Cairo: Hoping for Hubbing

6th January, 2010

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Cairo Airport (CAI) is one part of Egypt’s aviation sector that is centrally administered by the Ministry of Civil Aviation. The airport - along with others in the country - is part of the Egyptian Holding Company for Airports & Air Navigation, with CAI specifically run by the Cairo Airport Company. Operations and planning are done by Fraport AG which holds a 12-year management contract that was awarded in 2004.

Through another holding company the Ministry also controls the nation’s flag carrier, EgyptAir, providing symmetry of planning and execution that is not possible in much of the world.

Integrated plan

This integrated approach dates to 2002 when the Ministry of Civil Aviation was first created. Through the primary holding companies and their subsidiaries, the long-term goal was to reposition CAI as a gateway to Africa. Shortly thereafter, planning for a new terminal was begun and that facility, Terminal 3, was brought fully online in 2009.

But becoming a hub involves far more than just facilities, and the responsibility for coordinating schedules fell to EgyptAir, which, prior to 2002, operated a timetable with virtually no standardisation. In 2000, EgyptAir operated four weekly flights to Frankfurt, with four different departure times depending on the day of the week. And of its roughly 60 international destinations, 39 were served only once or twice a week. Consequently, the airline also had to be restructured and its schedules harmonised. The fleet that numbered 32 aircraft in 2002 has been expanded to 64 in 2009 with 72 aircraft envisioned by 2012.

The current situation

Star Alliance’s invitation to EgyptAir in 2007 was seen as a boon to both the airline and the airport by providing an expanded partnership group that would accelerate the hub development process and significantly broaden EgyptAir’s reach through codesharing. By 2009, the carrier’s network had been rationalised with the schedule standardised and integrated. Now, for example, the Frankfurt flight is daily at 10.35 - operated in cooperation with Lufthansa.

Nonetheless, the goal of being a hub is still unrealised as only 5% of the airport’s current traffic transits.

Obviously, there is plenty of room for growth, much of which is envisioned within the Star alliance grouping. Hassan Mahmoud Rashed, Chairman and CEO of Cairo Airport, describes the affiliation with Star as “positive in every aspect”, and credits membership with being a prime contributor to “a new focus and discipline” for both the airline and airport. As an example, the airline is considering moving its New York flight from JFK to Newark so as to maximize the connections available with partner Continental.

Cairo International Airport passenger numbers: 2003 to 2008

The graph above displays the effectiveness of the strategy adopted in 2002 to increase the airport’s traffic and enhance its hub potential. Preliminary figures for 2009 indicate that the passenger count will total roughly 15 million or about a 1% increase - not spectacular, but a significant reversal of the first 4 months of the year which saw a 5-6% decline year on year.

Egypt Airports passenger numbers in 2008

Airport Name	Airport Code	2008	Growth %
Cairo Intl	CAI	14,360,029	14.2
Sharm El Sheikh Intl	SSH	7,747,422	20.8
Hurghada Intl	HRG	6,741,017	13.4
Luxor Intl	LXR	2,160,462	9.3
Aswan	ASW	1,106,809	13.1
Alexandria Intl	ALY	1,102,497	51.3

The table above reveals an Egyptian aviation sector growing at a very respectable rate. According to airport studies, the breakdown is roughly a 50/50 division between leisure and business traffic.

When asked if airport charges should be used as a tool for attracting new operators and additional service, Chairman Rashed’s response was “Why not?”; further indication of the airport’s aggressive expansion strategy. Despite this attitude, Egypt does not participate in Open Skies which makes service expansions dependent on negotiation. In terms of working with the EU and its regulations, Lufthansa has been especially helpful.

With the recent Star addition of Brussels Airlines and the presence of South African, EgyptAir has begun to look at joint ventures in Africa utilising the traffic rights and experience of these partners. If, as planned, Ethopian Airlines also eventually joins Star, the alliance will have adominant position in Africa with major schedule integration at Cairo, Johannesburg and Addis Ababa. However, unlike many hubs which aspire to a global network, Cairo’s goal is to be a dominant player to, from and within Africa.

EgyptAir is, far and away, the dominant operator at Cairo Airport.

Cairo Airport Total Carrier Capacity Share (%)

EgyptAir and its domestic subsidiary, EgyptAir Express, have a solid lock on the domestic market, with little in the way of meaningful competition.

Egypt Domestic capacity share (by seats)

Carrier	Capacity share
Egyptair	94.2%
Tuifly	2.4%
Jetairfly	0.9%
Transavia.Com	0.6%
Kuwait Airways	0.6%
Other	1.4%

Internationally, EgyptAir’s capacity is considerably less (see below) if one looks only at the seats supplied by the carrier. However, all services to/from Cairo operated by Star partners carry the EgyptAir code as well. This adds a daily A340 to both Zurich and Frankfurt as well as a daily A330 to London. The SQ flight to Singapore is operated via Dubai with a B777 and also provides considerable lift that is marketed as an EgyptAir service.

Chart 5 Egypt international capacity share (by seats)

Carrier	Capacity share
Egyptair	34.3%
Transaero	5.9%
Saudi Arabian Airlines	5.7%
Thomson Airways	4.4%
Jazeera Airways	2.2%
Other	47.5%

The airline is also aggressively expanding, with planned retirement of older and smaller aircraft like the A320s, B737-500s, B777-200s; replacing them with B737-800s and B777-300s, as well as introducing A330-300s. The carrier sees the present downturn as an ideal moment to advance delivery schedules for new equipment in order to increase capacity and frequencies. When asked about the B787 and A350, the airline’s chairman, Hussein Massoud, said that the carrier is too small to deal with the risks involved in being an early adapter, preferring to add aircraft with a proven track record.

Improving airport infrastructure

The airport currently has three terminals, with the newly opened T3 dedicated to EgyptAir and its Star partners, with the exception of some of the home airline's Gulf and regional services from T1. Terminal 2 will be closed as of January 2010 for a period of 3 years, during which it will be renovated for use by non-Star airlines. During the refurbishment, they will operate from T1.

When completed, the airport will have a total capacity of 27 million passengers per year, more than adequate for the growth and hub expansion that is planned.

Airside, the current crosswind runway will be closed and converted to a taxiway. A new third parallel runway is nearing completion and will open fall 2010. At present, the airport operates with a single runway as the new construction is being tied to its parallel neighbor. Again, once completed there will be ample runway capacity to deal with future growth.

While the airport has dedicated cargo facilities, the passenger sector is by far the more dominant operation at the airport.

The Half-Empty Part But, there are challenges. Kiosks were placed in T3 as an alternative method of check-in but they have been little used. While the airport provides free WI-FI for all, there is generally less use of self-service facilities than is seen in other parts of the world.

Ground transport is theoretically governed by contractual agreements but the reality is that arriving passengers are deluged with a chaotic offering of relatively expensive options. While there is agreement that the situation needs to be rectified, there is scant evidence of progress.

The low cost and Middle East challenge

Perhaps the greatest challenge to the airport’s plan to dominate the African market lies to the East. Emirates already serves as many points in Africa as EgyptAir and provides far more global destinations than are available via Cairo. Exactly what long-term impact this will have is yet to be seen. One advantage held by EgyptAir is Egypt’s population of 80 million which provides a vast, and as yet untapped, potential.

As in most countries at Egypt’s stage of development, only 4-5% of the population currently travels by air. Growth estimates and construction targets are based on an increase to 10% of the population flying.

Finally, there is the impending threat posed by Air Arabia’s soon-to-be-operational Egyptian franchise, operating at fare levels intended to attract those potential travelers. As reported previously, the carrier has set its sights on the North African and European markets—though with a clear focus on point-to-point traffic. While a low-cost competitor could bring great benefit to the airport in terms of additional traffic, if EgyptAir suffers in the process it could prove a zero-sum game. See related report: Air Arabia Egypt operations to commence in Mar-2010

Regardless of the outcome, the airport is expanding, modernizing and is ready for whatever the future brings.

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