Adel's grand plan

Ahmed Adel, EgyptAir’s new chairman and chief executive, tells Martin Rivers and Alan Peaford why he is looking forward to a renewed period of growth and prosperity for the nation’s flag-carrier.

Improved security throughout Egypt and renewed investment under President Abdel Fattah el Sisi means optimism is rising on the streets of Cairo.
And that translates very much to EgyptAir, the nation’s national flag-carrier.
Like any state-owned airline, EgyptAir’s fortunes are tied inexorably to those of its home nation. That has translated to heavy losses and weak demand in recent years as the country was buffeted by successive waves of political and security unrest.
Two devastating air disasters – the bombing of Metrojet flight 9268 and the still unexplained crash of EgyptAir Flight 804 – only added to the airline’s troubles.
However, with large-scale projects like the Grand Egyptian Museum and a new high-speed rail network fuelling hopes of a happier future – one in which both locals and foreigners can travel across this ancient land without fear of violence or persecution – things are looking up.
For Ahmed Adel, EgyptAir’s new chairman and chief executive, preparing the flag-carrier for the next decade is a balancing act between unlocking the country’s growth potential and building defences against the next, possible crisis.
“The aviation business goes hand-in-hand with the economy and with the country’s stability. In the past two to three years, stability in Egypt has become much, much better,” said Adel.
“With the mega projects that are happening in the country, the stability, and the security enhancements, we are expecting that there’s going to be good growth. The numbers that are coming out of the tourism ministry are very promising.
“But the aviation industry is very sensitive. It’s very affected by geopolitical situations.”
Despite planning to grow the 72-strong fleet to more than 100 aircraft, therefore, Adel’s immediate focus is on a “complete restructuring plan for the future, to make EgyptAir well placed in the aviation industry and able to compete”.
Lifting operational efficiency, streamlining group-wide management structures, and rejuvenating the route network are his top priorities.
The first step was hiring consultancy firm, Bain & Company, to assist with the development of the overarching turnaround plan. Following ‘quick wins’, such as boosting aircraft utilisation, Adel’s attention has now turned to an 18-month implementation phase that will see the activities of several subsidiaries folded into the main airline.
“In a nutshell, the strategy that we agreed upon is to make the holding company a lean entity where all the strategic decisions are made, and to consolidate or merge some of the companies together to have a more efficient product,” he explained.
EgyptAir Express, the group’s regional arm, will be the first casualty.
Its existing fleet of 12 Embraer E170s will be replaced by an identical number of Airbus A220s between now and next April. But, with the new model being inducted by the mainline carrier rather than the subsidiary, Express is effectively being shut down.
“Instead of two companies with two different boards, [we want] to make the decision-making process under one roof, to start moving forward towards an efficient smart network,” Adel said.
In the past, he admitted, rival managers at the mainline and regional subsidiaries have ended up “competing with each other” instead of “working hand-in-hand” to promote the broader interests of the group.
Changes are also expected at Air Cairo, EgyptAir’s leisure-focused subsidiary, though precise details have not been finalised and the brand is expected to survive.
Air Cairo currently has an awkward business model straddling both scheduled low-cost carrier (LCC) operations and more traditional charter flights. Its hybrid approach is, in part, a reflection of the Egyptian market’s continued reliance on pre-packaged holidays – a sector that has been in decline globally amid the rise of self-booked online travel.
In 2017, Yasser el Ramly, Air Cairo’s chairman and chief executive, said he planned to nearly triple the fleet size while pivoting towards higher frequency scheduled operations. To date, however, little has changed at the company beyond the unveiling of a new brand.
Adel tacitly admitted that Air Cairo is not meeting its potential and said the best way forward could be for EgyptAir to take full ownership of the subsidiary.
“We hold a 60% stake in Air Cairo, so we are doing our due diligence now because Air Cairo fits as a low-cost arm, and our strategy is to have a strong low-cost arm,” he affirmed.
“We are looking into considering acquiring Air Cairo fully… If we take the decision to acquire it, we’re going to turn it around completely to be an LCC operator, fully scheduled, with all the bells and whistles and the perks that come with being an LCC.”
Asked whether the no-frills model is compatible with Egyptian regulations – foreign carriers are obliged to offer a full-service product on routes to the country – Adel said the legal landscape will be assessed before any investment is made.
“We will look into it, because it [Air Cairo] falls under the 159 law not the 203 law of EgyptAir,” he noted. “We want to keep it this way… The 159 law gives more freedom.”
Further opportunities for consolidation have been identified in the cargo division.
EgyptAir Cargo last year became launch customer for the A330-200P2F and currently deploys two of the passenger-to-freighter conversions, with a third expected shortly. When that unit arrives, the airline’s last A300F will be retired and type commonality will allow the operation of the freighter fleet to be moved to the main airline.
Responsibility for the EgyptAir Cargo Village will also be transferred to EgyptAir Ground Services, Adel said, citing the latter’s specialised expertise.
At a government level, talks are, meanwhile, under way about possible consolidation between the EgyptAir Training Academy and the transport ministry’s own pilot cadet programme. Adel believes a merger is now likely, though it is not clear whether the new entity will come under the umbrella of the airline or the ministry.
Turning to the fleet, he admitted that diversity in the types of aircraft operated by EgyptAir is an obstacle to greater efficiencies.
The mainline carrier currently deploys six Boeing 777-300s, six 787-9 Dreamliners, 29 737-800s, four A330-200s, four A330-300s, and four A320s. Another three Airbus freighters, 12 Embraers and seven A320s are operated by EgyptAir Cargo, EgyptAir Express and Air Cairo respectively.
Although fleet rationalisation has been a stated goal of successive management teams, EgyptAir continues to deploy a mixture of Airbus and Boeing metal in both its narrow-body and wide-body fleets.
The flag-carrier is inducting 15 A320neos next year, for example, despite nine of its 737-800s having been delivered by Boeing within the past three years. Likewise, the arrival of the final three Dreamliners on order, which flew in in August – comes alongside plans to keep the A330-300s in service for several more years.
The passenger A330-200s and the older-generation A320s are the only models facing imminent retirement, though EgyptAir also recently stopped operating the 777-200 and the A340.
“Our next step is to start looking into the renovation of the next 50% of the fleet, and to grow north of 100 aircraft by 2027,” Adel said, confirming that an earlier target of 127 aircraft by 2025 has been scrapped.
“I wouldn’t say it’s slowed down. I would say we’re looking at it again, because with everything that’s happening we don’t want to bite off more than we can chew.
“We needed to finish the restructuring plan and then move into the network planning, and then make the decision about the second batch of the aircraft… We’re now working on that aggressively.”
The chairman would not be drawn on his preferences for future orders, confirming only that the 777-300s will need replacing in the first half of the next decade – followed shortly after by the A330-300s. About half of EgyptAir’s 737-800s and all of Air Cairo’s A320s will also be more than 15 years old by that timeframe.
Earlier plans to deploy as many as eight freighters – including a pair of A320P2Fs – are no longer active due to challenging conditions in the cargo market.
“We converted three, and then instead of converting the rest we have shifted the strategy [by] increasing the amount of [passenger] aircraft in the fleet, so increasing the belly volume,” Adel explained.
“For example, the cargo [subsidiary] was thinking of operating a direct flight to Chicago. Then, when we opened the Washington Dulles route, they found that there is no need… because the bellies of these [Dreamliner] aircraft would be more than enough to move cargo in and out of the United States.”
Washington became EgyptAir’s third North American destination when it was launched in June as a thrice-weekly service, joining New York JFK and Toronto.
Adel wants to grow frequencies to five or seven flights per week “as fast as we can”, but will only do so when demand justifies the move.
Extra capacity is also planned for the airline’s twice-daily service to London Heathrow, with a Dreamliner due to take over from the 737-800 that currently operates the afternoon flight.
At the time of writing, the network also included another 18 points in Europe, 18 in Africa, 16 in the Middle East and six in Asia Pacific.
Route launches are unlikely to be a priority until further progress is made with the restructuring plan. But Adel confirmed that Shanghai remains of interest if suitable landing slots are offered by the Chinese authorities. And Africa is always “on the table”, he said, as evidenced by recent expansion to Douala (Cameroon) and Kigali (Rwanda).
The African network should grow further with the arrival of the A220s, as their range and capacity is nearly twice that of the E170s they are replacing.
“We operate to more than 19 destinations in Africa, and are we looking to increase them? Yes, we are. One of the reasons we are looking into the aircraft capacities is to operate with maximum efficiency to west Africa.
“This area is a challenge. Do we go with a wide-body or a narrow-body where you have a problem with restriction with the loads? So, we’re trying to find the sweet spot to operate in west Africa. But we’re definitely interested.
“Our president is now the head of the African Union. So the whole mindset in the country is to focus on collaborations and expansions in Africa,” he said.
But it is the domestic network that stands to benefit most from the new aircraft type. Several of the A220s are likely to be based at the new Sphinx Airport to the west of Cairo, enabling whistle-stop tours of the capital’s main attractions.
“With the opening of the Grand Museum there will be an opportunity for one-day visits,” Adel affirmed. “People can come from Europe to the [Red Sea] resorts and then fly for one day without checking out of their hotel – take a tour of the pyramids and the Grand Museum – and go back to their hotel for their diving or sun-and-sea vacation.”
At home base Cairo International Airport, meanwhile, EgyptAir aspires to have a “seamless, efficient connecting hub” that will grow the sixth-freedom traffic – but not at the expense of more lucrative point-to-point operations.
Adel is also conservative when it comes to the hot-potato subject of open skies, drawing a sharp distinction between unilateral arrangements that work to the advantage of one side and bilateral deals that spread the benefits more equally.
He cited the example of Saudi Arabia, with whom Egypt has “excellent bilateral agreements” owing to strong traffic flows between the two countries.
Without explicitly stating it, the chairman implied that such an agreement would not be possible with a super-connector airline like Emirates. Any open-skies deal with the Dubai Government would allow its flag-carrier to hoover up Asia-bound passengers from Cairo in vast numbers, while offering just one travel market in return.
“It has to be reciprocal,” Adel insisted. “This is our position. This is the win-win situation.”
Broader aero-political liberalisation is a question of “when, not if” for the Egyptian Government, he said, but EgyptAir needs time to prepare itself before the competitive floodgates are opened.
“Economically, you need to look at all aspects. If you look from the tourism aspect, yes, it [open skies] is excellent for today. But what if something happens?
“All the companies that have the capacity to come [to Egypt] with seven or eight flights a day can close shop within 24 hours. And what’s going to happen then? You’re going to go looking for your national carrier, and it’s not going to be there.”