Lahcen Haddad: “Royal Air Maroc, leading and dreaming to fly higher”

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Rabat – In the midst of the recent growth in the airline industry, RAM has evolved to become known as a company which innovates in order to remain competitive in a highly challenging and high-risk market.

RAM is, since 10 years ago, better governed than it was before. Its Board of Directors meets on a regular basis to make strategic decisions. In the airline industry, you need to be reactive and be able to make decisions, both tactical and strategic, intelligently fast.

RAM is strongly present in West Africa and historically very active in Western Europe. The savvy mix between night flights in Africa and day flights in Europe, all around the hub of Casablanca, a model ushered in two decades ago and harnessed over time, gives the Moroccan national airline company significant competitiveness.

In Africa, RAM is also a socially responsible corporate firm that helps with public and private local efforts to promote cultural and economic activities. The company’s decision not to cancel flights to destinations affected by the Ebola virus in August 2014 was highly appreciated in West Africa and all the over the Continent.

The diversification of markets has seen a significant leap forward with the arrival of the Dreamliner (ordered 6 years ago), and flights to Sao Paolo, Rio de Janeiro, Washington, Miami and Boston. Doha and South Asia are code-shared with Qatari Airlines, and China remains high on the agenda of long trans-continental flights.

The Nairobi flight was carried out using a Boeing 737 that often makes stopovers in N’djamena but was canceled because the conditions were not too favorable. Nonetheless, East Africa remains an interesting market despite the dominance of Ethiopian Airlines, Kenya Airways, and Emirates.

Registration and onboard services are increasingly improving, but much remains to be done in terms of communication, staff performance and customer satisfaction. The flights have recently known fewer delays than in the past but the company remains handicapped by the lack of planes available for use as replacements in case of technical problems.

The company’s performance during the Hajj (pilgrimage) remains a non-profitable operation as the rate of occupancy never exceeds 50% (the planes return from Saudi Arabia empty at the beginning of the pilgrimage and leave Morocco empty to bring back the pilgrims at the end). However, RAM operates these flights out of concern for the spiritual well-being of its Moroccan customers.

The latest report of the Moroccan Court of Auditors has noted the risks the Moroccan national airline company faces- namely the volatility of the tourism sector (exacerbated by the turbulent global security and geostrategic situation), and the accumulation of VAT refund arrears (of which MAD 1.5 billion was not paid back to the Company until 2018). The latter risk could have a negative impact on the financial health of RAM.

RAM must and should keep its autonomy of action but it remains a public company that serves the interests of the Moroccan State and the Moroccan economy. It is, therefore, up to the government to set up the strategic guidelines with regard to diplomacy, the development of tourism and the best way to reach and serve remote and isolated areas.

The 2010-2016 contract plan with the Government of Morocco included decisions that reduced the diversity of RAM resources (by encouraging it to sell its hotels) and curtailed its ability to train aircrew and other airline industry staff. The principle of cancellation of non-profitable flights should not have been applied to tourist destinations such as Poland (an emergent market with significant hospitality industry potential).

The future strategy of RAM must take into consideration the threats and opportunities that exist in a context of fierce competition.

The competitive advantage it has in West Africa is challenged by companies with significant resources such as Turkish Airlines, Air France, or Emirates, or by companies that display a staggering growth ambition like Air Algérie (willing to invest $ 25 billion to increase its aircraft fleet and its presence in Africa in particular.)

The strategy of the Casablanca hub will see its limits when growth in West Africa reaches its apex. Meanwhile, a more dynamic model would be appropriate, focusing on tourist destinations such as Marrakech and Agadir, emerging destinations (such as Fez, Rabat, Tangiers, Nador / Oujda), in addition to the Casablanca hub (whose third terminal is expected to be built within a few years).

Tourist destinations such as Marrakech and Agadir are served by low-cost carriers with lean management models based on an aggressive yield management method. The bases set up by RAM for tourist destinations (in Marrakech and Agadir in particular) remain less competitive especially when it comes to pricing.

The RAM pricing policy must change using tax incentives that can be granted by the Government to allow the national company to have the same benefits as competing companies. Aggressive yield management methods should be adopted to fill up flights and promote emergent destinations.

Consequently, RAM must have a significant improvement of quality in the future if it wishes to have the striking force to confidently enter the global market.

Sixty or even a hundred planes are not sufficient for RAM to be able to take advantage of the One World network it is gearing up to join in 2020. A change of vision and business model is needed. RAM must have 300 planes by 2035 if it intends to have enough force to go and seek value wherever it exists all over the World.

The leading airline markets are the United States, the United Kingdom, Germany, Russia, and China. These markets are almost completely integrated but growth niches are possible for RAM, especially in destinations such as Chicago, Atlanta, and Houston in the USA in addition to Beijing, Shanghai, and Hong Kong in China.

However, the markets with high growth potential are in Latin America (Buenos Aires, Sao Paolo, Rio de Janeiro, Santiago, Mexico City, Bogota, Lima, and Caracas) and Asia Pacific (Jakarta, Manila, Tokyo, Bangkok, Kuala Lumpur, and Singapore).

To reach these markets, RAM must significantly increase its fleet and acquire scores of long courier planes such as Boeing 777 and 787 or Airbus 380. Intelligent connections between these markets/destinations and the Maghreb, West Africa, the Middle East, Western Europe and even the East Coast of the USA are to be built through aggressive marketing strategies and proactive yield management tools.

Destinations with average growth potential such as East Africa, Eastern Europe, and the Middle East can be served by medium-haul aircraft from the same markets.

Southern Africa, Central Asia, as well as Pakistan and India all require long-haul planes. The first destination can be supplied with passengers from Europe, North Africa, and America, while Central Asia, Pakistan and India could be served from Latin American, West Africa and the Maghreb.

In the meantime, it is necessary to create four low-costs that will act as satellite companies equipped with ATRs, Embraers, and Boeing 737 planes to complement RAM on a local and regional levels and act as niche passenger feeders to its hubs.

The first will ensure internal flights in partnership with the regions. The second low cost will fly to and from western Algeria, southern Spain, Corsica, Portugal and the Canary Islands.

The third, which would be solely touristic, will target small and medium-sized markets such as Slovakia, Hungary, the Czech Republic, the Balkans, Romania, Bulgaria and hard-to-reach cities in Sardinia, Sicily, Cyprus, Eastern France, Galicia and the Basque Country, East Germany, Wales, Iceland, etc. The fourth type will be specialized in Hajj and Umrah operations.

A large airline needs several low-cost companies to operate difficult flights and to serve isolated regions and destinations at prices that are suitable for passengers coming from these markets.

To accommodate and route the 70 to 90 million passengers that this fleet will reach, Casablanca Airport must be equipped with a fourth giant terminal.

Benslimane Airport needs to be expanded and upgraded as well to be able to harbor low cost, domestic flights, ATR, and Embraer planes. The Mohammed V Airport will be used to serve national airlines, regular flights, and large aircraft. A fast train and an expressway will connect the two airports.

Obviously, the cost will determine the strength of the future RAM fleet, but a variety of mechanisms must be used to finance this strategic operation over a period of 15 years. The Government must buy the aircrafts and set up a state agency that will make them available for RAM at competitive prices. Leasing is also an option for part of the fleet.

The bond market in addition to government-guaranteed debt are also options to consider in order to have a complete package of financial resources at the service of RAM to get equipped with the right aircraft necessary for its leap onto the global stage.

Daring to dream for the future is imperative. Profitability is not limited to balance sheets and financial reports; on the contrary, the benefits are economic, diplomatic, political, and cultural.

Overall profitability is the strategic objective; only then could RAM live up to its slogan of being the “wings” of Morocco in a world of change and unrest. With will, faith, and a clear vision, RAM can reach a world-class level. However, we have to start here and now; 2035 is tomorrow; we cannot afford to wait anymore.

By Dr. Lahcen Haddad, former Minister of Tourism, current Member of Moroccan House of Representatives, and Member of the Moroccan Parliament Finance Committee.

Source: moroccoworldnews.com