How to survive a Midex life crisis

Just months after Midex Airlines started flying in spring 2008, the slowdown started to make itself felt. By late that year the world air freight business was experiencing sharp declines in volumes and, like most cargo specialists, Midex was starting to suffer.

The problem was exacerbated by passenger airlines selling under-floor cargo space at rock-bottom prices, said Midex’s director-general, Jassim Albastaki.

Major airlines operating from Dubai to western European destinations were compensating for empty seats in their cabins by filling their holds with freight at prices that were undercutting Midex by as much as 50 per cent, he said. 

It was a baptism of fire for the airline, which had grown out of Midex International, Europe’s fifth-largest freight integrator, specialising in door-to-door document and package delivery. Based at Paris’s Orly Airport, the group has some 25,000 employees in 32 countries, but the Midex International’s ‘house’ airline is not a widely-recognised name in Europe.

This, said Albastaki, is because it operates as a ‘wholesaler’, not a ‘retailer’. Much of its business comes from large organisations – notably the postal services of France, Switzerland, the UK and UAE – rather than individuals, so it does not have a high public profile.

Parent group Midex International, founded by Lebanese-US entrepreneur Dr Issam Khairallah, was set up at Orly in 1990 and, like freight forwarders such as FedEx and UPS, eventually decided it should create its own airline. (Its current fleet consists of seven Airbus A300B4-203F freighters, plus three Boeing 747-228Fs; the latest two 747s were acquired from Air France last spring.)

Midex Airlines was thus set up at Al Ain Airport in Abu Dhabi in 2007, starting flights the following spring.

Midex chose Al Ain as a base, rather than Dubai or Sharjah, after it came to an agreement with the Abu Dhabi Airports Company (ADAC), said Albastaki.

“From a strategic business point of view they wanted us to put Al Ain on the map of cargo airports. They would build the facility for us and give us a grace period from landing and parking charges and at the same time we would try to keep Al Ain on the cargo map.”

There were also operational advantages to being based at the desert oasis city’s airport, said Albastaki. With its relatively lightly traffic, Midex could have slots whenever it required them. Also, the dry climate meant that it did not suffer from the winter fogs that can cause delays at Dubai, Abu Dhabi and sometimes even Sharjah.

A final plus was that accommodation costs for personnel were lower than in Dubai or Abu Dhabi.

But all those advantages looked as though they might not be enough to prevent Midex hitting the rocks when the recession bit. Major changes were required.

Previously, its business plan had called for the Airbuses to fly scheduled services from several cities on the Indian sub-continent to Al Ain, where around 30 per cent was offloaded for UAE recipients while the remaining 70 per cent was consolidated on to a 747 for onward flights to Orly.

“We decided to reduce the number of our scheduled flights to the minimum and focus on charters,” said Albastaki. Whereas Midex had initially flown 80 per cent scheduled flights and just 20 per cent charter, those percentages almost reversed, to 30:70. The airline also began operations to new destinations, such as Afghanistan, Iraq and Libya and focused on large-volume payloads – hence the recent growth of its fleet of Boeing 747-200Fs, with its ability to swallow large items through its nose cargo door.

The new strategy worked, said Albastaki, and the airline is now seeking additional 747-200Fs. The Afghan and Iraqi markets were sucking in construction materials to rebuild themselves, while Afghanistan also developed as an importer of perishables.

Additionally, China’s booming economy has meant regular flights from Beijing carrying textiles and electronic goods for the European market.

The airline has a ‘war chest’ of around $500 million – partly from its own resources and partly from investors the director-general declines to name – with which to fund expansion.

With this hard cash, the airline can drive a bargain with potential sellers and it is currently negotiating for three more Boeing 747s with an unnamed airline. It hopes that its fleet of the type will thus have doubled to six by the end of 2011, making it the biggest operator of the cargo variant in the Middle East.

Its fleet of seven Airbuses, meanwhile, is increasingly being used for long Aircraft, Crew, Maintenance and Insurance (ACMI) leases.

Midex’s financial resources will also be used to buy equity stakes in other airlines or air freight infrastructure organisations. This funding could be used by smaller airlines seeking entry to local market sectors to buy or lease aircraft, or airports seeking investment, suggested Albastaki. There have been several interested parties to date, he added, but none has yet met Midex’s criteria for investment.

Already the largest pure freight airline based in the Gulf, Albastaki hopes that in two to three years it will be the largest in the entire MENA region.

It will be important, he said, to ensure that this growth does not lead to a dilution in service standards. To keep itself up to the mark, the airline is considering formally adopting a slogan used elsewhere in the Midex group, ‘It’s on time, or it’s on us’, waiving charges if an item fails to get to its destination on schedule. The airline will, he accepts, have to look closely at several factors, such as slot availability at its various network points, before it binds itself to such a stringent standard.

The biggest threat to Midex’s ambitions is the same one that gave the company problems during the recession – national carriers, in particular, are continuing to offer under-floor space at low rates.

Just a year after it launched its services, Midex was named ‘Best air cargo operator 2009’ by Middle East Logistics magazine. The airline hopes to build on this success.

Midex’s licence allows it to enter the passenger market and another organisation – again, Albastaki is discreet as to identity – has sought to use its Air Operator’s Licence for this purpose, with Midex monitoring the operation. However, negotiations are on hold and the director-general thinks it unlikely that the airline will diversify into this field in the next two to three years.

The airline industry is a relatively new field for Jassim Albastaki. An Emirati, he graduated from Miami University in international hotel management, to which he later added an MBA in finance and business management.

Having worked for several Dubai-based semi-governmental organisations, he had known Midex International president Issam Khairallah for more than 15 years when Khairallah came to Dubai in 2005 to begin the process of setting up his airline.

Having helped him in this, he had been preparing to start the search for a chief executive for Midex Airlines when Khairallah said: “Why look for someone when you are here?”