Africa Aviation Yearbook

WORLD AVIATIONYearbook 2013AFRICA

2 2

AFRICA TOP 10 AIRLINESSOURCE: CAPA - CENTRE FOR AVIATION AND INNOVATA | WEEk STARTINg 31-MAR-2013

AFRICA TOP 10 AIRPORTSSOURCE: CAPA - CENTRE FOR AVIATION AND INNOVATA | WEEk STARTINg 31-MAR-2013Africa

OutlookAfricA is poised to be the next

growth story for AviAtion as the world turns to the continent’s bountiful resources, ranging from

minerals to oil and water. An emerging middle class, with higher propensity to travel, will drive regional aviation as will the upswing in local and international tourism traffic ...

AFRICA CAPACITy SEATS PER wEEkSOURCE: CAPA - CENTRE FOR AVIATION AND INNOVATA | WEEk STARTINg 31-MAR-2013

RANkINg CARRIER NAME SEATS

1 South African Airways 38,242

2 Egyptair 32,736

3 Royal Air Maroc 22,376

4 Ethiopian Airlines 21,977

5 Air Algerie 15,924

6 kenya Airways 14,054

7 Tunisair 13,621

8 Arik Air 13,124

9 Comair 8,749

10 Aerocontractors 8,355

RANkINg CARRIER NAME SEATS

1Johannesburg Oliver R Tambo International Airport

477,146

2 Cairo International Airport 369,036

3 Cape Town International Airport 197,327

4 Casablanca Mohammed V Airport 193,065

5 Lagos Murtala Muhammed Airport 174,652

6 Algiers Houari Boumediene Airport 158,678

7 Nairobi Jomo kenyatta International Airport 156,144

8 Addis Ababa Bole Airport 151,901

9 Tunis Carthage Airport 131,316

South Africa Airways

EgyptAir

Royal Air Maroc

Ethiopian Airlines

Air Algerie

Emirates

British Airways

Air France

kenya Airways

Other

0 500k 1,000k 1,500k 2,000k

260,427

249,786

160,885

144,652

126,246

126,046

108,110

106,312

99,012

1,642,273

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AFRICA FLEETSOURCE: CAPA - CENTRE FOR AVIATION | WEEk STARTINg 31-MAR-2013

AFRICA PROJECTEd dELIVERy dATES FOR AIRCRAFT ON ORdERSOURCE: CAPA - CENTRE FOR AVIATION | WEEk STARTINg 31-MAR-2013

AFRICA BREAkdOwN FOR AIRCRAFT IN SERVICESOURCE: CAPA - CENTRE FOR AVIATION | WEEk STARTINg 31-MAR-2013

AFRICA MOST POPuLAR AIRCRAFT TyPES IN SERVICESOURCE: CAPA - CENTRE FOR AVIATION

AFRICA CAPACITy SEATS SHARE By ALLIANCESOURCE: CAPA - CENTRE FOR AVIATION AND INNOVATA | WEEk STARTINg 31-MAR-2013

IATA AFRICA PREMIuM TRAFFIC: 2009-2013SOURCE: CAPA - CENTRE FOR AVIATION AND IATA

Narrowbody Jet

Small CommercialTurboprop

Turboprop

Widebody Jet

Military Transport

Regional Jet

Piston EngineAircraft

Business Jet

35.7%

19.3%

17.2%

11.8%

11.7%

3.3%0.6%

0.5%

737

A320

B1900

ATR

DHC8

Others

CARAVAN

DHC6

21.5%

9.5%

5.7%

4.6%4.1%

3.9%3.6%

46.9%

Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12-20

-15

-10

-5

0

5

10

15

20

25

30

Prem

ium

Tra

ffic

Gro

wth

%

52.6%26.4%

11.6%

6.8%2.7%

Unaligned

Star

oneworld (affiliate)

SkyTeam

oneworld

1,500

1,000

500

0

1,293

111169

In service In storage On order

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

0

20

40

60

737 777 747 787 ERJ170 A320 A330A350 A380 ATR YUN7 DHC6 SSJ

4

LCC CAPACITy SHARE (%) OF TOTAL SEATS: 2001-2013SOURCE: CAPA - CENTRE FOR AVIATION WITh DATA PROVIDED By OAg

AFRICA TRAFFIC: 2008-2013SOURCE: CAPA - CENTRE FOR AVIATION AND IATA

Aviation on the continent is beset by a range of impediments to growth including strong state protectionism...

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jan-Mar

2013

0

2

4

6

8

10

12

14

0.3% 0.6%

1.7%

2.6%3.1% 3.3%

6.9%

9.1%9.9% 10.3%

11.7% 11.8%

10.7%

-20

-15

-5

-10

5

0

10

20

15

25

20092008 2010 2011 2012 2013

Reve

nue

Pass

enge

r Ki

lom

etre

s %

... Aviation on the continent is beset by a range of impediments to growth including strong state protectionism leading to a lack of desire to liberalise air services, high taxes and charges, a poor safety record stemming from ageing aircraft, weak finances and inadequate regulatory supervision, under-developed infrastructure across most of the continent and a lack of professional expertise and wide-spread corruption.

All of this makes it difficult for airlines to remain sustainable and for fares, which are well above the world average, to reduce, even via the entry of LCCs.

But the potential upside from economic growth, which includes having seven of the world’s 10 fastest growing economies, is attracting a new breed of carrier like fastjet, Starbow and African World which are prepared to take the shorter term risk for big long-term gains.

The powerbase among the established big four, South African Airways, EgyptAir, Ethiopian Airlines and Kenya Airways, continues to shift to Eastern Africa as an embattled SAA continues its slide from grace and its end of line base becomes increasingly isolated from the new European-Asia trade routes.

Kenya Airways and Ethiopian are the continent’s stand-out performers, expanding their networks to Asia to take advantage of the growing trade and investment opportunities.

The two carriers are competing aggressively to build their respective hubs at Nairobi and Addis Ababa as the eastern gateway to Africa. But their small size offers little resistance to the Gulf carriers which are taking advantage of the lack of intercontinental services.

Eastern Africa is home to two of Africa’s most successful and consistently profitable airlines, Kenya Airways and Ethiopian, as well as LCC start-up fastjet which has aspirations of developing a pan-Africa network.

China-Africa is one of the world’s fastest growing markets and both Kenya Airways’ Nairobi hub and Ethiopian’s Addis Ababa hub are well positioned to exploit this growth providing geographically convenient connections between Asia, Africa and Europe.

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Both carriers are gradually expanding their presence deeper into Asia to tap into key growth markets.

Ethiopian Airlines plans to expand its Asian network with the addition of Ho Chi Minh City, Manila and Seoul Incheon from Jun-2013. Hong Kong will also become a direct route from Addis Ababa, rather than operating via Bangkok.

Ethiopian will give Addis Ababa a competitive edge with plans to become the only African carrier to link three of the biggest growth regions in the world, Latin America and China via Africa. However, Ethiopian’s protective government which strictly limits foreign carrier access to Addis Ababa, especially those from Gulf states which are rapidly expanding their African presence, will stand in the way of the hub achieving its true potential.

Kenya Airways is also expanding its influence in the African market by aligning itself with smaller carriers, promoting greater cross-border cooperation and fostering economic development among nations which jealously guard their independence. The carrier aims to operate to all African capitals by 2014.

Kenya Airways’ aggressive 10-year growth plan, launched in 2011, is based on taking advantage of the surge in East to West traffic, driven by new investment and the rapidly growing middle classes in Asian economies. This strategy calls for seven new routes into China, six into the Indian subcontinent and three across North and Southeast Asia as well as increasing its presence in Europe and the Middle East. Currently Kenya Airways operates to Guangzhou and Hong Kong in China, as well as Bangkok, Delhi and Mumbai.

Despite their local rivalries, Kenya Airways and Ethiopian Airways have a mountain to climb to overcome the massive advantage of the Gulf carriers. Dominated by Emirates and its strong Asian links, Etihad and Qatar Airways too are able to funnel traffic between East, West

China-Africa is one of the world’s fastest growing markets...

and South into Africa over their United Arab Emirates hubs, all the time strengthening their network power.

Both Kenya Airways and Ethiopian Airways will need to draw on their respective alliance partners, Star for Ethiopian and SkyTeam for Kenya Airways, for help to compete with the onslaught of Gulf carriers.

Kenya Airways CEO Titus Naikuni has repeatedly called for Kenya Airways, Ethiopian and possibly South African Airways to merge, creating a carrier of sufficient scale to compete against the foreign carriers that account for about 80% of intercontinental traffic to and from Africa. In particular he is concerned that Kenya Airways and Ethiopian are “eating each other” with their neighbouring hubs. The lack of political will, however, makes such a union unlikely.

Newcomer fastjet, launched with two domestic routes from Dar es Salaam in Tanzania in Nov-2012, is rebranding and re-fleeting its newly acquired Fly540 operation in the country with A319s. London Stock Exchange-listed fastjet also owns the Fly540 regional operations in Angola and Ghana. But the carrier has become embroiled in a bitter legal dispute with Five Forty Aviation, the former owner of the Fly540 brand, over alleged outstanding debts and fees.

fastjet has the backing of easyJet’s Sir Stelios Haji-Ioannou’s easyGroup and has secured funding to finance its growth plans which include building a fleet of up to 15 A319s by the end of 2013. It is also in negotiations with regulators and the liquidator to buy the assets of defunct South African LCC 1time which it hopes to relaunch.

But growth is likely to be slow, with approval yet to be granted in Angola and Ghana to rebrand the Fly540 operations there. The regional LCC model is also untested in Africa where regulatory hurdles and costs are much higher than in Europe and the United States.

On the other side of the continent in Western Africa the picture is less rosy. The region is dominated by two markets, Nigeria and Ghana.

Nigeria is rich in oil, while Ghana’s main export is gold, both of which are attracting significant international investment, which in turn is driving development of aviation in the region.

However the collapse of once promising Air Nigeria, the Dana Airways MD-83 crash, which killed 163 people, and it’s subsequent on and off grounding, has left Nigeria with an effective duopoly between Arik Air

Nigeria is rich in oil, while ghana’s main export is gold, both of which are attracting significant international investment, which in turn is driving development of aviation in the region.

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and Aero.Arik, one of Africa’s biggest carriers by seats

but not network reach, and Aero have both been hamstrung by debts to the state due to bailouts in the wake of the global financial crisis. The Nigerian Government is now hoping to encourage investment in the scheduled aviation sector by fast tracking the registration of as yet unidentified new competitor airlines as well as establishing a new national carrier, aided by cheap funding for aircraft.

Arik has recently held preliminary talks with Ivorian national carrier Air Côte d’Ivoire about providing Ivory Coast with domestic services.

As is the case in Eastern Africa, Nigeria and Ghana are competing to establish Western gateways at their respective Lagos and Accra hubs.

Ghana has had more success in attracting domestic airlines despite its smaller population of about 24.7 million but stronger regulations. Well-funded Africa World Airlines, Fly540 owned by fastjet, and Starbow have all established, adding to incumbent carrier Antrak Air. EgyptAir could further bolster the nation’s air transport if it takes its planned stake in domestic carrier CityLink which has suspended operations.

However, Ghana lacks the level of inter-continental traffic of Nigeria and does not have its own long-haul carrier.

North African carriers are continuing to recover from the massive upheaval during the Arab Spring which had its genesis in Tunisia in 2010 before spreading to Libya and Egypt.

EgyptAir plans to launch services from Cairo to Manchester and Toronto in Jun-2013 and is progressing plans to take about a 50% stake in dormant Ghana domestic carrier CityLink to expand its presence in Western Africa. The carrier is also reportedly considering options to develop its fleet, including replacing and refitting a number of older aircraft.

Europe’s largest low-cost carrier Ryanair

will establish two bases in North African tourism hotspot Morocco in Apr-2013, just six months after the Irish-based carrier’s decision to cut capacity, including several routes entirely, in protest at rising costs at the country’s airports.

Ryanair claimed ONDA, the state-owned airports authority, had “reneged on its agreement with the airline by imposing a new monopoly handling company on Ryanair which would have resulted in a massive increase in charges for the airline”.

But in a major turnaround Ryanair will base two aircraft at Marrakech and another at Fes while also adding two new Moroccan bases at Essaouira and Rabat as it looks to grow its Moroccan operations to 60 routes and eight airports, delivering up to 2.5 million passengers a year to the country.

Morocco accounts for only about 1% of Ryanair’s total network capacity, but the carrier is critical to the North African nation’s fortunes, where tourism contributes about 7% of GDP.

The decision by Ryanair first to reduce capacity and now reinstate it offers a significant boost for Morocco’s struggling economy, heavily reliant on European tourism. But it will also put further pressure on state-owned Royal Air Maroc (RAM).

RAM for its part continues to look for a strategic equity partner after receiving a USD193 million bailout from the Moroccan Government in 2011. An additional USD900 million in public financing is available for the carrier through to 2016.

RAM has been hit hard by the arrival of LCCs, including Ryanair and Air Arabia Maroc, on its routes after signing an open skies agreement with the EU. While the agreement allowed the Kingdom to achieve its target of 10 million tourist arrivals in 2010, RAM had been unprepared for the onslaught of competition the agreement would bring.

Libya has mounted a strong economic recovery, enticing international carriers to rapidly rebuild their capacity, withdrawn after a bloody revolution engulfed the northern African state in Feb-2011. Turkish Airlines, Tunisair and EgyptAir led the way, while Western European carriers, led by Alitalia, also resumed services during 2012, including Lufthansa, Austrian Airlines and British Airways.

The country’s two state-owned airlines, Libyan Air and Afriqiyah Airlines, which both suffered extensive damage to aircraft, are gradually re-establishing their pre-war networks as aircraft return to service. A merger of the two carriers is also progressing slowly though earlier expectations of a union in the first half of 2013 appear to have been put back to at least early 2014.

South African Airways, however, is the continent’s basket case. The state-owned carrier suffered a mass resignation of its board in Sep-2012 over political interference, followed by the departure of its CEO and several senior executives. Its new acting CEO Vuyisile Kona was suspended in Feb-2012 over undisclosed allegations, leaving the airline in the hands of Nico Bezuidenhout, seconded from LCC subsidiary Mango.

The South African Government has given SAA until the end of Mar-2013 to deliver a strategic plan needed to support on-going state financial assistance of the troubled carrier, including details of financing

USD

546M government guarantee given to Saa

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for the airline’s planned purchase of short and long-haul aircraft, ahead of the appointment of a new permanent CEO.

SAA is surviving on a ZAR5 billion (USD564 million) government guarantee, allowing the carrier to borrow on the financial markets. SAA has repeatedly had to ask the government for assistance over the last several years as multiple restructuring attempts have failed. But, faced with repeated government reluctance to support substantial restructuring of the company, it is hard to see any new moves achieving more than a temporary respite.

During the year, LCCs 1time and start-up Velvet Sky failed, providing some competitive and yield relief to SAA and domestic competitor Comair and their respective subsidiaries, but that could be short lived if their objections to fastjet’s takeover of 1time are not heard by the government.

The power-base of African aviation is moving from the continent’s biggest economy, South Africa, to East Africa where Ethiopian and Kenya Airways are building substantial hubs, leveraging their geographic advantage and extensive African networks.

At the same time, privately funded carriers like fastjet and Starbow could, in time, be the answer to Africa’s lack of domestic and intra-continental air services, which is holding back economic development, bring more route options and lower fares, making air travel affordable for the growing middle class.

But without liberalisation and a political will to deal with protectionism and corruption, aviation will continue to be thwarted in its ability to unlock Africa’s economic riches for the benefit of the continent’s people.

The power-base of African aviation is moving from the continent’s biggest economy, South Africa, to East Africa where Ethiopian and Kenya Airways are building substantial hubs...

kenya Airways CEO Titus Naikuni is concerned that kenya Airways and Ethiopian are “eating each other” with their neighbouring hubs.

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SOuTH AFRICAN AIRwAyS .............................................pp.10“South African Airways’ future hinges on a new strategic plan and CEO”First published on www.centreforaviation on 30th March, 2013

EgyPTAIR ........................................................................pp.20“EgyptAir looks to expand its way out of intensive care in 2013”First published on www.centreforaviation on 20th March, 2013

kENyA AIRwAyS .............................................................pp.31“kenya Airways boosts China services, with new Etihad codeshare, but has political and economic risks”First published on www.centreforaviation on 29th March, 2013

ARIk AIR .........................................................................pp.43“Arik Air has the funding and opportunity to grow in 2013, but faces further government interference”First published on www.centreforaviation on 7th March, 2013

ROyAL AIR MAROC .........................................................pp.52“Royal Air Maroc shows promising growth for 2013 with route and fleet expansion - but needs a friend”First published on www.centreforaviation on 22nd March, 2013

FASTJET ..........................................................................pp.62“fastjet pushes ahead with African expansion in 2013, but faces protectionist hurdles”First published on www.centreforaviation on 12th March, 2013

ETHIOPIAN AIRLINES......................................................pp.67“Ethiopian Airlines expands its global footprint to link the world’s high growth regions”First published on www.centreforaviation on 12th April, 2013

AfRiCA:Selected airlines

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South African Airways Key Data Fleet and Orders South African Airways Fleet Summary: as at 10-Apr-2013

Aircraft In Service In Storage On Order Total: 55 0 20 Airbus A319-100 11 0 0 Airbus A320-200 2 0 20 Airbus A330-200 6 0 0 Airbus A340-200 1 0 0 Airbus A340-300E 6 0 0 Airbus A340-300X 2 0 0 Airbus A340-600 9 0 0 Boeing 737-200(F) 2 0 0 Boeing 737-300(F) 2 0 0 Boeing 737-800 14 0 0

Source: CAPA Fleet Database Source: CAPA Fleet Database

South African Airways projected delivery dates for aircraft on order: as at 8-Apr-2013

Source: CAPA Fleet Database

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Route area pie chart South African Airways international capacity seats by region: as at 8-Apr-2013

Source: CAPA - Centre for Aviation and Innovata Top routes table South African Airways top ten international routes by seats: as at 8-Apr-2013

Source: CAPA - Centre for Aviation and Innovata

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Premium/Economy profile South African Airways schedule by class of seat - one way weekly departing seats: as at 8-Apr-2013


South African Airways' future hinges on a new strategic plan and CEO South African Airlines will spell out its future in a strategic plan to be presented to the South African Government in early Apr-2013. But history suggests that implementation of a new strategy is far from assured at the carrier which suffers from extensive government meddling. A new CEO is also expected to be appointed by the end of Mar-2013, replacing Siza Mzimela who resigned, along with several top executives in Oct-2012 in the wake of a mass board resignation the previous month, citing a “breakdown in the relationship with the shareholder”, testifying to the deep divisions between management. Details are emerging of what led to those events, with media reports suggesting a decision by Minister of Public Enterprises, Malusi Gigaba, to block a ZAR10 billion (USD1.08 billion) decision to purchase a fleet of A350 aircraft to replace the carrier’s A340-600s was at the centre of the falling out between the board and management. Meanwhile SAA survives on the basis of a ZAR5 billion (USD540 million) government guarantee granted on 02-Oct-2012 for a two year period effective 01-Sep-2012. The guarantee is intended to enable SAA to borrow on the financial markets and remain solvent.

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SAA planned to replace A340-600 fleet with A350s The Mail & Guardian reported that SAA’s fleet committee recommended the A350 over the Boeing 787 to the board in late Aug-2012 as a replacement for the long-haul A340-600 fleet. SAA had issued requests for proposals (RFPs) to both Airbus and Boeing in Jun-2012 for new widebody aircraft, to replace older aircraft and grow the long-haul fleet from 24 to 31, allowing the carrier to respond to competitors and meet demand. SAA did not publicly disclose details of its aircraft requirements at the time. The more fuel efficient next generation A350 was reportedly chosen to replace SAA’s A340-600 fleet of which the carrier has nine. Of those, three are on lease from International Lease Finance Corporation. SAA also has another nine A340-200 and -300 variants. SAA operates the A340-600 on long-haul routes from Johannesburg to Frankfurt, London Heathrow, New York, Perth and Sao Paulo. It is also the aircraft on African routes between Johannesburg and Lagos and Luanda, as well as domestically between Johannesburg and Cape Town. South African Airways fleet at 25-Mar-2013 Aircraft In Service In Storage On Order Total: 55 0 20 Airbus A319-100 11 0 0 Airbus A320-200 2 0 20 Airbus A330-200 6 0 0 Airbus A340-200 1 0 0 Airbus A340-300E 6 0 0 Airbus A340-300X 2 0 0 Airbus A340-600 9 0 0 Boeing 737-200(F) 2 0 0 Boeing 737-300(F) 2 0 0 Boeing 737-800 14 0 0 Source: CAPA Fleet Database Acquiring the A350 fleet was considered the key to the previous board’s turnaround strategy. But a 'shocked' South African government deferred the A350 purchase pending a review Mr Gigaba blocked the deal when the board presented details of the plan, with his office reportedly “quite shocked that the process had progressed so far”. The Department of Public Enterprises defended the decision to block the deal, saying that Mr Gigaba was not aware of the board’s decision to order the A350 and he was concerned that his department had not been presented with a long-term strategy by the carrier supporting the fleet renewal programme.

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The delay in placing the order has resulted in SAA losing its production slots at Airbus leading to a potential delivery delay of up to a year. The 350-seat A350 is scheduled to enter service in 2017 promising 25% lower operating costs than similar sized aircraft. SAA is being hit hard by high fuel costs and inefficient fleet SAA attributed persistently high fuel costs as a key reason for the group reporting a ZAR1.32 billion (USD142.5 million) operating loss for the financial year to 31-Mar-2012, down from a restated ZAR1 billion (USD108 million) profit in FY2011. Over the last 10 years, the airline has made cumulative losses of ZAR14.7 billion (USD1.65 billion). Fuel accounted for 33% of SAA Group’s operating costs in FY2012, up from 28% in FY2011, a ZAR2.2 billion (USD237 million) increase. SAA has also decided to renegotiate a USD910 million purchase agreement made in 2002 for 20 A320s to reclaim pre-delivery payments from Airbus by reportedly transferring the order to a lease agreement by the end of Mar-2013. The A320 will replace older Boeing 737-800s giving SAA an all-Airbus passenger fleet. The aircraft will be delivered through to 2017. The lack of capital to purchase additional aircraft presents a major challenge for the airline, as its African and Middle East competitors, especially Emirates, rapidly expand their widebody fleets and are increasingly looking for opportunities in African markets, including Southern Africa. United Arab Emirates to Southern Africa (seats per week, one way): 19-Sep-2011 to 15 Sep-2013

Source: CAPA – Centre for Aviation & Innovata

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South African Airlines will appoint its third new CEO in six months CEO of SAA LCC subsidiary Mango, Nico Bezuidenhout, was installed as interim CEO, the third head of the company since 2009, after acting CEO Vuisili Kona was suspended in Feb-2013 while “certain allegations that have come to the attention of the board” were investigated. Mr Gigaba finally removed Mr Kano from the board on 11-Mar-2013. Mr Kona was appointed on 28-Sep-2012, originally as chairman, replacing Cheryl Carolus, then adding the role of acting CEO when Ms Mzimela resigned. He relinquished the chairmanship to Dudu Myeni after the board expressed their concerns to Mr Gigaba that the combined role of chairman and CEO was not good governance practice. Mr Bezuidenhout had been leading the committee charged with developing a strategic plan to support the case for the ZAR5 billion of state support. He is also among five candidates put forward by the board to Mr Gigaba. The draft plan is expected to be presented on 1-Apr-2013. Mr Bezuidenhout said in Feb-2013 that the turnaround strategy would include a review of the airline's routes and fleet. "If we have the wrong tools for the job, we're not going to make it. Our long-haul fleet will not be profitable unless we adapt and change our fleet," Mr Bezuidenhout reportedly said. Of the total ZAR5 billion (USD540 million) guarantee, ZAR1.5 billion (USD161.1 million) was set aside for working capital. SAA took advantage of the guarantee for the first time in Dec-2012, receiving an emergency loan of ZAR550 million (USD59.2 million) to ensure it had sufficient working capital to continue operating. The carrier took out a second loan, for ZAR570 million (USD61.3 million) in early Feb-2013. The Dec-2012 loan is repayable in Mar-2013, for which SAA can use the remainder of the ZAR1.5 billion (USD161.1 million) facility. South African Government has repeatedly thwarted attempts to restructure South African Airways SAA has repeatedly had to ask its government owner for assistance over the last several years as multiple restructuring attempts have failed. But, faced with repeated government reluctance to support substantial restructuring of the company, it is hard to see any new moves achieving more than a temporary respite. The requests for state support are also controversial as they distort the playing field of what is supposedly a deregulated market. However, the government in Feb-2013 dismissed concerns that the support funding was detrimental to private airlines like Comair and its subsidiary Kulula Air, claiming the market was “very competitive”. SAA still dominates the domestic market with its main brand supported by subsidiary LCC Mango, and regional network provider SA Express and is pursuing a strategy of targeting regional expansion throughout southern and central Africa. This has seen the addition of six new destinations added to the network – Ndola, Kigali, Bujumbura, Pointe Noire, Cotonou and most recently, Brazzaville – extending SAA's African coverage to 38 regional destinations. The strategy, adopted in 2011 after nearly a year of restructuring, was aimed at allowing SAA to tap mineral rich and developing markets across Africa and take on competition from Middle

16

Eastern carriers targeting the continent. Regional expansion appears to have borne some fruit, with African passenger numbers growing 11% in the fiscal year ending 31-Mar-2012. However, difficulties in securing more favourable bilateral rights with other, often protectionist, African states are restricting SAA’s regional growth aspirations. SAA needs a larger African network to offset declines in Europe, where in recent years it has steadily been shrinking in size. South African Airways route map Mar-2013

Source: CAPA – Centre for Aviation & Innovata South African Airways network summary: Mar-2013

Source: CAPA – Centre for Aviation & Innovata SAA pulled off the Cape Town-London Heathrow route in Aug-2012 after more than 20 years of operation, citing competitive pressure and falling demand. The UK is still South Africa’s largest travel market outside of the African continent with more than 400,000 tourists per year, but their number has dropped 24% over the past three years.

17

Apart from adding some capacity to its double-daily Johannesburg-London Heathrow services by up-gauging equipment, SAA is deploying some of the spare long-haul capacity to healthier medium-haul markets in Africa, including Abidjan and Accra. It also plans to increase capacity on well performing long-haul destinations in the Asia-Pacific region, including Mumbai and Perth. Three-times weekly Beijing services were launched in Jan-2012 as part of SAA's increased focus on Asia. South African Airways international capacity, seats by region: 25-Mar-2013 to 31-Mar-2013

Source: CAPA – Centre for Aviation & Innovata South African Airways top 10 international routes by seats: 25-Mar-2013 to 31-Mar-2013

Source: CAPA – Centre for Aviation & Innovata fastjet manoeuvres around South African ownership restrictions to take over 1time A new competitor in the form of London-listed start-up fastjet is closing in on securing a deal to takeover defunct South African domestic LCC 1time which is likely to bring to an end a short reprieve from competitive pressures for all South African carriers. 1time was placed in provisional liquidation on 11-Dec-2012. fastjet has offered to buy the assets of 1time for ZAR1 (USD0.11c)

18

and operate domestic services between South Africa’s main cities of Johannesburg, Cape Town, Durban, Port Elizabeth and East London. SAA, Mango and Comair objected to fastjet’s bid to relaunch 1time under the fastjet brand on the basis that fastjet did not comply with the 75% South African ownership requirement to operate domestic services. fastjet has consequently abandoned its application to the South African Minister of Transport for an exemption to the rule and has instead obtained South African partners to comply with the ownership restrictions. The carrier has filed a letter of intent with the 1time’s liquidators, enabling them to negotiate a compromise settlement with creditors. 1time had about 15% of the South African market before it was placed in provisional liquidation. Comair's financial result shows the benefits of reduced competition The benefits of less competition are apparent in Comair’s listed results with the carrier reporting a tax-paid profit of ZAR79.1 million (USD8.9 million) for the first six months to Dec-2012, turning around a ZAR34.2 million (USD3.9 million) loss for the same period in 2011. The result was achieved on 20% revenue growth to ZAR2.42 billion (USD273,000) largely due to fuel surcharges on British Airways' services and improved yield management on LCC subsidiary Kulula Air, despite reduced domestic demand, according to the carrier. An indication of how demand has evaporated can be seen at South Africa’s two biggest airports, Cape Town and Johannesburg Oliver R Tambo, which recorded domestic passenger reductions of 4.8% and 8.9% respectively year-on-year for Jan-2013. Overall traffic numbers were 5.6% down to 701,881 at Cape Town and 3.6% at Johannesburg to 1.5 million. The reduction is at least partly due to reduced domestic competition, helping the remaining airlines' bottom lines. Domestic capacity has reduced by about 32,000 return seats per week to about 323,000 over the past 12 months, largely due to the demise of Velvet Sky and 1time. South Africa domestic capacity, (seats per week, one-way): 19-Sep-2011 to 15-Sep-2013 Source: CAPA – Centre for Aviation & Innovata

Mango plans to immolate fastjet expansion plans Mr Bezuidenhout plans to expand Mango in 2013 taking advantage of Africa’s 5% overall economic growth forecast, well above the global average. He also pins his hopes on the “progressive realisation of the Yamoussoukro Declaration” (YD) creating open skies

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across the continent to accelerate Mango’s growth beyond South Africa. There has, however, been little progress in liberalising African airspace since the YD was ratified by the majority of African states in 2002. With fastjet well in its sights, Mango is considering several new routes, particularly to East Africa over the next 18 months, in a strategy similar to that of fastjet's which aims to be a pan-African LCC, in part through the rebranding of its Fly540 operations in Ghana and Angola. A new SAA will walk into a political quagmire, despite management skills The process of appointing SAA’s CEO is utterly embroiled in politics and it appears likely that Mr Bezuidenhout will be one of the few well-qualified leaders that the airline needs. The question remains whether he will be given sufficient rein to implement his strategic plan, or will he be required to toe the government line. Minister Gigaba has reiterated the government’s interventionist style, reportedly saying in Feb-2013 that he will not hesitate to intervene again if management does not deliver. “We respect the difficult decision that the board had to make. We will assess it and make further intervention. Our focus is the well-being of the company and the employees, and the well-being of the economy,” a spokesman for Mr Gigaba said. This approach gives little confidence that a new leadership will be given the mandate to implement any strategic plan calling for the massive restructuring that is so necessary to stem losses. History also does not bode well; over the years, nine restructuring plans have been presented to the government. None has been implemented. But, with market competition intensifying, this may be the last throw of the dice for SAA.

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EgyptAir Key Data Fleet and Orders EgyptAir Fleet Summary: as at 10-Apr-2013

Aircraft In Service In Storage On Order Total: 55 0 20 Airbus A320-200 13 0 0 Airbus A321-200 4 0 0 Airbus A330-200 7 0 0 Airbus A330-300E 4 0 1 Airbus A340-200 3 0 0 Boeing 737-500 4 0 0 Boeing 737-800 20 0 0 Boeing 777-200ER 3 1 0 Boeing 777-300ER 6 0 0


EgyptAir projected delivery dates for aircraft on order: as at 8-Apr-2013


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Route area pie chart EgyptAir international capacity seats by region: as at 8-Apr-2013

Source: CAPA - Centre for Aviation and Innovata Top routes table EgyptAir top ten international routes by seats: as at 8-Apr-2013


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Premium/Economy profile EgyptAir schedule by class of seat - one way weekly departing seats: as at 8-Apr-2013


EgyptAir looks to expand its way out of intensive care in 2013 EgyptAir continues to make massive losses as the carrier and Egypt struggle to recover from the Jan-2011 revolution which resulted in the airline moving into crisis mode for two months when it was forced to temporarily ground up to 40% of its fleet and as 80% of revenue evaporated. Egypt’s Minister of Civil Aviation Wael al-Maddawy reportedly told the Shura Council Transportation Committee in Mar-2013 that losses at the national carrier had reached more than EGP6 billion (USD885 million) since the revolution. EgyptAir is yet to publicly release its annual report for FY2012 which ended 30-Jun-2012, but Mr Maddawy said EGP650 million (USD95.7 million) of the losses were due to the weakening of the EGP to the USD. “EgyptAir’s losses are huge, but not catastrophic, [as they won’t] lead to the closure or selling of the company,” Mr Maddawy said. The carrier is burdened with 32,000 employees, when it needs just 12,000 to operate the carrier. Some 20,000 more employees than it needs. However, the carrier is prevented from reducing its headcount due to the prevailing social circumstances, according to Mr Maddawy. EgyptAir’s hopes of profits in 2012 disappear

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The carrier had been optimistic that it could return to profit and resume rapid expansion in 2012 as the economy recovered from the political upheaval and the benefits of network adjustments began to flow to help offset the significant drop in inbound tourism and business traffic. Instead the airline’s losses are reportedly being managed by a committee that includes two American University of Cairo professors and the vice governor of the Central Bank and is headed by the company chairman and CEO Roshdy Zakaria. Egypt tourist numbers grew in 2012 despite on-going unrest But a recovering tourism market should help to arrest EgyptAir’s losses. Tourist numbers grew 17% in 2012 according to Egypt's Central Agency for Public Mobilization and Statistics. About 11.5 million tourists visited Egypt in 2012, compared to 9.8 million in 2011, and still well down on the 14.7 million visitors in 2010. Tourism, a vital part of the country's economy, accounted for about 11% of Egypt’s GDP in 2012. The government expects tourist numbers to return to 2010 levels by the end of the 2013, security issues permitting. Egypt also has a long-term target to attract 30 million tourists by 2020. Airport passenger numbers still to recover to pre-revolution levels, but tourist centres performing well Passengers passing through Egypt’s airports were down three million in 2012 to 15 million compared to 18 million before the revolution, according to Mr Maddawy. While airports in tourism centres of Sharm al-Sheikh, Hurghada, Luxor, Aswan and Burg al-Arab were profitable, 12 others made heavy losses, including three in New Valley. Subsidiary EgyptAir Tourism and Duty Free in Dec-2012 forecast sales of USD200 million in 2013, up from an expected USD170 million in 2012. Chairman Gamal Hammad told The Moodie Report passenger numbers to Cairo were still below 2010 levels, but tourist destinations like Sharm el-Sheikh and Hurghada had recovered quickly since the revolution, increasing 40% in 2012, driven partly by strong charter business from Russia, Ukraine, Germany and Italy. Russian carrier Transaero Airlines operated between 6,000 one-way weekly seats and about 7,500 to Hurghada for most of 2012. But it has reduced capacity to around 4,500 seats per week since Dec-2012. Rossiya Russian Airlines and Aeroflot also compete on the route, offering a small number of seats each. Transaero has also cut back its capacity to Sharm el-Sheikh from more than 4,000 one-way seats per week for much of 2012 to about 2,500 since Nov-2012. Aeroflot also began operating between about 600-900 weekly one-way seats in Oct-2012, but Rossiya pulled off the route in Jan-2013, according to Innovata. EgyptAir focus on growing Middle East markets

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Tourism is traditionally only a small part of EgyptAir’s traffic, accounting for about 10% of passengers before the revolution. The carrier is more focused on the visiting friends and relatives (VFR) market. EgyptAir deploys the bulk of its capacity to the Middle East, catering primarily to point-to-point VFR traffic as the UAE. EgyptAir international capacity, seats by region: 11-Mar-2013 to 17-Mar-2013

Source: CAPA – Centre for Aviation & Innovata Saudi Arabia accounts for three of EgyptAir’s five largest routes, with Jeddah by far the carrier’s biggest. Middle Eastern destinations make up six of the top 10 routes. EgyptAir top 10 international routes by seats: 11-Mar-2013 to 17-Mar-2013

Source: CAPA – Centre for Aviation & Innovata EgyptAir commands nearly 50% of the capacity in and out of Egypt, with Saudia the biggest single competitor, its 36,000 weekly seats giving it a 7% market share.

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Egypt capacity (seats per week) by carrier: 18-Mar-2013 to 24-Mar-2013

Source: CAPA – Centre for Aviation & Innovata Egypt share of capacity (% seats per week) by carrier: 18-Mar-2013 to 24-Mar-2013

Source: CAPA – Centre for Aviation & Innovata EgyptAir will add significant summer season capacity to Saudi Arabia Middle Eastern traffic has been rising and will spike in Jul-2013 due to increased summer capacity to Saudi Arabia, Egypt’s biggest single market. Saudi Arabia is a fast growing inbound tourism market for Egypt and has been less impacted than European arrivals. Saudi Arabia as well as the UAE and Kuwait have large populations of Egyptians.

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Egypt to Middle East, seats per week, one-way: 19-Sep-2011 to 08-Sep-2013

Source: CAPA – Centre for Aviation & Innovata Over the summer season EgyptAir will significantly increase frequencies to Saudi Arabia including more than doubling Alexandria-Madinah from three times weekly to daily and Alexandria-Jeddah to double daily from 11 times weekly. Cairo-Abha will become a daily service from 31-Mar-2013, up from five times weekly, EgyptAir competes with Saudia on the route. Cairo-Qassim will be launched with a daily service from Jun-2013 and frequency on Sharm el-Sheikh-Jeddah will increase from twice weekly to five times per week from Jun-2013. Western Europe to Egypt traffic falls as Thomson withdraws from the market Egypt’s Western European traffic fell sharply in May-2012. This appears to have been almost entirely due to the withdrawal of leisure airline Thomson which operated 7,800 one-way seats per week in April-2012. Arrivals from the region have been relatively flat since.

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Egypt to Western Europe, seats per week, one-way: 19-Sep-2011 to 08-Sep-2013

Source: CAPA – Centre for Aviation & Innovata EgyptAir will launch services to Manchester and Toronto EgyptAir confirmed in Jan-2013 that it will add Manchester and Toronto to its network from Jun-2013. Manchester will be served five times weekly operating 720 one-way seats per week using a Boeing 737-800. Toronto will be served four times per week with a Boeing 777-300ER, offering 1,356 one-way seats per week. The airline previously planned to launch the Toronto service in 2011, its second North American destination, but this was postponed due to the revolution. EgyptAir faces no direct competitors on either the Toronto or Manchester routes. The airline signed a codeshare agreement with fellow Star alliance member, Air Canada in Mar-2012 with EgyptAir placing its code on Air Canada’s London-Toronto and London-Montreal services. Air Canada in return placed its code on EgyptAir's services between Cairo and London and Frankfurt. EgyptAir said the Canadian market was an important tourism and business destination and was part of the carrier’s expansion strategy to North America.

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EgyptAir has responded to weak demand from the United States by reducing frequencies on Cairo-New York from daily to five times weekly in Jan-2013. However, the daily service is scheduled to be restored in May-2013, using a Boeing 777-300ER according to Innovata. The carrier has also long harboured ambitions to serve Washington Dulles. EgyptAir route map as at Mar-2013

Source: CAPA – Centre for Aviation & Innovata EgyptAir acquisition of CityLink stake central to Western African strategy EgyptAir is working to expand its relatively limited intra-African network which consists of 17 destinations, focused along the Mediterranean, Eastern Africa and Western Africa. The airline is in the process of acquiring 49.9% of suspended Ghanaian domestic carrier CTK-CityLink in a bid to tap into Western Africa’s economic growth and potential feed into its Cairo hub. EgyptAir’s plans for CTK in the short-term would be for it to catch up to competitors by entering international routes around West Africa. The move follows Ethiopian Airlines’ decision to take a stake in Togo’s ASKY as a means to access Western Africa without establishing a new affiliate. CTK in Aug-2012 suspended passenger flights, which it commenced in Sep-2003, after previously focusing on charter and private flights. CTK schedules before its collapse indicate the carrier operated three domestic routes from its Accra hub to Kumasi, Takoradi and Sunyani. Further regional growth could result from the Egypt and Liberia agreement in Apr-2012 to increase air access between the two countries. But an expected service between Cairo and Monrovia, through Accra within a year has not yet commenced.

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Capacity will also be increased to several destinations in Europe, the Middle East and Africa over 2Q2013 EgyptAir has also announced a range of capacity increases from Cairo, starting with Madrid moving from daily to eight times weekly on 01-Apr-2013. Rome will also increase to double daily from 11 times weekly. The bulk of the changes take effect on 01-Jun-2013 and include Cairo-Doha moving from 10-times weekly to double daily, Kano going from five to six times weekly and Baghdad from three to four-times weekly. Cairo-Athens will move from 10-times weekly to double daily. The current Cairo-Accra service will continue on to Abidjan with a daily service, up from four times weekly, while Harare will be added to the existing four times weekly Cairo-Dar es Salaam service. Capacity will also be increased on Cairo-Bahrain from 01-Jun-2013 with the replacement of the 76-seat, single class Embraer E170 service with a two-class 145-seat A320. The daily Cairo-Tunis service will also be up-gauged from an A320 to a two-class 185-seat A321 from that date. But promised Asian expansion is yet to occur Plans to increase frequencies between Cairo and Beijing from three to four times weekly in Dec-2012 did not eventuate, according to Innovata. A proposed service between Cairo and Ho Chi Minh City, announced in Jul-2012 has also not yet commenced. EgyptAir Asian network includes four times weekly services between Cairo and Guangzhou as well as daily from Cairo to Bangkok and on to Kuala Lumpur using a Boeing 777-300ER. The carrier cancelled its three times weekly Sharm el Sheikh-London Heathrow service in Oct-2012 in favour of boosting frequencies on Cairo-London Heathrow from 11 to 14. EgyptAir had the Sharm el Sheikh route to itself, but competes with British Airways to and from Cairo. EgyptAir has resumed services to Japan EgyptAir suspended services to Japan in Feb-2011 following the political unrest in Egypt. The carrier resumed twice weekly Cairo-Tokyo Narita services in Apr-2012, increasing to three times weekly in Sep-2012. This will be reduced back to twice weekly from 31-Mar-2013. A twice weekly Cairo-Osaka Kansai service was reinstated in Dec-2012 using A340-200 aircraft. EgyptAir is the only operator on both routes. Fleet replacement and upgrade options being considered EgyptAir is considering options to develop and grow its fleet, including replacing and retrofitting a number of older aircraft. The carrier plans to increase its fleet operated across its three subsidiaries, EgyptAir, EgyptAir Express and EgyptAir Cargo, from 79 aircraft to 83 by the end of 2014. It has just one order, for an A330-300E, which is due for delivery in 2014.

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Of its total passenger fleet of 76 aircraft, 20 were built in the 1990s. EgyptAir Express has a monopoly position on the domestic network of 10 destinations which it serves with a fleet of 12 Embraer ERJ170 aircraft. EgyptAir fleet as at Mar-2013 Aircraft In Service In Storage On Order Airbus A320-200 13 0 0 Airbus A321-200 4 0 0 Airbus A330-200 7 0 0 Airbus A330-300E 4 0 1 Airbus A340-200 3 0 0 Boeing 737-500 4 0 0 Boeing 737-800 20 0 0 Boeing 777-200ER 3 1 0 Boeing 777-300ER 6 0 0 Airbus A300B4-200(F) 1 0 0 Airbus A300B4-600R(F) 2 0 0 Embraer ERJ170-100LR 12 0 0 Total: 79 1 1 Source: CAPA – Centre for Aviation EgyptAir seeks to expand and diversify its way out of intensive care Thanks to a conspiracy of events, EgyptAir is in intensive care. There is little it can do about the continuing unrest in its home country, but a targeted growth programme is being implemented, with apparent strategic thought. It will not be easy to recapture profitability but the carrier is expanding and diversifying its network in Africa, Europe and the Middle East to improve revenue and help offset the effects of a tourism market that, while recovering, remains subject to further political upheaval.

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Kenya Airways Key Data Fleet and Orders Kenya Airways Fleet Summary: as at 10-Apr-2013

Aircraft In Service In Storage On Order Total: 43 0 12 Boeing 737-300 5 0 0 Boeing 737-300(F) 1 0 0 Boeing 737-700 4 0 0 Boeing 737-800 1 0 0 Boeing 737-800(ETOPS) 4 0 0 Boeing 747-400(BCF) 1 0 0 Boeing 767-300ER 6 0 0 Boeing 777-200ER 4 0 0 Boeing 787-8 0 0 9 Embraer ERJ170-100LR 3 0 0 Embraer ERJ170-100STD 2 0 0 Embraer ERJ190-100IGW(AR) 12 0 3


Kenya Airways projected delivery dates for aircraft on order: as at 8-Apr-2013


The Pride of Africa

The Pride of Africa

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Route area pie chart Kenya Airways international capacity seats by region: as at 8-Apr-2013

Source: CAPA - Centre for Aviation and Innovata Top routes table Kenya Airways top ten international routes by seats: as at 8-Apr-2013


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Premium/Economy profile Kenya Airways schedule by class of seat - one way weekly departing seats: as at 8-Apr-2013


Share price 2012/2013

Source: CAPA - Centre for Aviation and Yahoo! Financial

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Kenya Airways boosts China services, with new Etihad codeshare, but has political and economic risks Kenya Airways will boost capacity to China and switch its Nairobi-Bangkok-Hong Kong service to instead transit via Dubai from Apr-2013 as the airline seeks to take advantage of growing Chinese interest in Africa’s economic growth prospects. The airline's overall Nairobi-Dubai frequency will increase from daily to 10 times weekly. The carrier will also add three weekly frequencies on its Nairobi-Bangkok-Guangzhou service moving to a daily service. Kenya Airways CEO Titus Naikuni said China has been looking for economic opportunities in Africa and the daily service will facilitate movement of traders and goods between these regions, noting: “This daily service will contribute towards sustainable development in Africa by linking it to the rest of the world". This, combined with an extensive codeshare agreement with Etihad, means Kenya Airways is well positioned to advance its 10 year growth plan and position Nairobi as the Eastern African hub over Addis Ababa, particularly addressing China as well as Indian markets. Kenya Airways faces stiff competition from Gulf and Asian carriers on routes to China Kenya Airways offers about 1,500 seats on the Nairobi-Dubai route using a Boeing 767-300, increasing to nearly 2,200 in Apr-2013. The carrier competes against Emirates which operates about 4,000 seats on the route. Between the UAE and China, Kenya Airways will join seven other Middle Eastern and Chinese carriers. The market is dominated by Emirates which offers about 14,200 one-way seats per week. United Arab Emirates to China (seats per week, one way): 19-Sep-2011 to 15-Sep-2013

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Source: CAPA – Centre for Aviation & Innovata Between Dubai and Hong Kong, Kenya Airways will come up against Emirates and Cathay Pacific who together operate about 9,700 seats against Kenya Airways’ approximately 650 seats. Dubai to Hong Kong (seats per week, one way): 19-Sep-2011 to 15-Sep-2013


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Kenya Airways has the Nairobi-Bangkok route to itself, but was competing in a crowded market between Bangkok and Hong Kong where Cathay and Thai Airways hold sway offering a combined 26,000 seats. Increasing frequencies to daily on Bangkok-Guangzhou will elevate Kenya Airways into a distant third place with about 1,500 one-way seats per week behind Thai and market leader China Southern Airlines. Bangkok to Guangzhou (seats per week, one way): 19-Sep-2011 to 15-Sep-2013

Source: CAPA – Centre for Aviation & Innovata Etihad alliance is a lynchpin to accelerate Kenya Airways’ growth and Nairobi’s hub prospects - and there are Chinese airline friends too The changes coincide with the start of an unrelated reciprocal codeshare agreement with Etihad that paves the way for greater collaboration and cost savings that will boost Nairobi’s challenge to Addis Ababa as the gateway to Eastern Africa when it takes effect from 01-Apr-2013.

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As part of the deal, Kenya Airways will launch a new three times weekly Nairobi-Abu Dhabi service from about Jul-2013 to improve connections in support of Etihad’s current daily service. The alliance is the latest from Etihad to cut across marketing alliance boundaries: Kenya Airways is a member of SkyTeam, complete with a 27% equity investment from Dutch national carrier KLM. Etihad and SkyTeam leaders, Air France-KLM concluded a "strategic alliance" in Oct-2012. KLM has also held a cornerstone stake in Kenya Airways since 1995 and is the carrier’s biggest shareholder after the Kenyan Government which holds 29%. The strategic commercial partnership will significantly expand Etihad’s reach across strategically important Africa while also providing Kenya Airways with greater access to the important Asian and European markets. Etihad will place its EY code on Kenya Airways’ flights from its Nairobi hub to 27 destinations across Africa. In return Kenya Airways will place its KQ code on Etihad’s daily service from Nairobi to Abu Dhabi and, subject to government approval, onward to up to 32 destinations across Etihad’s global network. Details of the destinations included in the deal have not been disclosed. Etihad is likely to be interested in taking advantage of Kenya Airways’ extensive access across the sub-Saharan region, including Abidjan and Accra in the west, Johannesburg in South Africa and Dar es Salaam in the east, all of which are served by United Arab Emirates rival Emirates, as well as Qatar Airways. Etihad could also bolster Kenya Airways’ Asian network which is limited to Hong Kong, Guangzhou and Bangkok using its own metal. Etihad could add to that Beijing, Shanghai and Chengdu in China, Seoul in South Korea, Manila in the Philippines as well as Kuala Lumpur, Singapore and Jakarta in Southeast Asia. But Kenya Airways will look to its Chinese SkyTeam partners, China Airlines, China Eastern, China Southern and Xiamen to provide the traffic feed in China through codeshare agreements. Kenya Airways already codeshares with China Southern on the Dubai-Guangzhou route. The airline expanded its footprint in Southeast Asia by signing a reciprocal codeshare agreement with fellow SkyTeam member Vietnam Airlines in Nov-2012. The agreement covers daily services between Nairobi and Bangkok and on to Hanoi and Ho Chi Minh City in Vietnam. Etihad could also enhance Kenya Airways’ access to India, adding to its Mumbai and Delhi services; Etihad operates to nine points in India. Kenya has a reduced but still substantial expatriate Indian community dating back to the 19th century. The UAE flag carrier is currently in discussions to acquire a large minority stake in India's Jet Airways, which would further strengthen the value of such a link. Kenya Airways also has its sights set on adding another two destinations in the Indian subcontinent.

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Tourism traffic could also be available from Australia, where Etihad is in alliance with Virgin Australia. If the agreement extends to Australia it will replace a previous codeshare Kenya Airways had with Qantas between Bangkok and Sydney which was cancelled as a result of Qantas’ alliance with Emirates. (Equally, as the Qantas/Emirates codeshare rolls out, Qantas may seek to use Emirates' metal to exercise Australian rights to Kenya.) Kenya Airways expects a 25% reduced profit for FY2013 after posting a first half loss, but plans to expand its way out of difficulties Kenya Airways is Africa’s fourth largest carrier and among the few consistently profitable African airlines, but it issued a profit warning in Nov-2012 for the FY2013 expecting full year profits to be lower by more than 25% on FY2012. The carrier reported an operating loss of KES5.53 billion (USD65.7 million) for the six months ended 30-Sep-2012 on a 9.3% reduction in revenue and 2.7% increase in costs. Kenya Airways CFO Alex Mbugua expected the second half of the financial year to be “much better” but the carrier would not be able to recover the KES6.55 billion (USD77.8 million) lost in the first half compared to the same period in FY2012. The airline is pursuing an aggressive and ambitious 10-year growth plan which revolves around building its Nairobi hub as an African gateway for traffic to and from Asia, particularly China as well as India. The strategy is nothing if not ambitious and includes a target of flying to every African capital city by 2014. Kenya Airways’ African network currently spans 44 destinations, almost exclusively in the sub-Saharan region, with strong links between its hub in Nairobi and Western Africa. In the other direction, its northern Africa access is limited to Cairo. Kenya Airways network summary as 31-Mar-2013


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Kenya Airways international seat capacity by region: 25-Mar-2013 to 31-Mar-2013

Source: CAPA – Centre for Aviation & Innovata Kenya Airways top 10 international routes by seats: 25-Mar-2013 to 31-Mar-2013

Source: CAPA – Centre for Aviation & Innovata Kenya Airways enjoys a little over half the total share of Kenya’s seat capacity offering about 87,500 one-way seats per week. Kenya total capacity (% of seat) by airline: 25-Mar-2013 to 31-Mar-2013


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Both KLM and Air France are important parts of Kenya Airways' strategy, having grown the number of destinations to Kenya available from Amsterdam Schiphol and Paris Charles de Gaulle airports. KLM is expanding its African network to 15 points and MD Erik Varwijk said in Jul-2012 that: “KLM sees great growth opportunities in Africa” having launched service to Luanda in Angola and Lusaka in Zambia in 2012. Kenya Airways plans to grow its fleet from 43 aircraft to 76 by FY2017 Kenya Airways operates a fleet of 43 aircraft and has 11 aircraft on order direct from manufacturers, including nine Boeing 787-8s with delivery dates between 2013 and 2019. The carrier reportedly also secured financing for a 777-300ER in 2012 and plans to expand its fleet to 76 aircraft by FY2017. It then plans to acquire at least 43 more aircraft over the following five years. Kenya Airways received its first Boeing 737-300 passenger-to-freighter converted aircraft on 20-Mar-2013. A second 737-300 will be converted and delivered to the airline in Jun-2013. The conversions allow the carrier to grow its cargo business and will initially operate on the routes of Entebbe, Brazzaville, Yaounde, Mwanza, Luanda, Antananarivo, Kigali, Kinshasa and Douala. Kenya Airways fleet as at Mar-2013

Source: CAPA Fleet Database Etihad alliance ramps up competition between Kenya Airways and Ethiopian Airlines The Etihad alliance ramps up Kenya Airways’ competitive standing with Ethiopian Airlines as each seeks to develop its strategically well placed East African hub, leveraging their distribution networks across Africa. Star Alliance member Ethiopian plans to strengthen its Addis Ababa hub, as the Gulf carriers – now partnering with some global alliance airlines – expand their global networks across Africa. The two cities of Addis Ababa and Nairobi provide geographically convenient connections between Asia, Africa and Europe.

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Ethiopian Airways is ahead of Kenya Airways in establishing in several key markets, including mainland China, operating to Beijing, Guangzhou via Delhi and Hangzhou via Bangkok. Ethiopian Airways also operates to Toronto and Washington in North America. But despite their local rivalries, Kenya Airways and Ethiopian Airways have a mountain to climb to overcome the massive advantage of the Gulf carriers. Dominated by Emirates and its strong Asian links, Etihad and Qatar Airways too are able to funnel traffic between east, west and south into Africa over their United Arab Emirates hubs, all the time strengthening their network power. Middle Eastern airlines have more than doubled their capacity into Africa in the past 10 years. By way of contrast, European carriers – historically the long-haul gateway providers – have added just 18% over that time. Kenya Airways is building relationships with smaller African airlines to extend its continental reach Kenya Airways is also expanding its influence in the African market and the value of Nairobi as a continental hub by aligning itself with smaller carriers. This includes promoting greater cross-border cooperation and fostering economic development among nations which jealously guard their independence, despite the clear evidence that this has been a fundamental cause of their problems. In Dec-2012 Kenya Airways and RwandAir announced plans to form a strategic partnership and build stronger relations including improved synergies in scheduling, reservation systems and a combined FFP. The partnership will also strengthen the airlines' cargo, maintenance and flight training operations. At the AFRAA AGA in Nov-2012 in Johannesburg, a number of smaller carriers called for greater support from the continent’s big four, Kenya Airways, Ethiopian Airlines, South African Airways and EgyptAir, to help develop the entire industry. Air Namibia is another airline with which Kenya Airways has shown interest in a partnership that would benefit trade and tourism between those two countries, as well as providing mutual value to the two airlines. In addition Kenya Airways’ membership of SkyTeam has provided other African codeshare partners, including Air Mozambique, Air Botswana, Air Malawi and TAAG Angola Airlines, access to the alliance's global market through Kenya Airways. Kenya Airways route map

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Source: CAPA – Centre for Aviation & Innovata Kenya Airways is well placed to accelerate growth, but the election of Uhuru Kenyatta as Kenya’s new president risks economic uncertainty Kenya Airways is well placed to progress is growth plans aided by a potentially lucrative codeshare partnership with Etihad which enhances access to all points eastward. The partnership should result in a significant increase in traffic to and from its Nairobi hub and will allow the carrier to fast track its plans to offer more services to Asia. For Etihad too, this represents an important foothold in the valuable and generally more stable Eastern Africa. Fears of widespread violence following Kenya’s general elections on 04-Mar-2013 have so far been averted despite the election of Uhuru Kenyatta as president, beating prime minister Raila Odinga by a slim margin. Mr Kenyatta has been summoned to appear before the International Criminal Court in The Hague, charged with crimes against humanity for his role in orchestrating post-election tribal violence five years ago in which more than 1,100 people were killed. The election result is meanwhile being challenged by Mr Odinga through the courts which must decide by 30-Mar-2013 whether to confirm Mr Kenyatta as president or whether a new election needs to be held. The decision has the potential to lead to widespread upheaval in the country, damaging its booming economy and Nairobi’s ambitions of becoming a continental gateway. But, after the previous experience, much greater caution is apparent, hoping to avoid further disruptions.

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Arik Air Key Data Fleet and Orders Arik Air Fleet Summary: as at 10-Apr-2013

Aircraft In Service In Storage On Order Total: 21 2 17 Airbus A340-500(HGW) 2 0 0 Boeing 737-300 0 2 0 Boeing 737-700 6 0 0 Boeing 737-700(ETOPS) 3 0 0 Boeing 737-800 4 0 8 Boeing 747-8 0 0 2 Boeing 787-9 0 0 7 Bombardier DHC-8Q-402 2 0 0 Canadair Ltd CL-600-2D24(CRJ900ER 4 0 0


Arik Air projected delivery dates for aircraft on order: as at 8-Apr-2013


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Route area pie chart Arik Air international capacity seats by region: as at 8-Apr-2013

Source: CAPA - Centre for Aviation and Innovata Top routes table Arik Air top ten international routes by seats: as at 8-Apr-2013


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Premium/Economy profile Arik Air schedule by class of seat - one way weekly departing seats: as at 8-Apr-2013


Arik Air has the funding and opportunity to grow in 2013, but faces further government interference Nigeria-based Arik Air enters 2013 with some prospect for growth having reportedly secured a USD2 billion credit facility to fund the acquisition of additional aircraft. The carrier has also held preliminary talks with Ivory Coast national carrier Air Cote d’Ivoire to provide that nation’s domestic network. But despite repeated announcement of new long-haul routes, the previously aggressive Arik founded in 2006 after taking over the assets of bankrupt national airline Nigeria Airways has achieved little growth in recent years. Arik harboured pretentions of becoming Western Africa’s leading airline and candidate for membership of one of the main marketing alliances but has been weighed down by debt, the lack of a clear business plan and a meddlesome government. The carrier has capitalised on the demise of a major privately-owned competitor in Air Nigeria as well as grounding of Dana Airways following a crash, which effectively reduced the domestic market to a duopoly with Aero. Nigerian Government plans to launch a new national airline and encourage new entrants

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Faced with an uncompetitive market between two carriers, both heavily indebted to the state, along with the associated very high air fares and often systemic corruption, the Nigerian Government is talking of pulling out the stops in 2013 to encourage more investment in the scheduled aviation sector – including fast tracking registration of four new unidentified airlines and the establishment of a new national carrier. The Central Bank of Nigeria is also developing a plan to provide cheap funding to airlines allowing them to acquire new aircraft to improve safety. The plan includes the government buying 30 aircraft on behalf of domestic airlines, as part of a transformational programme that also includes airport remodelling and reconstruction to establish Nigeria as an aviation hub in competition with Accra in Ghana. Arik became West and Central Africa’s largest carrier after taking over the assets of bankrupt national airline Nigeria Airways in 2006. From its main base at Murtala Muhammed International Airport in Lagos, and a secondary hub at Nnamdi Azikiwe International Airport in Abuja the carrier offers domestic, regional and intercontinental services to destinations in North America and Europe. Six years on and Arik remains largely a regional carrier with a network of 20 domestic destinations and eight regional points, with the exception of a daily 737-800 Lagos-Johannesburg, daily Lagos-London and three times weekly Lagos-New York each operated with A340-500 aircraft. Arik may launch Ivory Coast domestic routes in partnership with Air Cote d’Ivoire Arik and start-up Ivorian national carrier, Air Cote d’Ivoire held preliminary discussions in Jan-2013 with a view to forming a partnership to build a domestic network from Air Cote d’Ivoire’s hub in Abidjan. Air Cote d’Ivoire wants to urgently launch services to eight domestic destinations and believes Arik has the suitable aircraft types required. Arik does not currently operate to Ivory Coast, though the nation was on a list of new routes reportedly planned by MD Chris Ndulue in Oct-2012. Mr Ndulue also reportedly said the airline plans to commence Lagos-Houston, Abuja-Kano-Jeddah, Accra-London, and Freetown-London services. Air Cote d’Ivoire replaces Air Ivoire as the nation’s national carrier as joint venture between the Ivorian Government which owns 65% of the airline, Air France with 20% and Aérienne de Participation-Côte d’Ivoire 15%. Air Cote d'Ivoire operates between 13 destinations in Western and Central Africa with two A319-100LRs provided by Air France under lease from Macquarie Bank, but has no domestic network. Arik strengthens its domestic position following collapse of Air Nigeria and Dana Airlines grounding

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Arik holds a comfortable leading position in the domestic market where it deploys about 80% of its capacity giving it a market share of seats of 56%, offering about 68,000 one-way seats per week, according to Innovata. Main competitor, Aero has a nearly 39% market share by seats, offering about 48,000 seats and Dana Airlines the remaining 5% with about 6,000 seats per week. Dana Airways was grounded following the Sep-2012 crash of a MD-83 aircraft at Lagos killing 163 people. The airline resumed operations in Jan-2013. But Arik has taken advantage of Dana’s misfortune by picking up much of its traffic. Nigeria domestic seats per week, one way: 19-Sep-2011 to 25-Aug-2013

Source: CAPA – Centre for Aviation & Innovata Arik’s biggest domestic routes are between Lagos and the capital, Abuja offering about 17,700 seats per week across 53 times weekly services, followed by Lagos-Port Harcourt offering about 13,600 seats. Abuja-Port Harcourt is the third largest route with about 5,600 seats. Arik operates 61% of its international capacity, or about 10,500 seats to eight regional destinations in Western Africa including five to the west; Dakar, Banjul, Freetown, Monrovia and Accra as well as to Douala, Kinshasa and Luanda to the east and south. Lagos to Accra accounts for about 4,000 weekly seats, making it Arik’s biggest international route ahead of Lagos-London, 3,300 seats and Lagos-Johannesburg about 2,000 seats.

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Arik struggles to expand its long-haul network Arik has struggled to expand its long-haul network and was forced to drop its Abuja-London service in Mar-2012 after the lease on a Heathrow slot from bmi expired and Arik claimed the Nigerian and British governments were unable to agree on terms under the 2008 bilateral air services agreement for a replacement slot. London continues to be served daily from Lagos, as Arik’s only European destination. The large Nigerian population in Britain and significant leisure and business traffic sees the carrier deploying more than 19% of its international capacity on the route. Arik competes on the London route with British Airways which has a 50% market share and Virgin Atlantic with about a 28% share. Nigeria to Britain seats per week, one way: 19-Sep-2011 to 25-Aug-2013

Source: CAPA – Centre for Aviation & Innovata The Lagos to London route is highly lucrative with high demand and a lack of capacity due to bilateral rights restrictions. Fares are driven by high demand for first and business class seats of which nearly 60% are bought by politicians and government officials. Nigeria is also served from western Europe by Lufthansa, Air France, KLM and Iberia.

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Nigeria to western Europe seats per week, one way: 19-Sep-2011 to 25-Aug-2013

Source: CAPA – Centre for Aviation & Innovata Arik’s only other intercontinental long-haul route is to New York, which it operates from Lagos three times weekly, offering about 950 seats per week. Arik competes with United States carriers Delta and United Airlines between Nigeria and the North American market. Arik trails with a 20% share of seats against Delta’s 43%. Delta operates a daily service from its Atlanta hub to Lagos with a Boeing 767-300. Delta pulled off the Accra-Abuja route in Jul-2012, which was an extension of its New York-Accra service which continues. United flies to Lagos from Houston five times weekly, using a Boeing 777. United has reduced its capacity on the route from a market leading position of nearly 2,000 seats when it operated as Continental to a little over 1,300 seats per week in Mar-2013. This is scheduled to slip further in June-2013 to just under 1,100 seats. The high demand for business travel on Arik’s long-haul network means Arik offers substantially more premium capacity than the global average. The carrier operates with 3.2% of its total seats in first class, compared to 1.7% of the global average and nearly 6% in business class, compared to the average of 4.5%

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Arik has 787-9s and 747-8s on order for expansion Arik operates a fleet of 21 aircraft and has 17 on order, including eight Boeing 737-800s due for delivery by 2015, two 747-8s with delivery scheduled in 2014 and 2015, and seven 787-9s for delivery in 2017 and 2018. Air Arik, however, has a history of placing orders and then cancelling them. Arik Air fleet summary as at Mar-2013

Source: CAPA – Centre for Aviation Arik Air fleet delivery schedule as at Mar-2013

Source: CAPA – Centre for Aviation The carrier in Jan-2012 reportedly issued a RFP as it seeks to finance four new Bombardier jet aircraft. The airline has six Bombardier aircraft in its fleet including four CRJ900ER regional jets and two Q400 turboprops. In Oct-2012 Arik reportedly secured a USD2 billion credit facility to purchase new aircraft. Arik along with Aero are barred by the Central Bank of Nigeria from receiving further loans from Nigerian banks due to outstanding debts relating to support funding received in 2010 as part of a

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USD3.3 billion bailout for the country’s domestic carriers to enable them to refinance their loans for 10 to 15 years. Central Bank of Nigeria documents, obtained by Reuters, reportedly show that Arik owes NGN85 billion (USD543.8 million) to state-backed “bad bank” Asset Management Company of Nigeria (AMCON) while Aero owes AMCON NGN35 billion (USD223.9 million). Arik will rebuild its maintenance hangar and urges the government to acquire Bombardier aircraft Arik chairman Joseph Arumemi-Ikhide announced on 04-Mar-2013 that the airline would rebuild its aircraft maintenance hangar in Lagos in partnership with Lufthansa Technik, Boeing and Bombardier. The new hangar would service Arik aircraft as well as those of other domestic carriers. The Bombardier connection is interesting in that the Nigerian Government reached an agreement in principle in Nov-2012 with rival airframe maker, Embraer to collaborate in assisting domestic airlines to acquire new aircraft using government funding. Mr Arumemi-Ikhide called on the government to instead consider acquiring Bombardier aircraft which he considered more suitable to the Nigerian environment. Nigeria's aviation market has huge potential On paper, Nigeria should be a highly active and potentially profitable aviation centre for its airlines to tap into and help grow the country’s economy. The nation has Africa’s largest population of 170 million people, is oil rich, enjoys economic growth running at around 7% a year, and has a growing middle class. Arik should be leading the way, but appears to lack the ability to execute a business plan beyond constant promises to open new international routes, highlighting its rights to fly to Houston, Paris, Beijing among others and acquisition of fleet to support the expansion. The carrier is deep in debt and survives at the behest of a government which is determined to meddle in a supposedly free market littered with airline failures. Somehow, a sustainable domestic aviation industry must be fostered, free from corruption, to unlock and support the country’s trade in natural resources.

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Royal Air Maroc Key Data Fleet and Orders Royal Air Maroc Fleet Summary: as at 10-Apr-2013

Aircraft In Service In Storage On Order Total: 42 8 9 Airbus A321-200 0 4 0 Boeing 737-300(F) 1 0 0 Boeing 737-400 0 1 0 Boeing 737-500 0 3 0 Boeing 737-700 6 0 0 Boeing 737-800 29 0 5 Boeing 737-800 (ETOPS) 1 0 0 Boeing 747-400 1 0 0 Boeing 767-300ER 4 0 0 Boeing 787-8 0 0 4


Royal Air Maroc projected delivery dates for aircraft on order: as at 8-Apr-2013


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Route area pie chart Royal Air Maroc international capacity seats by region: as at 8-Apr-2013

Source: CAPA - Centre for Aviation and Innovata Top routes table Royal Air Maroc top ten international routes by seats: as at 8-Apr-2013


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Premium/Economy profile Royal Air Maroc schedule by class of seat - one way weekly departing seats: as at 8-Apr-2013


Royal Air Maroc shows promising growth for 2013 with route and fleet expansion - but needs a friend Royal Air Maroc will open seven new routes over the next three months to Jun-2013 as the carrier takes delivery of new aircraft and brings others out of storage to cope with a surge in tourism demand. State-owned RAM has announced it will launch services from its Casablanca base to London Gatwick, Copenhagen, Stockholm, Las Palmas, Praia, Zurich and Turin. The carrier also launched a three times weekly service from Casablanca to Madrid in Oct-2012. The Moroccan flag carrier took delivery of two new Boeing 737-800s in Mar-2013, reportedly including its 50th 737 delivery, with another three to come in the second half of 2013 according to the CAPA Fleets database. At the same time the clock is ticking for the carrier to find a strategic airline partner able to help it cope with mounting pressure from LCCs.

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RAM returns to London Gatwick RAM will resume a three times weekly service between Casablanca and London Gatwick from 31-Mar-2013 using Boeing 737-800 aircraft. The airline plans to increase frequencies to 10 times weekly during the summer peak season. RAM last withdrew from the route in Nov-2011 as it underwent an extensive restructure in the face of an onslaught from LCC competition. See related article: Royal Air Maroc fighting back LCC tide with new fleet, cost cuts and possible privatisation RAM will offer 525 one-way seats per week, competing with Air Arabia Maroc to Gatwick. Air Arabia Maroc launched its three times weekly service with an A320 aircraft in Nov-2012, offering 486 weekly seats, according to Innovata. Air Arabia Maroc also operates twice daily between Tangier and London Gatwick, where it is the sole operator. RAM has a monopoly on the Casablanca-London Heathrow route, where it operates daily, after British Airways pulled off the route in Oct-2012, having replaced subsidiary bmi in May-2012. Casablanca to London Gatwick/Heathrow (seats per week, one way): 19-Sep-2011 to 08-Sep-2013


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However, easyJet remains the biggest carrier by seats between the United Kingdom and Morocco, with its capacity dropping back to about 2,300 one-way seats per week in May-2013 compared to RAM’s increased capacity of 2,100 seats. Ryanair comes in third with about 1,500 weekly seats. Morocco to United Kingdom (seats per week, one way): 19-Sep-2011 to 08-Sep-2013

Source: CAPA – Centre for Aviation & Innovata Zurich is also restored to RAM’s network… RAM will also re-enter the Casablanca-Zurich route from 19-Apr-2013. RAM last operated the route in Oct-2011. The carrier will offer three weekly frequencies using Boeing 737-700 and faces no competitors on the route. … and then pushes north into Scandinavia, adding Stockholm and Copenhagen RAM will fill a void in Morocco’s Scandinavian market with three weekly services each to Stockholm and Copenhagen from 31-Mar-2013. Both routes will be operated with Boeing 737-700 aircraft offering 354 one-way seats per week.

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Capacity to Copenhagen will be reduced to 327 weekly seats in Jun-2013 when the route is down-gauged to a 737-500, according to Innovata. At the same time capacity to Stockholm will increase to 468 seats per week resulting from an up-gauge to a 737-800 service on two of the three frequencies. RAM will compete with Binter Canarias on the Casablanca-Las Palmas route where the airline will operate 218 one-way seats per week from Apr-2013, compared to Binter’s 140 seats. The carrier will be the only operator on a new, twice weekly Praia route which will be served with a 737-500 from 07-Apr-2013. A planned Turin service will reportedly operate three times weekly using a Boeing 737-800 aircraft. In addition RAM will increase frequencies between Casablanca and Dakar from twice daily to 17 times weekly, effective from 10-Apr-2013. It is the sole operator on the route. RAM and Air Arabia Maroc both launched services between Tangier and Madrid in Oct-2012, competing against Ryanair and Iberia. RAM operates three times weekly with an ATR 72 aircraft, offering 142 one-way seats per week against Air Arabia Maroc’s twice weekly A320 operating 324 seats per week. Ryanair will dominate the route when it increases capacity to over 1,300 seats in Apr-2013 from about 750 seats. Iberia operates about 1,000 seats per week on the route. The route additions, will take RAM’s network to a total of 77 destinations across Africa, Europe, the Middle East and North America. Air Royal Maroc route map as at Mar-2013


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RAM will receive another three 737-800s in 2013 and its 787-8s will arrive from 2014 RAM is expected to take delivery of another three Boeing 737-800s in the second half of 2013, followed by two in 2014. The aircraft are configured with 175 seats, including 14 business class and 161 economy seats, according to the CAPA Fleets database. The carrier has four Boeing 787-8s on order with the first expected to be delivered in 2014. Oddly, two 787-8s have already rolled off the production line in RAM colours and are in Boeing storage. RAM was originally expecting to take delivery of the aircraft from 2012 and become the first North African carrier to operate the type. The 787-8s are expected to replace the 767-300ER on the daily Casablanca-New York route. RAM will also reactivate at least one of its four A321-200s, which have reportedly been in storage since spring 2012, to operate some peak summer season frequencies between Casablanca, Jeddah and Riyadh between 22-Jun-2013 and 08-Sep-2013. Royal Air Maroc fleet summary as at 22-Mar-2013

Source: CAPA – Centre for Aviation Royal Air Maroc projected fleet delivery dates as at 18-Mar-2013*

Source: CAPA – Centre for Aviation & Innovata * Excludes new aircraft that are coming from leasing companies. Aircraft operated by subsidiaries/associates of the main carrier may be listed separately.

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Morocco’s open skies agreement with the EU has delivered growth, but also adds to RAM’s burden Morocco’s open skies agreement with the EU, signed in 2006, has been hugely successful in attracting European LCCs to the country, bringing with them the tourists that will play a crucial role in an economic recovery that the country is cautiously looking towards in 2013. Western Europe accounts for 77% of Morocco’s international seats. France is the biggest market thanks to its strong colonial links, followed by Belgium. Morocco international capacity, seats by region: 11-Mar-2013 to 17-Mar-2013

Source: CAPA–- Centre for Aviation & Innovata Both RAM and its main competitor Ryanair are the key drivers behind increasing total capacity by 27% from Western Europe to 170,000 one-way seats in Jul-2013 compared to Jul-2012. RAM, through its network and fleet additions will increase its European capacity to about 53,700 one-way seats in the peak Jul-2013 season, up 27% on a year earlier. Ryanair's Morocco expansion, including two new bases at Marrakech and Fes, will add 51% capacity over its 2012 offering to about 33,600 seats.

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Morocco to Western Europe, (seats per week, one way): 19-Sep-2011 to 08-Sep-2013

Source: CAPA – Centre for Aviation & Innovata Morocco’s third largest carrier, Jetairfly (formerly branded Jet4you) is also expanding its Moroccan network with three new routes to commence in 2013, The carrier will launch twice weekly between Paris Orly and Rabat from 01-Apr-2013, a weekly Toulon-Oujda service from 02-Jul-2013 and weekly Rotterdam-Tangier from 28-Jun-2013. Ryanair’s change of heart provides an economic boon for Morocco Europe’s largest low-cost carrier Ryanair will establish two bases in Morocco in Apr-2013, by basing two aircraft at Marrakech and another at Fes. The carrier will also add Essaouria and Rabat to its Moroccan destinations, adding 17 new routes from the country for a total of 60 routes from eight airports, delivering an estimated 2.5 million passengers a year to the country. The USD210 million investment, announced in Jan-2013, was a stunning turnaround from just six months earlier when the Irish-based carrier decided to cut 34 frequencies, including several routes entirely, in protest at rising costs at the country’s airports. While Ryanair’s rethink is a significant boost for Morocco’s economy, it will also put more pressure on RAM, already struggling to cope with the LCC influx.

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RAM’s search for an airline partner to provide network diversification The Moroccan government continues to look for a strategic partner after providing RAM with a USD193 million bailout. An additional USD900 million in public financing is available for the carrier through to 2016. The government initially considered selling a stake of up to 44% in RAM to a major Gulf carrier in order to increase international tourist connections to China, India and South America. But since Nov-2012 a slightly different approach, of a strategic partnership with an airline from the Gulf, Europe or the United States has been favoured - perhaps because the investment was not forthcoming. The carrier has been hit hard by the arrival of LCCs, including Ryanair and domestic competitor Air Arabia Maroc, on its routes after the Kingdom’s open skies agreement with the EU. This was subsequently compounded by the Arab Spring regional unrest and the general economic slowdown in Europe. But the other side of the liberalisation coin is that Moroccan airlines gain near-unlimited access to European points. This is not a totally illusory benefit, despite the might of the EU LCCs, although RAM will inevitably struggle to compete on equal terms. RAM’s additional network expansion announced in the first three months of 2013 is an encouraging sign that a turnaround is under way. However, the threat from LCC competition is not going away, and RAM will need to find a strong partner that can improve network diversification away from an unhealthy reliance on the European tourism markets.

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fastjet Key Data Fleet and Orders fastjet Fleet Summary: as at 10-Apr-2013

Aircraft In Service In Storage On Order Airbus A319-100 3 0 0


Source: CAPA Fleet Database Source: CAPA Fleet Database fastjet owned vs leased for aircraft in service: as at 8-Apr-2013


fastjet average fleet age fastjet fleet breakdown for aircraft in service: as at 10-Apr-2013

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fastjet pushes ahead with African expansion in 2013, but faces protectionist hurdles fastjet is pushing ahead with expansion plans to create a pan-African low-cost carrier network, adding two more routes to its Tanzania domestic network in Mar-2013, applying to operate its Fly540 between Dar es Salaam and Johannesburg and continuing to negotiate a deal to buy South African LCC 1time from its liquidators. London Stock Exchange-listed fastjet will launch daily services to Kilimanjaro to Zanzibar and Mwanza on 18-Mar-2013, increasing its network by 50%. The carrier launched in Nov-2012 with two routes from Dar es Salaam to Mwanza and Kilimanjaro. fastjet acquired the Fly540 aviation business of British-based African-focused investment firm Lonrho in Jun-2012, including its operations in Kenya, Tanzania, Angola and Ghana. The Fly540 operation will be progressively rebranded as fastjet and adopt its hybrid LCC model. The carrier has a licensing and consulting agreement with easyJet founder Stelios Haji-Ioannou’s easyGroup, which also holds a 5% stake in the company The carrier is, however, dealing with a raft of claims relating to the troubled takeover of Five Forty Aviation operations ranging from outstanding debts, including unpaid aircraft leases, airport fees, bank guarantees and taxes. fastjet reinstates former Fly540 Tanzania routes to compete with Precision Air The Kilimanjaro-Zanzibar route reinstates a service operated by Fly540 Tanzania until Aug-2012, while the carrier pulled off Kilimanjaro-Mwanza in Nov-2011, according to Innovata. fastjet will operate daily on both routes, offering up to 1,092 one way seats per week on each based on capacity of between 145 and 156 seats on board its A319s. fastjet will compete on both routes against Precision Air which offers 936 one way seats a week on Kilimanjaro-Zanzibar and operating twice daily with ATR72 and ATR 42 turboprop aircraft. Precision also operates a daily ATR72 service to Mwanza offering 490 one way seats per week. Precision has approximately halved its capacity on the route since Fly540 withdrew its service.

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Kilimanjaro to Zanzibar, seats per week, one way: 19-Sep-2011 to 01-Sep-2013

Source: CAPA – Centre for Aviation & Innovata Fly540 Tanzania continues to operate from Dar es Salaam to Mombasa and Nairobi. But as both these markets have been identified as future routes for fastjet they are likely to be dropped by Fly540 in 2013. fastjet is seeking authorisation to allow Fly540 Tanzania to operate daily from Dar es Salaam to Johannesburg. Jetlink provides fastjet with access to Kenya fastjet is set to enter the Kenyan market soon, having signed a memorandum of understanding (MOU) with collapsed local carrier Jetlink Express in Jan-2013 to establish a joint venture. Jetlink suspended operations in Nov-2012 after cash flow issues, resulting from being unable to access about USD2 million funds held in a bank in South Sudan. fastjet plans to grow its fleet to 15 A319s by the end of 2013 fastjet operates a fleet of three leased A319s, two of which are 13 years old and the other nine years. fastjet expects to deploy at least five A319s by Jun-2013, building to a fleet of up to 15 of the type by the end of 2013. fastjet fleet as at 12-Mar-2013

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Source: CAPA – Centre for Aviation fastjet continues to negotiate to buy 1time fastjet is continuing to negotiate to buy failed South African LCC 1time from its liquidators and is confident it can secure acceptable partnership arrangements to ensure any change of control of 1time would comply with current South African foreign ownership laws. Those laws limit foreign ownership of a South African airline to 25%. However, fastjet has applied to South Africa’s Minister of Transport, Ben Martins, to exercise his power to grant an exemption to the regulation. fastjet plans to relaunch 1time under the fastjet brand with initial services between Johannesburg, Cape Town, Durban, Port Elizabeth and East London. 1time had about 15% of the South African market before it was placed in provisional liquidation. 1time liquidators Tshwane Trust has also extended the liquidation process a second time until 02-Oct-2013 to allow time for the fastjet deal to be concluded. fastjet has reportedly submitted an amendment to its application dealing with the Broad-Based Black Economic Empowerment (BBBEE) component of the company. The airline plans to sell a 25.1% shareholding to a black empowerment partner at a later stage, according to Business Day Live. fastjet is hopeful that a deal can be finalised and expresses confidence that an acceptable solution can now be put to the Liquidator so a meeting of creditors might be called. 1time creditors are collectively owed about ZAR500 million (USD54.9 million). fastjet chairman David Lenigas said: "We see a real opening in the Southern African marketplace for a true Low Cost Airline such as fastjet right now and although we have met with stiff opposition from other South African carriers, we feel that the South African flying public will be the true beneficiaries of the added seat capacity we intend to offer. “Airfares in South Africa appear to have skyrocketed since 1time ceased flying at the end of last year, and many planes are operating full to capacity on the key Cape Town and Durban routes,” he said. South African carriers have strongly objected to the fastjet’s proposed entry. Comair, which operates as British Airways and LCC Kulula, is concerned that granting fastjet an exemption to the foreign ownership rule would give the airline an unfair advantage by allowing it to take up bilateral capacity rights at both ends of markets to and from South Africa. Other South African carriers could only access the South African rights. Such a decision could also set a precedent for similar requests from other international airlines, according to Comair. SkyWise ups the stakes with plans to launch domestic South African services SkyWise has been granted an air services licence as it prepares to launch operations in the second half of 2013, starting with three-times daily Johannesburg-Cape Town route with two leased Boeing 737-300s. Durban and Port Elizabeth-East London routes are also planned. The carrier still needs to gain an air operator's certificate before it can launch services, which may require two more aircraft.

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SkyWise reportedly plans to reduce fares by 20% and is aiming for a 6% market share in two years, with finance director and former 1time executive, Glenn Orsmond arguing that the demise of 1time removed two million seats from the market resulting in a “massive shortage of cheap seats”. Five Forty Aviation dispute goes to court fastjet’s market entry has been particularly turbulent due to an escalating dispute with Five Forty Aviation CEO and founder of Fly540 Kenya, Don Smith. fastjet has turned to Britain’s High Court to gain a ruling that it has fulfilled all its obligations under the June-2012 Sale of Purchase Agreement between fastjet (formerly Rubicon Diversified Investments) and Five Forty Aviation, and is the sole owner of the Fly540 brand. Mr Smith claims that he is still owed USD6.78 million relating to inter-company debt owed to Kenya’s Chase Bank which fastjet had pledged to repay. Mr Smith in Feb-2013 withdrew fastjet’s right to use the Fly540 brand for its operations in Angola, Ghana and Tanzania claiming unpaid licence fees and failure to provide safety and financial compliance documents information. fastjet raises nearly USD23.4 million to fund growth The carrier in Mar-2013 secured funding of GBP15.7 million (USD23.4 million) to cover expansion in Africa over the next 12 months through convertible securities issued to Bergen Global Opportunity Fund. The convertible securities will be issued in six tranches of GBP2.6 million (USD3.9 million) each over 11 months and have a term of between 18 months and 15 months. fastjet CEO Ed Winter said the agreement gives the carrier: "access to very significant funding over the next year on a flexible basis and will provide us with a solid platform on which to grow the business and expand our operations in Africa". The funds are in addition to GBP4 million announced in Feb-2013 to increase working capital through a combination of a subscription with an existing institutional investor and other investors as well as a draw down on its GBP5 million Equity Financing Facility (EFF) with Darwin Strategic Limited. fastjet has the funding in place to escalate the growth plans it has been forced to adapt as the carrier comes to grips with the difficult African market and attempts to seize opportunities in markets ripe for low cost competition such as South Africa. But network expansion will be slow as it negotiates a way past the protectionist mindset of African governments and the underlying high operating costs not suited to the traditional LCC model. But as an early mover on a continent regarded as the last frontier in aviation, fastjet could become a driving force that helps to unleash Africa’s massive untapped economic wealth. Providing affordable intra-continental air travel to the continent's growing middle class offers massive upside – but it also faces massive inertial forces.

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Ethiopian Airlines Key Data Fleet and Orders South African Airways Fleet Summary: as at 11-Apr-2013

Aircraft In Service In Storage On Order Total: 56 4 27 Airbus A350-900XWB 0 0 12 Boeing 737-700 5 0 0 Boeing 737-800 8 0 5 Boeing 757-200 6 0 0 Boeing 757-200(ETOPS) 1 0 0 Boeing 757-200(F)(ETOPS) 1 0 0 Boeing 757-200PF 1 0 0 Boeing 767-300ER 12 0 0 Boeing 777-200LR 5 0 0 Boeing 777F 2 0 4 Boeing 787-8 0 4 6 Bombardier DHC-8Q-402(NG) 10 0 0 de Havilland of Canada DHC-6-300 3 0 0 Douglas Aircraft Company MD-11(F) 1 0 0 Douglas Aircraft Company MD-11ER(F) 1 0 0


South African Airways projected delivery dates for aircraft on order: as at 8-Apr-2013


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Route area pie chart South African Airways international capacity seats by region: as at 8-Apr-2013

Source: CAPA - Centre for Aviation and Innovata Top routes table South African Airways top ten international routes by seats: as at 8-Apr-2013


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Premium/Economy profile South African Airways schedule by class of seat - one way weekly departing seats: as at 8-Apr-2013


Ethiopian Airlines expands its global footprint to link the world's high growth regions Ethiopian Airlines is working to expand its hub network in 2013, adding routes and increasing frequencies across its network Ethiopian Airlines will extensively expand its network in 2013, adding Asian destinations as well as increasing its footprint in Africa and linking the two high growth regions to South America. In Africa, Ethiopian will add flights to Blantyre, Malawi and Ndola in Zambia from 31-Mar-2013 increasing its African network to 45 destinations, including 16 domestic points. The carrier has also begun negotiations with the Malawi government to take a 49% strategic stake in that nation’s failed national carrier Air Malawi after being selected as the preferred bidder among eight chosen applicants. The carrier’s Asian network will be expanded with the addition of Ho Chi Minh City, Manila and Seoul Incheon in Jun-2013 operating from Ethiopian’s existing Asian hubs, Hong Kong and Bangkok. And Ethiopian will become the first African carrier to take advantage of then natural transfer traffic synergies that link the three regions, and from part of its strategy to develop its Addis Ababa base into a Dubai-style hub of Africa.

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Ethiopian adds Blantyre and Ndola and increases capacity on other regional routes Ethiopian is thickening up its regional network as it expands longhaul operations. The carrier launched three times weekly service to Malawi’s commercial and industrial capital as its 44th African destination on 31-Mar-2013 using a Boeing 737-800 aircraft. Ethiopian already operated to Lilongwe daily via Lubumbashi four times weekly. From 31-Mar-2013 this moved to a daily service, with the addition of three times weekly frequency via Blantyre. Ethiopian is not permitted to carry domestic traffic between the two Malawi ports. Ethiopian Airlines network summary at 31-Mar-2013

Source: CAPA - Centre for Aviation & Innovata Ethiopian Airlines route map

Source: CAPA - Centre for Aviation & Innovata

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Ndola will also be serviced three times weekly with a Boeing 737-700 as a second destination in Zambia where Ethiopian also flies to Lusaka. In addition Ethiopian will make a number of frequency and capacity changes on its monopoly routes from Addis Ababa to west and central Africa from Jun-2013 and Jul-2013. The current Addis Ababa-Lome service will be extended to Ouagadougou from 01-Jun-2013. The route will operate on a reduced frequency from five times weekly to three times, but the current 737-700 will be replaced with a mix of 757 and 767 services. At the same time frequencies on Addis Ababa-Ouagadougou-Abidjan will reduce from four to three times weekly The daily Addis Ababa-Accra will be upgauged to an all 767-300 services from 18-Jun-2013. Currently the route is operated with a mix of 737-800 and 767-300 aircraft. Addis Ababa-Liberville and Addis Ababa- N’Djamena will both increase from a six-times weekly service to daily frequencies from 18-Jun-2013. Capacity on Addis Ababa-Libreville will also further increase with a 757 replacing the existing 737-800 on two daily frequencies. Addis Ababa-Cotonou-Abidjan moves from three to four times weekly services and 757 and 767 equipment will replace 737-700, effective 07-Jul-2013.

Ethiopian operates 767-300ERs in a two-class, 245-seat configuration, 757-200ERs with 160 seats in two classes, 737-800s with 154 seats in two classes and 737-700s in a two-class, 118-seat configuration, according to the carrier's website.

Seemingly ironically, given the growing competition for African hub operations that Emirates is providing, Ethiopian’s biggest route by some margin is Addis Ababa-Dubai followed by Addis Ababa-Guangzhou. Its biggest African international route is Addis Ababa-Johannesburg.

Ethiopian top 10 international routes by seats: 25-Mar-2013 to 31-Mar-2013


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Fleet

Ethiopian’s fleet plan is notable for its mix of Boeing 787-8 and competitor A350 orders. These efficient longhaul twinjets are ideal for Ethiopian’s bub strategy, allowing relatively thin routes to be served with useful frequency. The carrier has already taken delivery of four 787-8s, with six more to come between 2013 and 2015.

The existing 787-8s are have been in storage since the global fleet was grounded in Jan-2013 and Ethiopian has been forced to cancel services for the aircraft till mid-Jun-2013. The carrier operated its 787 to Dubai, Frankfurt, Toronto and Mumbai.

Ethiopian has begun negotiations to acquire a 49% strategic partner stake in Air Malawi, which could permit another base in that country

Ethiopian was in Feb-2013 selected by Malawi's Public Private Partnership Commission as the preferred bidder to become a strategic partner of failed state-owned national carrier Air Malawi. If negotiations are successful Ethiopian Airlines could acquire a stake of up to 49% in the privatised airline with Malawi's Government holding a 20% share and the remainder being offered to private investors in Malawi, thus preserving a majority holding in Malawi hands.

Ethiopian could as a result look to establish a Southern African regional hub at either Blantyre or Lilongwe as part of its long term multi-hub strategy in Africa. The carrier in 2008 established a regional subsidiary, ASKY, based in Lome, Togo. The carrier has been operating throughout Western Africa since 2010 and codeshares extensively on its parent’s network. Ethiopian plans to similar operations in southern and central Africa.

Landlocked Malawi is one of the world’s most densely populated and least developed countries. Air Malawi was placed in voluntary liquidation by the Government in Nov-2012 after two failed restructuring projects and a reported USD50 million in debt. The airline’s assets have been transferred to a new company under the same name, and the carrier continues to operate while the Government, through the Privatisation Commission, seeks to complete an equity partnership deal to recapitalise the airline.

Air Malawi operates limited services on a network of five domestic and regional routes, including Lilongwe, Johannesburg, Harare and Lusaka. The carrier’s apparently profitable subsidiaries Air Cargo, which operates airfreight services between Malawi, Europe and the Far East, and Lilongwe Handling Company, will be separated from the privatised company and are not included in the equity sale.

Two previous attempts to privatise the carrier failed. A partnership including SAA tried to buy the carrier in 2003, followed by South Africa’s Comair in 2007.

Ethiopian’s Asian expansion to include Vietnam, South Korea and the Philippines

Ethiopian Airlines plans to expand its Asian network with the addition of Ho Chi Minh City, Manila and Seoul Incheon from 18-Jun-2013. Hong Kong will also become a direct route from Addis Ababa, rather than operating via Bangkok.

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Ethiopian intends to operate Ho Chi Minh, Manila and Seoul Incheon via its two existing Asian hubs, Hong Kong and Bangkok. Seoul and Manila will be an extension of the new direct Addis Ababa-Hong Kong route and Ho Chi Minh is added to the Addis Ababa-Bangkok service. Recently added Kuala Lumpur via Bangkok will be expanded with a fourth frequency from 24-Jun-2013. Ho Chi Minh and Manila will be served three times weekly, while Seoul will have four weekly frequencies. All routes will be operated using Boeing 767-300ER aircraft. Asia as a whole accounts for about 20,400 seats a week or nearly 16% of Ethiopian’s total international capacity of 128,400 seats.

Ethiopian Airlines international seat capacity by region: 25-Mar-2013 to 31-Mar-2013


Ethiopian top 10 international capacity (% of seats) by region: 25-Mar-2013 to 31-Mar-2013


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China-Africa is one of the world’s fastest growing markets, albeit off a small base, and Ethiopian’s Addis Ababa hub is well positioned to exploit this growth as Ethiopian offers fast connections throughout Africa from its four Chinese destinations. In addition to Guangzhou and Hong Kong, Ethiopian serves Hangzhou four times per week with 767-300ERs via New Delhi. Ethiopian also operates direct from Addis Ababa to Beijing, a route which was upgraded in May-2011 from a one-stop 767-300ER service via New Delhi to a non-stop service with 777-200LRs. Ethiopian currently operates daily weekly to Bangkok with four of those flights going on to Hong Kong, the other three to Kuala Lumpur. When Hong Kong becomes a direct daily service from 18-Jun-2013, Kuala Lumpur will increase to four times weekly and three weekly flights to Ho Chi Minh will be added. Ethiopian will compete on the Bangkok-Ho Chi Minh route against market leader and fellow Star member Thai Airways, as well as Vietnam Airlines, Turkish Airlines, Lufthansa and VietJet Air. Ethiopian’s Seoul service will compete with SkyTeam member Korean Air’s three times weekly direct flights to fellow alliance member Kenya Airways’ hub in Nairobi. Bangkok to Ho Chi Minh City, planned seats per week, one way: 19-Sep-2013 to 15-Sep-2013


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As with all Asian destinations, Ethiopian’s new routes are targeted at expanding development and investment opportunities from South Korea, Vietnam and the Philippines to grow its Addis Ababa hub. South Korea is a significant provider of aid throughout Africa, funding the development of agriculture, ICT infrastructure, technology centres, hospitals and infrastructure. The country has committed USD1.09 billion in funding for infrastructure development between 2010 and 2014. Bilateral trade between Vietnam and Africa more than doubled between almost USD4.8 billion between 2009 and 2011 in part due to Vietnamese investment in African energy and mining projects. The Philippines is a promising work in progress. Currently the country’s trade is largely limited to South Africa but this is likely to expand into other markets as demand for its consumer electronics increases among Africa’s growing middle classes.

Ethiopian will become the first African carrier to link South America with Asia

Ethiopian plans to launch a three-times weekly Addis Ababa-Lome-Rio de Janeiro-Sao Paulo-Lome-Addis Ababa service from 01-Jun-2013. The route will be operated with a Boeing 767-300ER, connecting with Ethiopian’s Addis Ababa-Guangzhou service within three hours.

The 767-300ER does not have the range to operate Addis Ababa-Rio de Janeiro direct, at 5362nm. However, the stop over at ASKY’s Lome hub does provide Ethiopian with the opportunity to serve Western Africa without the need for lengthy back-tracking from Addis Ababa. ASKY and Ethiopian plan to extend their codeshare to include the route.

Ethiopian’s Sao Paulo-Lome-Addis Ababa-Guangzhou route

Source: Great Circle Mapper

Ethiopian will have the potential for considerable transfer traffic along the full length of the South American-Asia route. Traffic on the route has traditionally transferred via hubs in North America and Europe, but these are coming under increasing pressure from the Middle Eastern hub carriers. Well placed African hubs in the Northern half of Africa like Addis Ababa, Nairobi, Lome and Algiers should be ideally positioned to capitalise on future growth in trade between the three regions – relying on healthy and aggressive locally based airlines to drive the growth.

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Ethiopian is extending its network lead over rival Kenya Airways, but access restrictions limit Addis Ababa hub potential

Ethiopian’s strategy of developing its network in Asia, expanding its African coverage with the potential for a second regional hub through the strategic partnership with Air Malawi and linking both continents to Latin America should give the carrier a competitive edge against neighbouring Kenya Airways and strengthen the Addis Ababa hub. Membership in the Star Alliance offers a mixed blessing, as several other members compete directly with it on key longhaul routes; but the Alliance’s support within Africa delivers mutual benefits for Ethiopian and other members.

One inhibitor on hub expansion is Ethiopian’s protectionist government policy which strictly limits foreign carrier access to Addis Ababa, especially those from Gulf states which are rapidly expanding their presence across African. Although this policy has undoubtedly helped the flag carrier deliver a strong profit record in the past, keeping other airlines out will stand in the way of the hub airport achieving its true potential.

1 AIRLINE LEADER | FEB-MAR 2013

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