Beijing’s involvement in Djibouti dispute creates Chinese puzzle for MBR

The Dubai authorities are having to contend with a potentially delicate political balancing act involving the battle for control over port operations in Djibouti, and the commercial emirate’s relations with the Chinese government – which has made a big entry into Djibouti – and its Belt and Road Initiative, a global trade strategy in which Sheikh Mohammed wants to take a big role

Oman's ports prepare for pick-up in trade with Iran

Published in MEED, 6 October 2015

There are ports, fishing harbours and fuel terminals up and down the length of the Omani coast – from Khasab, on the Musandam peninsula in the north, to Salalah in the far southwest. In terms of economic activity, however, only a few of these facilities are really significant. They include the container ports of Sohar, Duqm and Salalah, each of which has a special economic zone attached to it, as well as the oil terminal of Mina al-Fahal and the liquefied natural gas (LNG) berth at Qalhat.

The fortunes of some of these ports have been slightly mixed in recent years. After growing steadily in the first decade of the millennium, container volumes have shown some volatility since 2010.

According to data from the Washington-based World Bank, there was a fall in the overall number of 20-foot equivalent units (TEUs) handled by Omani ports in 2011, followed by a recovery in 2012 and then another dip in 2013.

There are some reasons to suppose that the future should see further growth, given a combination of the country’s geographic position and regional political issues – most notably, the recent deal to ease international sanctions against Iran. Oman could prove attractive both for international companies wanting a jumping-off point into Iran and for Iranian companies looking for a route to international markets.

In particular, the Port of Sohar lies just 400 kilometres across the Gulf of Oman from the Iranian port of Chabahar, which makes it well placed to deal with the potential upswing once trading conditions with the Islamic Republic ease.

Other ports could also benefit and Iranian investors were among those in a delegation that visited the Duqm Special Economic Zone in November.

“The geographic positioning of Oman and its prior ties with Iran mean it would stand to gain from increased trading activity,” says one Gulf-based analyst. “Oman and its ports could accrue enormous economic benefits.”

The Port of Sohar is also well placed for any international firms that would rather avoid the time and cost of passing through the Strait of Hormuz into the Gulf. In the longer term, the planned GCC railway, which is expected to be linked to the Port of Sohar, could offer a viable overland route from Sohar into the UAE and the rest of the region.

Oman International Container Terminal (OICT), which operates the Sohar container facility, is preparing for further growth with plans to invest $120m in expanding capacity. The aim, according to Hutchison Port Holdings, which is part of the OICT joint venture, is to increase annual throughput from 800,000 TEUs to as much as 6 million TEUs.

Work is ongoing on a third terminal, Terminal C, at the site, and construction of Terminal D could get under way in 2019.

At the other end of the country, the Port of Salalah is well placed as a trans-shipment hub for goods travelling between Asia, Europe and east Africa. A series of projects are planned and under way there to upgrade and expand the facilities.

The government has signed a memorandum of understanding with the Salalah Port Services Company to construct and operate three more deep-water container berths at the port, which will take the total to nine berths with a combined length of 3,555 metres.

Bids for the consultancy services contract on the $525m project are due to be submitted by late October, according to MEED Projects, which tracks project activity around the region. The general cargo terminal at Salalah is also due to be revamped at a cost of some $200m.

Elsewhere in the country, the Ministry of Transport is planning to invest $400m to develop the smaller port of Shinas, north of Sohar, with new warehousing and industrial facilities. An award for the main contract was expected in June 2016, although as yet no tender has been issued.

At Sultan Qaboos Port in Muscat, meanwhile, the authorities are pressing ahead with plans to gradually transform the site into a leisure and cruise shipping facility. Since August 2014, all commercial activities have been moved to Sohar, including container and general cargo ships, roll-on/roll-off ferries and others. An award on the $50m project to convert the port is expected in June 2016. The work will include constructing new berths for cruise ships and ferries, as well as a marina, hotel, shops and restaurants, and should be completed by the end of 2019.

While the extent of the plans seem to bode well for the Omani ports and shipping sector, there may yet be difficulties ahead, given the way low oil prices are leading to a sharp deterioration in public finances. According to UK-based bank HSBC, hydrocarbons account for 48 per cent of overall GDP and 95 per cent of government revenues, and the lender says it expects the government to cut spending if prices do not recover.

That could spell trouble for some of the plans to expand and improve the country’s ports. Some port projects have previously been placed on hold before being revived, including the plan for three new berths at Salalah, which was held up from 2011 until earlier this year. Further fiscal pressures could see similar events unfolding there or at other ports.

An area of budget the government appears reluctant to cut is defence spending, which could be good news for the new naval base the Ministry of Defence is building for the Royal Navy of Oman close to the town of Mirbat, some 80km east of Salalah. The first package, worth $50m, was awarded in August to Oman Company for Building & Contracting, covering residential buildings and associated facilities. Bids were submitted for a second package, worth an estimated $200m, in July and are under evaluation. This second contract includes the construction of a jetty, breakwaters, ramps, a pontoon and other facilities.

In addition, the Ministry of Agriculture & Fisheries is also developing the facilities at a series of fishing harbours around the coast, including at Barka, Nabur, Mussanah and Quariyat, with the projects costing between $30m and $50m each. Work on all of these is already under way and so they are unlikely to be affected by any belt-tightening by the government. However, bidding is still ongoing for a slightly larger project to build a new fishing harbour at Duqm, costing an estimated $100m, with an award due by the end of the year.

If the government can maintain its investment ambitions, then the expansions planned for the sultanate’s ports and fisheries will be to the long-term benefit of the country, as they should help it diversify its exports. “Oman’s economy would benefit from rising exports if they help to diversify the export mix away from oil, which is about 65 per cent of total goods exports,” says Steffen Dyck, a senior analyst at US ratings agency Moody’s Investors Service.

How roads are becoming integral to the region's long-term economic vision

Published in MEED, 29 June 2015

Road, bridge and tunnel projects are cornerstones of the region's economic growth.

The King Fahd causeway has been breaking records this year. On 28 February, more than 100,000 people travelled across the 25-kilometre link connecting Bahrain and Saudi Arabia, the highest daily total since it was opened in November 1986.

The causeway is a critical element in Bahrain’s infrastructure, but it can get crowded. Traffic flows have been growing by more than 10 per cent a year, with an average of 27,000 cars using the crossing every day last year, up from 24,000 in 2013. So it is just as well that plans are in place to allow more traffic to travel between Saudi Arabia and Bahrain. The existing causeway is undergoing a seven-year, $5.3bn expansion to increase the number of lanes in each direction from five to seven.

Second causeway

In addition, an entirely new link is to be built. The $5bn King Hamad causeway is due to include a rail link, which will form part of the wider GCC Railway, and will run to the north of the existing route. The main contract on the project is due to be awarded in November this year and it is expected to be another four years before it is open.

If the new causeway does go ahead as planned, it will give a welcome boost to the faltering Bahraini economy, providing an enhanced link for logistics firms that want to serve Saudi Arabia’s Eastern Province and potentially encouraging more Saudi tourists to visit the island or buy second homes there.

Such economic arguments provide the underlying logic for transport projects all over the region. Roads, bridges and tunnels are not cheap to build but, if done correctly, the investment should pay off in greater economic growth.

Governments also need to keep building roads just to keep pace with the high levels of car ownership in the region. Globally, there are about 174 vehicles for every 1,000 people, but the GCC countries easily outstrip that, with averages ranging from 214 vehicles in the UAE to 727 in Kuwait. This adds up to a total of 17.5 million vehicles on the roads of the GCC and Egypt, of which 13.3 million are passenger cars.

The Paris-based International Organisation of Motor Vehicle Manufacturers reckons a further 1.2 million cars and 380,000 commercial vehicles will join them on the road this year.

With such statistics in mind, it is little wonder that governments are spending as much as they are on new roads. Across the Gulf and Egypt, some $124bn-worth of road, tunnel, bridge and causeway projects are either planned or under way.

Often these projects are integral to the long-term visions for economic development set out by governments. The Abu Dhabi Vision 2030, for example, states that the emirate’s government “will continue to improve its road network, ensuring that congestion is kept to a minimum” and that “improvements to roads linking the Western Region and southern Al-Ain with the rest of the emirate are also taking place to help boost regional development and integration.”

The total value of ongoing projects around the region includes $23.8bn-worth of causeways and bridges. In addition to the new Bahrain-Saudi crossing, other major plans include the Sharq crossing in Doha, which is being led by the Qatar Public Works Authority (Ashghal), the Sheikh Jaber al-Ahmed al-Sabah causeway planned by the Ministry of Public Works in Kuwait, and the Masirah Island causeway project in Oman, which is being led by the Ministry of Transport & Communications.

Link delayed

Not all projects are moving ahead as originally envisaged, however. The long-mooted $4bn causeway linking Qatar and Bahrain is going nowhere, seemingly a victim of the poor relations between the two countries these days. An official from Bahrain’s Public Works Ministry recently confirmed to MEED that the project is on hold and unlikely to go ahead.

Currently, the most active market is Qatar, where some $41.7bn-worth of projects are planned or under way as part of a wider infrastructure build-out ahead of the football World Cup in 2022.

The country’s road-building projects are led by Ashghal. Its major projects include the expressway programme, which will connect key cities, towns and villages around the country through more than 900km of new roads and 240 major junctions, including underpasses, flyovers and multi-level interchanges. The seven-year programme is estimated to cost $20bn and is expected to be completed by 2018. US-based KBR is the project manager on the scheme.

The second-most active market is Saudi Arabia, where the Ministry of Transport is responsible for most of the work. Its major projects include a second ring-road for the capital, Riyadh, costing an estimated $1.95bn. This will involve constructing a 107km route, with four-lanes in each direction, as well as service roads running alongside the carriageway. The main contract is due to be awarded in July this year, with the work scheduled to be completed by April 2024.

Also impressive in terms of scale, cost and ambition is the Eastern Province motorway. This $740m project is nearing completion and involves building a two-lane dual carriageway across parts of the Empty Quarter desert to create a road link to Oman. The main contractor on the project is the local Nassir Hazza & Bros, and work is 88 per cent complete, according to regional projects tracker MEED Projects.

Such projects only form part of the ministry’s wide-ranging road building and improvement efforts, however. MEED Projects calculates that the ministry has a total of $14.9bn-worth of road schemes planned or under way, most of which cost a few tens of millions of dollars, rather than hundreds of millions. For example, it is working on 39 road schemes in Asir Province, costing a total of $1.4bn, or an average of $36m each, and the 19 road projects in Medina Province are valued at a collective $708m, or $37m apiece.

Across the border in the UAE, the responsibility for road-building is divided among the authorities in the various emirates. In the capital, Abu Dhabi General Services Company (Musanada) is responsible for roads and infrastructure. Its major road-building schemes include improvement works on the Mafraq to Ghuweifat highway, which is due to be completed in early 2017, and the 62km Abu Dhabi-Dubai road, which should be finished by August 2016.

Under contracts signed in December 2013, the local Ghantoot Transport & General Contracting Establishment is building the first phase of the new Abu Dhabi-Dubai road, covering about 34km at a cost of AED1.3bn ($350m). Another local contractor, Tristar Engineering & Construction, is working with Abu Dhabi Salini Costruttori to build the second phase, which consists of 28km and includes three major intersections, at a cost of some AED840m.

The other markets around the Gulf are smaller in scale. In Kuwait, there are an estimated $16.6bn-worth of road projects, including the $2bn north and east regional highway, the $1.7bn south regional highway and the $1.2bn 7th ring road around the capital, all three of which are currently at the main contract bidding stage.

Batinah expressway

In Oman, there are about $12.3bn-worth of roads, tunnels and bridges planned or under way, most of which are being handled by the Ministry of Transport & Communications. The most significant project is the $2.6bn Batinah expressway, a 275km road running from Seeb, north of Muscat, to Oman’s border with the UAE at Khatmat Malaha. It is due to be finished by mid-2018. Also under way in Oman is the 241km Batinah coastal road, a $1.3bn scheme from Barka that also ends at Khatmat Malaha.

In Bahrain, there is little planned of major significance beyond the new causeway to Saudi Arabia, with just $588m-worth of other road projects in the pipeline. The Ministry of Works is in charge of these projects, which include improvement works to the Sheikh Jaber al-Ahmed al-Sabah highway, the extension of the Sheikh Zayed highway and the widening of the Sheikh Khalifa bin Salman highway.

In contrast to all the activity in the Gulf, the road-building sector in Egypt is relatively underpowered today, with only about $4.5bn-worth of projects. The most significant project by far is a scheme to build seven new tunnels under the expanded Suez Canal.

Of these, three will be in Port Said, with two for cars and one for trains. The other four will be further south in the town of Ismailia. Each tunnel will be just over 3km in length and the total cost is estimated at $4bn. The project is being run by the Suez Canal Authority. The main contractor is a local joint venture of Orascom and Arab Contractors, with work expected to get under way in November.

New Cairo

Many more large road-building schemes seem likely to emerge in Egypt in the coming years, not least those that will be needed for the new capital city that has been proposed. The government is aiming to build a new $45bn administrative capital to relieve the pressure on the notoriously congested Cairo. It has included the creation of 4,500km of new roads as part of its Sustainable Development Strategy published in March.

Causeways could also present an enticing prospect for construction firms in Egypt, particularly one scheme involving Saudi Arabia. A $7bn causeway linking the two countries has been proposed, to be organised by a joint venture company called the Egypt Saudi Association for Construction of the Tiran Causeway.

The 32km route would link Ras Hameed in Saudi Arabia to a point just north of Sharm el-Sheikh on the Sinai peninsula. The causeway gets its name from Tiran Island, which lies in the middle of the straits. The project has been talked about since at least the 1980s and, for now, remains on hold.

However, feasibility studies were carried out in 2012 and 2013 and a contract award has been mooted for January 2017. Given how underpopulated the Saudi side of the causeway is, however, it seems unlikely that this causeway would ever break the record set by the King Fahd crossing earlier this year.

Open road for MENA car manufacturers

Vehicle sales are growing fast across the region, not least luxury brands. Published in MEED, 26 May 2015

If recent history is any guide, more than 3 million additional vehicles will be on the roads of the Middle East and North Africa over the course of this year, adding to congestion in cities such as Cairo, Casablanca and Kuwait.

The biggest market for new car sales is likely to be Iran. It led the region with 1.1 million sales last year, according to the Paris-based International Organisation of Motor Vehicle Manufacturers (OICA), followed by Saudi Arabia with 633,000 sales, Egypt with 274,000 and the UAE with 207,000.

The leader board for commercial vehicle sales is slightly different. Saudi Arabia heads the pack with 196,000 sales last year, followed by Iraq with 181,000, Egypt with 76,000 and Oman with 70,000.

Regional sales

Iran’s position at the top of the car sales league table is a direct result of its large population of close to 80 million people. There are about 12.7 million vehicles on the country’s roads, including 11.4 million passenger cars, and last year it was the 12th-largest market in the world for new car sales. However, it is far from being the most car-crazy country in the region. There are 164 vehicles for every 1,000 Iranians, compared with the global average of 174 per 1,000.

Instead, it is GCC states that are in the lead. Kuwait has 727 vehicles for every 1,000 residents, followed by Bahrain with 698 and Qatar with 424. At the other end of the scale, Sudan has just 3 vehicles for every 1,000 people, Mauritania has 10 and the Palestinian Territories have 56.

In terms of the type of cars people are buying, it is European, Japanese and South Korean marques that tend to dominate across the region. Among the four largest markets, for example, the top-selling brand in the UAE last year was Japan’s Toyota, with close to 108,000 vehicles sold, followed by another Japanese brand Nissan with just under 44,000, and South Korea’s Hyundai with 34,000, according to Japanese research company MarkLines.

In Saudi Arabia, Toyota was also on top, with sales of just over 200,000 last year, followed by Hyundai with 141,000, and fellow South Korean firm Kia with almost 49,000. In Egypt, Hyundai was the biggest brand, selling almost 45,000 vehicles last year, followed by Nissan and the US’ Chevrolet with close to 25,000 sales each.

Iran has a more distinct market, due to its substantial domestic car production industry, which is led by Iran Khodro and Saipa. Both firms sell cars under their own brands, as well as under foreign marques such as Peugeot and Suzuki (produced by Iran Khodro) and Renault and Kia (produced by Saipa).

Peugeot was the most popular brand last year in the Islamic Republic, racking up 336,000 sales. In second place was Saipa, with 327,000 sales. Iran Khodro cars were the third-largest sellers, with 140,000 sold during the year.

Iran is one of only four countries in the region with a domestic production capability, and it is by far the largest, with output of more than 1 million vehicles in 2014. The vast majority of that was made up of cars, but buses, trucks and vans also roll down some of the production lines.

The second-largest producer in the region is Morocco, although it is still some way behind Iran. Last year, it had an output of 210,000 cars and 22,000 vans. Egypt makes a wider range of vehicles, with factories producing buses, trucks, vans and cars, although production levels are far smaller, with total output last year of 27,000 vehicles, most of which were passenger cars. Tunisia also has a small plant producing 1,860 vans a year.

New producers

Some other countries are now entering the market, however. In November last year, France’s Renault inaugurated its Oued Tlelat plant in Oran, Algeria, which will manufacture the Renault Symbol model.

The plant has an initial production capacity of 25,000 vehicles a year and it will help Renault cement its leadership in the country, where it already has a 27 per cent market share. A second phase of the plant could increase production to 75,000 vehicles a year, although no decision has yet been made on this.

Saudi Arabia may also join the list of vehicle manufacturers in the region one day. In December 2012, British carmaker Jaguar Land Rover, owned by India’s Tata Motors, signed a letter of intent with the National Industrial Clusters Development Programme in the kingdom. At the time, the UK firm said it was launching a detailed feasibility study on Saudi Arabia’s suitability as a location for a production plant, although the project has yet to move forward.

Even if this scheme does not progress, the Saudi government seems keen to develop other vehicle manufacturing in the country. The Petroleum & Minerals Ministry and the Commerce Ministry are jointly leading this effort, with the aim of developing car, truck and bus production plants, as well as research and development, design and logistics capabilities.

Such plants would help to reduce the region’s reliance on imported vehicles, but for the foreseeable future the vast majority of car sales will be imports.

Most of the cars being brought into the region are vehicles with mass appeal, designed by the likes of Toyota or Hyundai, but there is another important part of the car market in the region. Some car marques are all about exclusivity rather than ubiquity and here the Gulf states are again to the fore, particularly the UAE, which is the main market in the region for luxury car brands.

Luxury brands

Data from MarkLines shows 1,141 Bentleys were sold in the UAE last year and a further 382 were sold in Saudi Arabia. Among other high-end car brands, Rolls-Royce, part of Germany’s BMW Group, sold 405 cars in the UAE and 293 in Saudi Arabia, and Aston Martin, another UK manufacturer, sold 253 cars in the UAE and 179 in Saudi Arabia.

Bentley Motors, which is owned by Germany’s VW Group, says its Middle East sales were up by 7 per cent last year, led by the Flying Spur W12, which it calls the world’s fastest road-going sedan, and the Continental GT Speed Convertible, which is the fastest convertible it sells.

Neil Wilford, Bentley’s regional manager for the Middle East, India and Africa, says its UAE and Saudi showrooms are now among the firm’s top three dealerships in the world. The company says it has high hopes for next year’s launch of its new SUV, the Bentayga, with the Middle East expected to be one of the main markets for the vehicle.

Among some of the other supercar marques owned by the VW Group, Lamborghini sold 341 cars in the UAE and 265 in Saudi Arabia, and Bugatti sold 75 in the UAE. UK-based McLaren, perhaps better known for its Formula 1 team, sold 131 cars in the UAE. That sounds like a small number, but the cars cost several hundred thousands of dollars apiece; the company only delivered a total of 1,648 cars to customers around the world last year.

More mainstream car brands also find it is their more expensive models that do best in the region. BMW says it sold 30,148 BMW and Mini cars across 12 countries around the Middle East last year, its highest ever total.

The UAE accounted for more than half of the sales, followed by Saudi Arabia and Kuwait. In terms of models, its biggest seller was the BMW 5 series, with 5,900 sales, followed by the BMW X5, with 5,800, and its largest model, the BMW 7 series, with about 4,200. The last of these represented 14 per cent of total sales, which is the highest share in any market in the world. Despite the relatively small size of the Middle East, the region is the third-largest market for the BMW 7 series after China and the US.

Promising outlook

Forecasts for the future of the region’s car market suggest there is plenty of room for car brands to increase their sales further. US-based research firm IHS predicts that the automotive sector in the Middle East – which it defines for these purposes as the GCC, Iran and Israel – will grow twice as fast as those of Western Europe and the US between 2012 and 2022, with a 30 per cent rise in sales likely.

Pierluigi Bellini, an analyst at IHS Automotive, suggests that by 2022 sales will reach 1.74 million in the GCC, compared with 1.38 million in 2012. Taking in Iran and Israel, the total will rise to 3.45 million by 2022, compared with 2.66 million in 2012. Consequently, the region’s roads are bound to get even more crowded in the years ahead.

Egypt’s aviation sector benefits from renewed focus

Many of Egypt’s airports have been operating beyond their design capacity for years. Now funds are at last being ploughed into expanding them. Published in MEED, 24 May 2015

Few travellers to Sharm el-Sheikh seem to enjoy their experience at the airport, if the reviews on websites such as Skytrax are anything to go by. Stories abound of chaotic check-in procedures, impolite staff and poorly organised baggage reclaim systems.

Perhaps some of the delegates to the Egypt Economic Development Conference, which was held in the resort town in March, suffered with similar problems. By the end of the conference, the Islamic Development Bank (IDB) had agreed to provide $457m to improve the airport. A month later, the African Development Bank (AfDB) approved a $140m loan for the same purpose. The $670m expansion project involves the construction of a new terminal, runway and control tower.

Stretched infrastructure

Sharm el-Sheikh has an important position in Egypt’s tourism industry and the investment in its airport will increase its capacity from 8 million passengers a year to 18 million by 2025. The money is badly needed. The airport is Africa’s third-busiest, according to the AfDB, but it has been operating beyond its design capacity for years.

The investment is, however, only part of what is needed to bring the country’s aviation sector up to scratch. Some other airports have also been getting an overhaul. According to regional projects tracker MEED Projects, $1.4bn-worth of airport projects are being studied, designed or built at the moment. In December, a $350m overhaul of Hurghada International airport on the Red Sea coast, another important tourist resort, was completed, lifting capacity to 13 million passengers a year from 4.6 million, through the construction of a new terminal and runway.

Other projects include a new terminal for low-cost airlines at Borg el-Arab International in Alexandria. The scheme has a budget of $170m and a main contract award is expected in July next year.

A new passenger terminal is also planned for El-Nozha airport, also in Alexandria, and work is in theory still ongoing to renovate Terminal 2 at Cairo International. A new Cairo airport has also been earmarked as part of the new capital city project unveiled at the Sharm el-Sheikh conference, although whether that ever gets built remains in question.

Most of the major airports in Egypt are controlled by the state-owned Egyptian Holding Company for Airports & Air Navigation, through two subsidiaries: Cairo Airport Company and Egyptian Airports Company. The latter’s remit covers 18 international and domestic airports.

In addition, two airports are operated by private companies under build-operate-transfer (BOT) contracts. Marsa Alam International on the Red Sea coast is run by EMAK Marsa Alam for Management & Operation of Airports, a subsidiary of Kuwait’s MA Kharafi Group. El-Alamein International, on the Mediterranean coast, is run by International Airport Company, part of the local Kato Investment group.

Such BOT contracts are used in other parts of the country’s transport system. For example, tenders were issued last year for new shipping terminals at Damietta, Safaga, El-Tor and Alexandria, all to be built under BOT contracts. However, they have not been used in recent times for airports, and few expect that to change in the near term, given the ongoing difficulties in Egypt.

“Maybe in the medium-to-long term there will be more BOT contracts, but I wouldn’t have said there would be a great deal of appetite among investors in the short term,” says John Strickland, director of JLS Consulting, an independent transport consultancy.

Along with expanding airports, changes are needed at the nation’s main airlines. Tourists and business travellers alike have been put off by the political turmoil over recent years and EgyptAir and its domestic subsidiary EgyptAir Express have been feeling the pain.

According to the Washington-based World Bank, the number of passengers flying on Egyptian-registered airlines fell by 19 per cent in 2011, the year President Hosni Mubarak was unseated, and it is taking time for the situation to improve. OAG, an airline industry data provider, says there was little growth in airline capacity to Egypt between 2011 to 2014, although a recovery of sorts is under way this year, with airlines adding more than 600,000 seats.

International carriers

Most of the growth is coming from international carriers, with the likes of Qatar Airways, Dubai’s Emirates Airline, Turkish Airlines and Russia’s Transaero Airlines all expanding fast. In contrast, EgyptAir has cut 60,000 seats this year in a clear sign that even if the sector as a whole is recovering, not everyone will benefit.

“It’s an interesting picture of overseas carriers putting more capacity on, whereas local carriers are actually reducing capacity,” says John Grant, executive vice-president at OAG.

Egypt’s national carrier needs to reform if it is to compete. Although it was consistently profitable before the revolution, the airline has been making heavy losses in recent years, ending 2011/12 with a £E3.1bn ($406m) deficit and posting a further loss of £E1.9bn the following year.

Other parts of the wider EgyptAir Holding Group are profitable, including the cargo, maintenance, and ground services divisions, and EgyptAir Express, which returned to profit in 2012/13. However, their contributions are nowhere near enough to offset the losses at the main airline.

A process of reform is under way. In December, the airline signed a deal with US travel consultancy Sabre to develop and implement a programme of changes designed to increase revenues and improve efficiency. At the time, Sameh el-Hefny, chairman and CEO of EgyptAir Holding, said the aim was to return the airline to profitability by the end of the fiscal year 2015/16. Doing so will not be easy, although the current low oil price environment should help.

“The losses at EgyptAir are coming down, but they’re still quite high,” says Hatem Alaa, an analyst at local bank EFG Hermes. “This year, with low oil prices, there’s a good chance we’ll see some improvements. Tourism is picking up and fare prices have not come down as much as oil prices, so there’s a chance there will be an improvement.”

Increasing competition

The problem is that pressure from nimbler, better-funded airlines in the Gulf and Turkey is only likely to increase. As well as the likes of Abu Dhabi’s Etihad Airways and Turkish Airlines, these include low-cost airlines such as Air Arabia and Flydubai. To the south, Ethiopian Airlines and Kenya Airways have better reputations and better structured hub operations than EgyptAir these days.

“EgyptAir is surrounded by very good global hubs and airlines with good products and competitive prices,” says Grant. “It could return to profit, but it has got to be commercially oriented. It may be profitable again, but perhaps not at the size they are at today.”

The best option for the airline, according to Strickland, could be to focus its activities on key destinations where there is heavy demand from business travellers, tourists and Egyptian expatriates.

There may also be gains to be found in opening up more to Africa. In a report published in July last year, research firm InterVistas looked at the impact that liberalising the market between 12 major African economies would have, including Egypt. It suggested an additional 318,000 passengers could pass through Egyptian airports as a result of Open Skies deals with the likes of Algeria, Nigeria and South Africa, creating 11,000 jobs and $114m in GDP in the process.

Even so, the country may simply have to accept that it can no longer sustain as large an aviation sector as it might once have hoped.

“Many people see aviation as an economic catalyst and generator of jobs,” says Grant. “Undoubtedly in Sharm el-Sheikh and Hurghada that is the case. But on a country level, continually investing in something such as EgyptAir to try and get it right is going to be a hard task to support.”