inspiring me. Not that I dare to compare myself with Mr. Crandall, yet we have one thing at least in common, we both call ‘a spade a spade’, which, undoubtedly, makes us both unpopular with many regulatory bodies from time-to-time. Yet, this airline is not all about me, so I believe this a small price to pay as long as I help the airline to prosper.

One of the aspects of how-to-make-an-airline-work is to sit back, relax and reflect on the airline’s strategy. Now I must warn you: I have scored a very weak mark on my strategy paper for my MBA-course so don’t take my views on this complex topic as carved in stone! Yet I have learnt a thing or two from my professor and probably the most important one is: kan het niet zoals het moet dan moet het maar zoals het kan, which roughly translates into: when it is not possible the way it ought to be done then it ought to be done the way it is possible. Apologies for the lousy translation, English was apparently not my strong point either!

So here in this beautiful country, modern in any way, and probably going to, if not already, leading the way in transport, what public transport is available to us? Taxi? - yes; Bus? - yes and no. You can take a bus from Fujairah via Sharjah to Dubai and then get on another bus to Abu Dhabi but the country border stops the busline. Train? - no, not yet, at least. Aircraft? Well, we are getting there…And what would the public like to see available to them? Obviously the largest choice of transportation means available to them, and that, if you like it or not, includes domestic/regional services. Here is why:

The famous Gulf Aviation, the holy grail of the airlines in the Middle East. Forced to fly, due to aircraft performance restrictions amongst other reasons, regionally. Let BOAC do the profitable long-haul routes, and leave the much harder, lower operating margin routes to the regionals. I am pretty sure this was the way BOAC thought back then.

However, this short-haul focus ended when regional airlines, and by that I mean airlines in the region, were capable of acquiring modern, longer range aircraft. The consequence?

A320s, B737s, A330s, A380s even… all very modern, exceptionally comfortable, highly reliant and safe aircraft. Efficient too, but only within their respective design envelopes. 25 passengers on a 40 minutes flight in a wide-body? Normal here and obviously very nice for the passengers but the efficiency factor? Well, maybe not so great.

Now, don’t get me wrong. I do believe the GCC has a few of the finest airlines in the world. Within a few decades, the regionals managed to challenge established airlines all over the world. Even if the focus is slowly shifting to the east, to the Chinas and Cambodias, nobody can take this achievement away from them.

I believe it to be an accepted aviation business statement that more money is made on medium and long-haul routes. So quite rightly, airlines in the region chose their fleet types according to maximum efficiency on these routes. That is the perfect smart thing to do from a business perspective. Yet at the same time people in the UAE wanting to travel domestically are restricted in their transport choice to land transport means.

Fujairah International Airport to Abu Dhabi International Airport equals 260km. With the new highway stretch from Fujairah connecting into the old Kalba to Sharjah highway, it takes you around 3 hours to reach Abu Dhabi, assuming no traffic bottlenecks.

Yes, I have heard from numerous people, including police officers, I might add, that they can do it in around 2 hours. But believe me, this way you spend more on speeding fines than you would on an air ticket. I speak from experience, last week I had to pay for two speeding tickets coming from Abu Dhabi. Apart from being mad at myself, my wife is now also mad at me because I could not buy het that shiny necklace anymore. Is that really worth it?
A flight takes around 30 minutes, add to that 30 minutes embarking and 15 minutes disembarking time and you have saved almost 60% of your travel time.

Of course, as has been argued before, by driving yourself you have the advantage of a car at both ends. True, yet Eastern Express provides you with a pick-up / drop-off service. So instead of traveling more than 6 hours for a business meeting in Abu Dhabi or Fujairah, going by air means a travel time of only 2 ½ hours both ways. I would claim this to be worth serious consideration, if nothing else.

True, once we had made our plans known to the public, some companies and individuals had a close look at our business plan, modified it slightly and started planning the execution of domestic and regional operations. Do I see there one or two faces turning pink? Let me assure you, we do mind only to a limited extent since Eastern Express has worked on the concept for almost 3 years now and that time span cannot be caught-up within a few months time only.

We have done our homework, some of it exceptionally well and some of it not that well. Yet, what we have definitely achieved by now is that we are on the map of the stakeholders involved. And fortunately, I am in a position to say today that all stakeholders support us. I am sure you all know that this ‘getting there’ time span takes always longer than one might hope for. And here we are, having achieved it to a large portion.

We have been, and still are, introducing the product to potential passengers, to the relevant authorities, and to industry peers. We are confident that we have a head-start over potential competitors. In the end it is the public that decides whose product will succeed. Competition never kills a business, poor and hasty planning and execution, however, does.

We have been fortunate enough to attract high caliber and regionally very experienced staff. Some of them actually do sit here somewhere in the audience. As if we would not have enough to do at the office! So please remind me to give them a very stern warning during lunch! Just kidding, of course. What is true, however, is that without them our journey so far would not have been possible. Period. So before you think to yourself: “that Dutch chap is actually pretty smart”, give those guys the credit they deserve.

Of course, we have had our difficulties along the way. I believe this to be normal for any kind of start-up business. It is general accepted business acumen that you try to stop potential competition as early as possible from operating. And it has happened to us numerous times. As a consequence, we have been forced to delay our launch from Q1 2012 to Q2 2012.

Our original concept foresaw an ACMI-leased aircraft fleet. Shortly before launch date, we were officially informed that this concept would not be allowed. So we switched the aircraft acquisition model around, with all subsequent financial implications. Fortunately, we were able to raise the additional capital needed that will cover the increased short-termed negative cash-flow.

Again, we have been lucky enough to have the continuous backing of a number of stakeholders involved. Many other astute businessmen would have closed shop and cut their losses when confronted with the obstacles laid into our path. Yet, everybody at Eastern Express, from staff, over management and board level, to external stakeholders believes in the product and I am convinced that the received sound support will materialize into a superior quality product.
Sure, there is still the perception in the region that turbo-props are old-fashioned and unsafe. Yet here we are: starting with turbo-prop aircraft on our routes. So yes, we make our lives that bit more difficult by educating our market segments that turbo-props are actually perfectly safe. They even have numerous advantages over jets on shorter routes. Advantages that I certainly do not need to describe here for you.

I agree with you this to-be-undertaken education process forms a risk to our business model. Fortunately, we have some risk mitigation factors built-in but in light of the earlier addressed competition, I am not going to disclose them to you!

Somebody is always first. Southwest Airlines was. And look where they are now. And Air Arabia was first in the region. Of course, those success stories do not guarantee the success of Eastern Express. As much as we all would like to see Eastern Express prosper; the one thing that we already have achieved and nobody can take away from us is that we have changed the mindset of the aviation trade in the region.

With all the aviation firsts and grandeurs that the region currently possesses, it becomes increasingly difficult for our industry to find potential lucrative regional markets. I am not claiming that we have invented the wheel, far from that. Numerous airlines have launched successful, some very successful, and some plain failed domestic carriers in other parts of the world. Yet, as the attempts to copy our model have shown, aviation professionals in the region start realizing that there always will be another market niche to conquer.

In the end it really does not matter who comes-in first and who second. What matters though is that each business, and contrary to what many believe airlines are a business, delivers a superior product and adds value to its socio-economic environment. One way to do so is to talk to each other from early beginnings onwards.

I would like to see other entities and individuals buzzing us and saying: “hey, here is what we are going to do.” Naïve? Perhaps, yet what would be lost in such a scenario? Don’t be afraid! We do not have the resources to take-over your business model. And at least this way we would coexist rather than compete with each other.

4 different continents, 4 different successful airlines. The thing in common though is that they all add value to Big Brother. As Big Brother, what would you rather have: flying 30 minutes with your very own wide-body hauling 25 passengers or outsource it to a dedicated regional airline, leaving the financial risk mostly with them?

My choice would be obvious. And I believe that is indeed an obvious choice for everybody involved. We have looked at the UAE and I strongly believe we have seen what the population wants: a choice of travel possibilities.

And with that, I thank you again for your patience. Enjoy the rest of the illustrious speakers, shukran and tot ziens in the UAE airspace.

Article about Eastern Express' struggle with the authorities

Part of any start-up, I am afraid. We are working hard to solve the issue for the merit of all stakeholders involved. Article in The National Newspaper. By the way, what's up with all these "expert" comments by travel agents? I would claim that an airline is probably a bettrer choice when airline matters are concerned.
New airline's flight delay
Martin Croucher

Mar 24, 2012

DUBAI // A new domestic airline that promises daily flights between Abu Dhabi and Fujairah may not launch until midsummer.

Eastern Express was expected to start flying in January, but was delayed by the General Civil Aviation Authority's (GCAA) rejection of its plan to lease an aircraft and crew. Instead, it now plans to buy its own aircraft, and has raised extra money from its investors to do so.

"We needed to change our model and raise additional capital, which we have done in recent months," said the chief executive, Alex de Vos. "It's a straightforward process now. I don't see a reason for the GCAA to not accept it. "As soon as we have the approval of the aircraft, as well as our plan of how to inspect it, then we're off."

The company is looking at buying a 29-seater turboprop Jetstream 41, made by British Aerospace. The aircraft, if bought new, costs between Dh22 million and Dh25m, although Mr de Vos declined to confirm that figure. The aircraft are used extensively by the UK-based operator Eastern Airways. The North Lincolnshire firm started with a similar business model by operating domestic flights from Humberside to Aberdeen, before adding other domestic and international routes.

Mr de Vos said his company, which is not associated with the British one, would follow a similar pattern, starting with domestic flights and then adding a daily service to Doha. When it initially announced the service, Eastern Express said the 200 kilometre one-way trip from Abu Dhabi to Fujairah would cost Dh645 plus taxes. However, it remains to be seen what effect the extra cost of having to buy an aircraft will have on the ticket prices.

Gaurav Sinha, a UAE-based travel industry analyst, said the GCAA's stance must have hit Eastern Express hard. "These are things that are there to test the mettle of entrepreneurs," he said. "Some of the best companies start under the most challenging of circumstances.

"If it was easy, everyone would be setting up new airlines. The fact that these challenges exist and they have to abide by these rules and regulations, that's the true test of the entrepreneurial spirit."

Ismail Al Baloushi, the executive director of aviation safety at the GCAA, said the authority was concerned solely with safety. While he had no problem with a company leasing its aircraft, the key question was how it would maintain safety standards. "If you want to lease or buy an airplane, you have to show that you are able to guarantee and sustain a safe operation," he said.

He said that there was potential conflict over the registration of the aircraft in a different country, as well as the possibility that a third party operator ill-suited to the scale of the planned business would have been involved.

Initially, Eastern Express was going to "wet lease" its aircraft, meaning it came with a set of flight and ground crew. Now it will have to hire four pilots, two flight attendants, and three ground engineers, which would itself push back the launch.

"This will require training," he said. "With the application process and slots at the simulators, that will take two or three months. That will make it summer before we see a launch." He declined to comment on the exact date.

Nigeria ongoing

... and part 3. A fairly short answer this time since I was exceeding my word count already!
What is currently the ideal corporate structure and industry in order to make the most of business with and in Nigeria?
The following table gives an overview of the recent growth rates of the different industry sectors in Nigeria:

 

Sector	Average annual Growth Rate (%)				Share of GDP in 2004(%)
	2001	2002	2003	2004
Agriculture	4.0	5.0	5.0	6.0	51.5
Industry	2.0	1.0	1.0	3.0	20.7
Manufacturing	0.0	-4.0	4.0	4.0	-
Building and Construction	6.0	6.0	4.0	4.0	2.1
Wholesale trade	1.0	3.0	2.0	2.0	11.0
Retail trade	4.0	4.0	4.0	4.0	28.1

Surprisingly, the hydrocarbon industry, the by far largest sector in Nigeria accounting for 80% of the nation’s GDP is not listed, reducing the credibility of the above source. At best the table presented can be used as a general overview of Nigeria’s industry sectors and their general trends since, as Budina et al. state, oil exports account for a historically fairly stable 90% of Nigeria’s total exports. This together with a Bonny Light market contract price of around US Dollar 120 per barrel, compared to around US Dollar 20 per barrel ten years ago, Nigerian total exports are expected to have increased fivefold over a time span of merely ten years.




From a pure money flow point-of-view, the Nigerian oil and gas sector would therefore seem to be the industry to participate in since it also receives by far the majority of FDI. Though the Nigerian law states that precisely this sector does not allow 100% foreign ownership, partnership with a local entity would generate additional incentives and thus possibly offset any potential direct financial drawbacks by partnering with a local business. However, the Nigerian hydrocarbon industry is plagued with unrest and disputes requiring in-depth expertise of the local and regional socio-economical factors to operate successfully operate within Nigeria.




As an example of the upstream oil and gas trade, a SWOT analysis of Shell Nigeria would look like the following:

Strengths: Large investment capacity Diversification from traditional hydrocarbon portfolio with renewable energies research Improved customer perception	Weaknesses: Environment unfriendly technology with regards to elimination of hydrocarbon byproducts Nigerian political situation could deteriorate, forcing Shell to leave the country
Opportunities: New oil- and gas fields still being found Increasing fossil fuels demand worldwide	Threats: Volatile oil market prices Ownership issues of local drilling sites Potential strikes by suppliers Weather phenomena may influence production

Most issues under weaknesses and threats are being faced on a daily basis by hydrocarbon industry corporations all over the world. These issues are not Nigeria specific and thus are part of the common operations of any oil- and gas company, leaving the aspects under strengths and weaknesses to be the deciding factors. Especially the estimated unproven oil and gas resources of the country could swing the economic pendulum into further positive territory, once the framework has been established and will be sustainable.




Many indigenous industries qualify for ‘pioneer status’, a special designation allowing them to take advantage of a tax holiday of up to seven years. Within the hydrocarbon industry sector, the manufacturing of oil well drilling materials, the manufacturing of fertilizers Ammonia and Urea, the re-refining or re-cycling of waste oil, the manufacturing of gas and the distribution thereof, and the mineral oil prospecting and production qualify for the incentive scheme.




In conclusion, I would argue that the hydrocarbon industry is the place to be in Nigeria. With the trade being diversified from large, capital intensive projects, such as oil exploration, to small, specialized operations, such as gasket manufacturing, any corporation should be able to find its prospective niche. Since the oil- and gas trade is prohibited from 1005 foreign ownership, the structure of the company is limited to a joint venture ship of some sort with a local partner.

Nigeria part 2

Obviously, one question and answer is not enough for an MBA! So here is part 2:

Is Nigeria currently following appropriate policies to encourage global brands to work with local companies?

The Library of Congress Studies state that in 2008, Nigeria’s age distribution was estimated as follows:

With more than half the population at least approaching a working age, it surely does not come as a surprise that Nigeria ranks 37th out of the 183 economies surveyed for ease of employing workers. Ease of business is further enhanced by English being the official language. In 2004 Nigeria’s adult literacy rate was 69.1 percent on average, with a higher rate for men (78.2 percent) than for women (60.1 percent). Nigeria provides free, government-supported education. In 2007 Nigeria had an estimated labor force of 50.1 million. Unemployment was estimated at 4.9 percent in 2007.

These facts do seem to be beneficial for foreign companies to partner with Nigerian entities in order to reduce import restrictions and to minimize supply chain costs on the one hand, and to find new business opportunities for local organizations on the other hand. Consequences of such partnerships would be the creation of local quality jobs, and a more competitive Nigerian workforce through modern management and skills transfer.

Consequently, Nigeria ranks amongst the three largest FDI recipients in Africa. One could argue, however, that this top three listing is only achieved by being a country rich in natural resources (95% of the state budget is generated by the oil and gas industry).

As the following table shows, the United States of America was Nigeria’s largest trade partner in 2000 with a net trade surplus of close to 16 billion US Dollars. Other main trading partners were as follows:

Country Exports (Mil USD) Imports (Mil USD)

United States 16,615 954
India 5,664 288
Spain 3,390 110
France 2,395 470
Italy 1,615 394
Côte d'Ivoire 1,217 n.a.
Brazil 964 259
Netherlands 366 364
China 203 492
Germany 162 859
United Kingdom 10 1,091
Total: 32,601 5,281

The positive trade balance could indeed be direct result of foreign corporations partnering with local entities. Yet, a few challenges still remain, not the least being the volatility in Nigeria’s inflation history. Over the last thirty years, Nigeria has encountered a 30% yearly inflation on the average, yet the trend seems to be a declining one to a level of the current 12%.

So although the spikes of the 1980s and 1990s seem to be past history, a change ratio of almost 200% in not even a decade makes it very difficult for foreign corporations to plan a suitable financial strategy. The Nigerian government in the form of the Central Bank of Nigeria therefore needs to enforce vigorously stable monetary politics.

If we compare the exchange rate historical data of the Nigerian Naira to the US Dollar over a span of a year, we see that the Naira fluctuates around ± 4% around the mean only. Also, historical data shows that the Naira is fairly stable against the Indian Rupee. Foreign long-term investors should therefore have adequate confidence in a relatively stable currency.

Nigeria currently operates a system called Expatriate Quota for awarding work permits to non-
ECOWAS (Economic Community Of West African States) nationals. Under this system, investors are required to apply for a quota of work permits. However, the website of the Nigerian Embassy in the USA (Embassy of the Federal Republic of Nigeria) states that this system is due to be replaced by a common work permit system under the administration by the NIPC.

Additionally, Nigeria is a member of the World Intellectual Property Organization (WIPO) and a signatory to the Universal Copyright Convention (UCC), the Berne convention, and the Paris Convention. On paper at least, Nigeria is well prepared to protect copyrights, yet, as can be observed in numerous articles, the practical implementation seems to be trailing.

As the Change Nigeria Project reports, it is expected that a number of mainly blue chips companies are in the process of relocating to neighbouring countries. The reasons cited for the relocations are infrastructural decay, poor tariff structure, corruption, and growing insecurity.

Yet, actual trade export and import figures seem to prove the success of the Nigerian model. Clearly the recent spikes in oil prices around the world favour Nigeria’s exports, yet Nigeria’s way of diversifying its portfolio also seems to have the right effect.

Nigeria business environment study

As part of my MBA, I was asked to conduct a study into the business environment of Nigeria. Not an easy task when you have a few Nigerian classmates looking over your shoulder!

 

How difficult is it to invest and repatriate profits from Nigeria? Is the context more or less beneficial for certain types of industries?

 

In 1995, Nigeria adopted a new set of regulations, under which it permitted foreign ownership in local businesses with the exception of the arms and drugs trade, and the petroleum sector, in which foreign participation is only allowed in conjunction with a local partner. At the same time, the Nigerian Investment Promotion Commission Act established the Nigerian Investment Promotion Commission (NIPC). The NIPC has since been the promoter and facilitator of foreign investment in Nigeria.

 

In 1992, the Nigerian Free Zone Act (NFZA) was passed. These so established Free Zone areas do show improved infrastructure, facilities, and transport while at the same time grant exporting business exemption from export duties, local taxes, and foreign exchange restrictions.

 

The NFZA grants companies incentives that include:

 

• No personal income tax
• 100% repatriation of capital and profit
• No foreign exchange regulation
• No pre-shipment inspection for goods imported into the free zone
• No expatriate quota
• Initial tax holidays extension
• Investment capital allowance increase
• All dividends distributed during tax holidays are tax free

The so implemented economical tools to improve investment opportunities have created prosperity, at least to some extent, in Nigeria. This can be also observed when looking at Nigeria’s real GDP growth rate over the last few years, adjusted for inflation:

 

Nigeria’s GDP growth of an average of around 6% over the last few years does compare favourably to the average world GDP real growth rate of almost 4% (index mundi) and should therefore prove to be an adequate incentive for foreign investment into Nigeria in combination with the stable investment framework provided by the NIPC and NFZA together.

 

However, policy lapses by the Nigerian government made the International Monetary Fund decide to end its support program in 2001. Furthermore, in 2003, the Nigerian government raised protective tariffs to up to 150% to protect local industry. Hill argues that the implementation of protective tariffs do generally have an adverse affect on the economy. It would therefore seem that the Nigerian government is under internal pressure and hence does not possess the final legislative authority, making it uncertain investment grounds for foreign inflows.

 

In addition, Nigeria knows a complex tax system. Corporate tax is set at 32% with numerous tax incentives in place. Nigeria’s legal system is based on a combination of statutory (legislative) law, English common law, customary law, and, in the north, Islamic law (sharia). Nigeria knows a bankruptcy law, yet this is hardly ever exercised.

 

This mix of different proven, yet not necessarily interchangeable law systems, would seem to be a hurdle for foreign direct investment (FDI). After all, without local legal representation, it becomes an almost impossible task to comprehend the exact rulings on different legal matters since every aspect could be judged from a different legal background. Furthermore, the UNCTAD report shows that agricultural, mining and public transportation assets know especially favourable initial year allowances. These regulations could very well lead to discrimination amongst investors in different sectors, further making potential investors hesitate to put an effort into Nigeria.

 

This current political-economical climate in Nigeria seems to lead to an uncertain situation with regards to a decision making process on investment issues in Nigeria. While on the one hand the current civilian government of Nigeria is trying hard to establish its nation as a modern, developing country clearly severing its links with the corruption affairs of the past, Nigeria still seems to have a long way to go before it can be truly regarded as a valid alternative to other developing countries, mainly in Asia and South America, for foreign investment.

 

Yet, Nigeria’s FDI reached USD11 billion in 2009, making the country the nineteenth greatest recipient of FDI in the world. So apparently, the implemented steps by the Nigerian government, such as the “One-Stop Investment Centers (OSIC)” that were set up by the NIPC in March 2006 and provide investors with a single point of contact for all dealings with the Nigerian Government, do have a positive effect on investors’ strategies for Nigeria. Double Taxation Treaties (according to the Blue Book fifteen are signed at present) further enhance the attractiveness of Nigeria as an investment receiving party.

 

As per the Foreign Exchange Act of 1995, any investor is guaranteed the unconditional transferability of funds in the event of sale or liquidation of the enterprise or any interest attributable to the investment. However, the coverage of the NIPC’s guarantee is limited to investments above Nigerian Naira 10 million (an equivalent to US Dollar 63,543.3 on March 22, 2011), creating an unclear financial legislation. Again, it would seem that Nigeria has a valid and workable framework in place that should attract foreign investment into the country; yet, the political stability of the government still needs to improve in order to satisfy lower risk investment strategies into Nigeria.

 

In order to compensate this to some extent, the Nigerian government has authorized the following incentives to attract FDI:

 

• Pioneer Status, providing a tax holiday for eligible companies;
• Tax relief for research & development in Nigeria;
• Tax concession for industries that attain minimum local raw materials utilisation;
• Tax concession for labour intensive productions;
• Tax concession for locally added value to products and services;
• Tax concession for in-house training;
• Tax concession for export oriented companies;
• Tax deductibility for production needed infrastructure works;
• Tax holidays for investment in rural areas;
• No excise duties;
• Re-investment allowance;
• Investment tax allowance.

If we take the above incentives as a guideline, the following sectors would experience wider tax benefits:

 

• Research and Development
• Production / Engineering / Construction
• Investment / Financial Services
• Import-Export companies

As can be seen from the above map, the one sector that is missing prominently in the incentive scheme of the Nigerian government is the general services sector. This sector usually requires high expertise while at the same time being relatively low resource intensive. With the current lack of higher educated locals, the taken strategy by the Nigerian government seems indeed to be the more adequate one. Yet, by so excluding the tourism sector might work counterproductive since the country itself does provide an abundance of possibilities once the political situation, especially in the Niger Delta region, has been resolved.

Interview in the Low-Fare & Regional Airlines/LARAnews

Another article on Eastern Express during the Dubai Air Show. Sometimes I wonder if life of a CEO consists only of PR-work?

DUBAI 2011: Eastern Express to launch Abu Dhabi services from Fujairah
November 15, 2011

A new, Fujairah-based regional airline, Eastern Express, has announced plans to begin twice-daily turboprop service from its home base to Abu Dhabi, launching in 1st quarter of 2012.

Eastern Express’s CEO Alex de Vos said that he and his team had worked on the project for more than two years. He described the airline as “a regional full-service air carrier” designed to connect the hubs of the UAE. “It is not a state carrier, it is privately funded,” he commented. “Its current owners are three highly regarded businessmen and a crazy Dutchman [a reference to himself].

“We have a projected workforce of 50 people. Our mission is “dedicated to the local community” so will try to employ as many Emiratis as possible,” de Vos added. “And we’ll focus on service – the most important piece of equipment in the toolbag.”

de Vos explained that the Abu Dhabi–Fujairah drive is approximately 3.5-4 hours. So the target will be transit passengers going through Abu Dhabi. “We plan to feed into an existing network and expect to sign a deal in the middle of next year. We’ll begin with an interline agreement and eventually want to move to full codesharing. Before that we have to show the partner the quality of the service,” de Vos noted. “With the proposed timetable, we can reach in excess of 10,000 transit passengers.”

Other destinations are under consideration with Doha the likely second destination, a switch from the original choice of Bahrain.

The airline expects to announce an ACMI deal for its first aircraft shortly. Currently being evaluated are aircraft in the Jetstream 41 class.

Bernie Baldwin, editor, Low-Fare & Regional Airlines/LARAnews.net
Dubai, UAE

Interview on Dubay Eye 103.8

I was actually interviewed on the The Business Breakfast http://dubaieye1038.com/thebusinessbreakfast show with Brandy Scott and Malcolm Taylor. Obviously, Brandy was my preferred interviewer so the radio station graciously agreed to have her interviewing me by herself!
Listen here to the clip:

Article on Eastern Express during the Dubai Airshow 2011

An article on Eastern Express that appeared in the local press Alrroya during the Dubai Airshow 2011. There was even a nice picture of me that made me look 10 years younger but I seem to be unmable to copy/paste it into the blog!

New UAE airline to fly out of Fujairah in Q1 2012
Tuesday, 15 November 2011 at 16:45, By Criselda E. Diala, Dubai

Despite a relatively challenging business climate, a new private carrier is expected to debut in the UAE skies early next year to serve the untapped travel and tourism market of Fujairah, a company
executive announced on Tuesday.

High fuel prices have undoubtedly taken a big chunk out of airlines’ profits and uncertain economic
conditions continue to dampen travel trends, but Alex de Vos, Chief Executive Officer of Eastern
Express, is confident their business model has the potential to drive passenger traffic growth in and out of their hub.

“I agree it’s not the best of situations, but to be honest, we probably entered at the right time. We can
get aircraft at reasonably low cost and utilise airports at lower cost. Obviously the fuel price would
affect us as well. But then again, the Turboprop aircraft that we are going to fly are purpose built for
short routes and uses just about a third of the fuel consumed by a smaller jet,” De Vos said.

The company has not set a specific date for their maiden flight next year, but the Eastern Express CEO said they are expecting their first aircraft to be delivered towards the end of 2011. The airline will initially fly using one aircraft twice daily between Fujairah and Abu Dhabi, adopting a feeder or
“commuter carrier” concept.

As it does not prove economical for larger airlines to fly to smaller hubs, commuter airlines exist to fill the gap. According to De Vos, the business model is used in various regions worldwide, but has not yet been adopted in the Middle East.

The feeder carrier concept basically involves a “purpose-built regional aircraft” collecting passengers
from a destination not served by major airlines to larger hubs for onward journeys on board national or international carriers.

“That is basically a win-win situation for everybody because in the end, the [bigger] carrier gets more
passengers and exposure to larger audience [while] the passengers in smaller hubs have now the option of choosing between a car and an aircraft [when going to the larger airport],” he explained.

De Vos also disclosed that Eastern Express is also in talks with at least three carriers – one from the
UAE and two from GCC countries – for possible partnership. At the moment, however, no formal
partnership agreement has been signed by the airline with any party.

Not a national carrier

Asked whether the Fujairah government has any stake in the airline, De Vos said not in the financial
sense. Eastern Express will operate as a private carrier and not as a UAE national airline such as
Dubai’s Emirates and flydubai, Abu Dhabi’s Etihad Airways and Sharjah’s Air Arabia.

“We’ve obviously got tremendous support from the Fujairah airport and the government, but we’re a
privately funded airline, not state funded. We are not going to be the Fujairah national carrier,” De Vos emphasised.

The Eastern Express top executive also discounted the possibility of feeding passengers through Dubai, which is closer to the northern emirate of Fujairah. “By road it will take you about 90 minutes from airport to airport and that’s already a very short timeframe. The added value for passengers to step on Fujairah and fly to Dubai [and then] fly somewhere else, is probably not as gaining as it will be with Abu Dhabi or other destinations,” he said.

Likewise, the completion of the reportedly Dh1.5-billion ($480 million) 80-kilometre Sheikh Khalifa bin Zayed Highway that will connect Dubai and the rest of the northern emirates will significantly reduce the travel time by road to and from these destinations.

Taking a conservative approach



Considering the current market conditions, De Vos was quick not to sugarcoat their market outlook and instead reiterate their cautious stance in delivering their operations. “We have put a very conservative model in place just to be sure basically. I believe for the first year [of our operations], we calculated around 5,000 passengers that we can transport, which is nothing really so anybody that is willing to fly with us and increase the number beyond 5,000 will probably get a very good deal with us,” he said.

Eastern Express’ entry into the UAE aviation market is expected to help boost Fujairah’s tourism
potentials. According to the country’s General Civil Aviation Authority, air traffic movements at the
Fujairah International Airport was at 328 in August.

Air traffic movement in the UAE in general has been growing steadily with August witnessing a 4.8 per cent increase from July, buoyed mainly by strong figures from Dubai International Airport.