feature

AV I AT I O N

feature

AV I AT I O N

We have actually managed

to grow revenue, to grow
traffic, and to return
positive profits eight years
out of 10. So we have
really proven to be a very
resilient airline, [fending
off] all of the major changes
that have happened
in our environment

ROYAL AIR MAROC

Rising above the

challenges
Moroccan state carrier Royal Air Maroc proves it is
possible to be profitable in the face of unprecedented
regulatory and socioeconomic headwinds
by Martin Rivers
thegulf@tradearabia.net

HOUGH global airlines are

enjoying benign market
conditions at present, the
industry has a habit of
swinging from crisis to
crisis over the long-term. Carriers based
in the Middle East and North Africa
have experienced this more than most,
suffering not only from the 2001 terror
attacks on America and the 2008 global
financial crisis, but also the 2011 Arab
Spring and its ongoing legacy of regional instability.
In the North African state of Morocco,
flag-carrier Royal Air Maroc (RAM) can
add one more crisis to that already
ample list of headaches. In 2006, the
Moroccan government initiated an open
skies agreement with the European
Union, swinging open the doors of
competition and granting foreign
airlines unbridled access to the country
in a bid to expand its tourism sector.
It was a measure that went against
the grain of most African, and indeed
Middle Eastern, civil aviation policies,
which generally involve shielding
domestic flag-carriers from competition
through an arbitrary regime of bilateral
restrictions.
By limiting traffic rights in terms
of the number of operators and the
frequency of services, many governments effectively force travelers to fly

with their state-owned airline. Such

protectionism translates into higher
airfares and sub-par customer service.
Yet even in the midst of a competitive
onslaught - and it has indeed been an
onslaught, with 44 airlines entering
Moroccan skies to date - RAM has
emerged as a larger, more financially stable carrier. Emboldened by this
success, it now plans to double in size
over the coming decade.
Despite the challenging [open skies]
environment, we decided to continue
investing and growing the company,
deputy
chief
executive
Habiba
Laklalech tells The Gulf. We have
actually managed to grow revenue,
to grow traffic, and to return positive
profits eight years out of 10. So we
have really proven to be a very resilient
airline, [fending off] all of the major
changes that have happened in our
environment.
The two years in which RAM posted
an operating loss were 2010 and 2011,
in each case sinking nearly 500 million
Moroccan dirhams ($60 million at the
time) into the red. Though difficult
years for the wider airline industry - still
reeling from the global financial crisis Morocco had by this time expanded its
annual visitor numbers to 9.3 million,
up more than 60 per cent on pre-open
skies levels.
RAM actually succeeded in capturing its fair share of that growth - the
airlines passenger count rose from 3.6

Habiba Laklalech, RAM

Steady state: the Moroccan flag carrier returned to profit in 2012 and hasnt looked back since

Emboldened by its
success, RAM now plans
to double in size over
the coming decade
million in 2005 to 5.9 million in 2009
- but its pricing model was failing.
Average airfares to the country had
plummeted amid intense competition
between European low-cost carriers
(LCCs) Ryanair and EasyJet. This in
turn forced RAM to accept loss-making
passenger yields. With LCC penetration of international routes quadrupling
to 40 per cent in just four years, it
seemed as though the governments
well-intended liberalisation programme
was simply too deep and too swift for
RAM to withstand.
The onset of the Arab Spring in 2011

heaped yet more pressure on the ailing

flag-carrier. Although Morocco largely
avoided the violence seen in other
North African countries, Europeans
began thinking twice about travel to
the entire region. And yet, by 2012,
RAM was back in the black.
How did we manage this? After 2011
we launched a restructuring programme
that was articulated around several
areas, Laklalech explains. First, we
reduced our headcount from 5,100 to
2,900. This led to a significant improvement in productivity. Today, we have
about 60 employees per aircraft, which
is one of the best ratios in the industry.
In fact it is better than many of the
low-cost airlines, who do not even have
a dedicated sales force.
Cutting point-to-point routes on which
LCC competition was strongest also
stemmed the losses. RAM suspended about 20 routes to Europe from

Marrakech and other secondary cities

such as Agadir, Fes and Ouarzazate,
shifting capacity to the hub-andspoke network in Casablanca. As a
consequence, 80 per cent of its flights
now land in or take off from the
countrys largest airport. Withdrawing
10 narrow body aircraft further aided
these cuts.
But while such contraction forms a
necessary component of airline restructuring programmes, it does not by itself
deliver sustainability. Any business
fending off a new breed of market
entrant needs to identify a unique
selling point that differentiates itself
from the competition. EasyJet, after all,
flies to RAMs Casablanca stronghold
from Paris, Lyon and Milan, and could
add more links if it wishes.
What it cannot do, however, is
replicate the flag-carriers north-tosouth hub network. It lacks the traffic

rights to fly onwards into Africa, and

has anyhow expressed no interest in
expanding on the continent.
This unique proposition, Laklalech
stresses, is one of the key strengths
that allowed RAM to recover so
quickly after the downturn. Moroccos
location on the north-western tip of
Africa makes it an ideal bridging point
for flights between Europe and West
Africa - a geographical advantage
that is strengthened by the paucity of
flag-carriers to the south.
We have a very strong West African
network, she affirms, noting that RAM
serves 31 points in the sub-region.
This network links most of the cities
in West Africa with the rest of the
world through the Casablanca hub.
And we can operate these flights like Paris-Casablanca and CasablancaDakar - with medium-haul aircraft,
which are less expensive [to operate
than larger jets] and have very good
connecting times. So that helps us
sell the tickets at very attractive prices
compared to other airlines that operate
direct flights.
The network is indeed a strong one,
stretching as far south as Angola and
including every single West African
nation except for Equatorial Guinea.
It is paired with an equally robust
network to the north, encompassing 32
European points.
But has the gruesome outbreak of
Ebola in Guinea, Sierra Leone and
Liberia impacted the business model?
No. We decided to continue flying to
these countries for two main reasons,
Laklalech responds. First of all, there

8
34

December 2014 | the gulf

the gulf | December 2014

35

feature

AV I AT I O N

Over the past six

months RAM has
transported more than
30,000 passengers
from the three worstaffected countries. Not
one single case of Ebola
has been recorded
among these travelers

Laklalech: Today we have about 60 employees per aircraft, which is one of the best ratios in the industry

8 is a very strong historic relationship between Morocco and African

countries, so we cannot just abandon
them because of this disease. The
second reason is that we put in place a
very strong action plan to prevent any
contamination.
Over the past six months, she notes,
RAM has transported more than 30,000
passengers from the three worst-affected countries. Not one single case of
Ebola has been recorded among these
travelers, who have their temperatures
measured both at the airport of origin
and at Casablanca. All RAM aircraft
also now carry Ebola isolation kits as
an added precaution. So the measures
that were put in place are sufficient
to reduce the risk of contamination,
Laklalech concludes.
Indeed, the World Health Organisation
(WHO) has criticised other international airlines for suspending flights to
West Africa because of the outbreak among them British Airways, Air France
and Emirates Airline - warning that
humanitarian efforts could be choked
off by the reduction of commercial
flights. Air travel is not a high risk
factor for transmission of Ebola, the
United Nations agency maintains,
because it is not an airborne disease
and sufferers only become contagious
once symptoms are self-evident. RAMs
own trouble-free experiences of serving
West Africa validate this stance.
With a clear business plan and a
36

steadily improving product - Skytrax

upgraded RAM to a three-star rating
this summer, crediting its new Business
Class cabin - growth is now back on
the agenda. Chads capital NDjamena
has already joined the network this
year, and the arrival of the first of five
Boeing 787 Dreamliners in December
will ignite a new decade of expansion
for the flag-carrier.
Its existing fleet of 47 aircraft comprises 37 737s (all next generation models,
except for a single 737-300 freighter
conversion), four 767-300ERs, one
747-400, and five ATR 72 turboprops
deployed by regional subsidiary Royal
Air Maroc Express.
Along with the upcoming Dreamliners
- initially earmarked for higher frequencies on the New York and Montreal
routes - RAM will next year begin
issuing tenders for its long-term fleet
expansion.
This project supports the governments vision of doubling inbound
tourism numbers by the turn of the
decade. If all goes according to plan,
by 2025 the flag-carrier will deploy
closer to 100 aircraft. About 85 of these
will be narrowbodies, including 20 or
so 100-seater planes ideal for thinner
regional routes. It already has orders for
four small Embraer E190s.
RAM is also turning its attention to
potential new partnerships. Membership
of one of the big three airline alliances
- Star Alliance, SkyTeam and Oneworld

- is currently being evaluated.

Another option is finding an equity
partner to acquire some of the governments 96 per cent stake in the airline,
thereby helping to fund its fleet acquisitions. Abu Dhabis Etihad Airways is
among the possible suitors, Laklalech
confirms.
Despite Moroccos status as one of
the most liberal aviation markets in
Africa, RAMs competitors continue
to cry foul. Low-cost rival Air Arabia
Maroc, founded in 2009, accuses the
Moroccan government of withholding traffic rights for West Africa. This
alleged protectionism, it argues, is the
true source of RAMs success.
But Laklalech dismisses such allegations, noting that bilateral restrictions
are primarily laid down by foreign
governments, not Rabat. The number
of frequencies [allocated to Morocco]
are really, really limited. Theres simply
no room for adding competition, she
insists.
Look at Mauritania: we used to have
14 [weekly] flights. Then the state
reduced them to 11, to nine, to seven
and now five. So with this limitation,
how can you possibly share the market
with anybody else?
Just as open skies across Europe in
the 1990s spelled the death knell for
many of its flag-carriers, Moroccos
2006 liberalisation could easily have
driven RAM to the wall. Instead, the
airline deftly evolved to accommodate
this and subsequent headwinds.
With a third consecutive year of profitability looming, RAM is one example of
the adage that whatever doesnt kill
you only makes you stronger. <
December 2014 | the gulf

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