Menajet, the new, low-cost Lebanese charter airline, is billing itself as the vanguard of no-frills charter business in Lebanon, a challenge that menajet’s chairman and general manager, Riad Mikaoui is confident the airline will meet, but, he admits, his line of work is not the easiest, given current regulatory restrictions. However the company has solid shareholders and is actively seeking commercial alliances with Europe and the Gulf that have eased any local pressure.
The new airline has to operate under the draconian rules imposed on the air travel sector by the government to protect Lebanon’s Middle East Airlines (MEA), which has an exclusivity clause that ensures that no Lebanon-based airline apart from MEA can be registered as anything but a non-scheduled charter airline. The bottom line is that menajet is prohibited from selling, or even advertising, directly to the public. Instead, it can only sell tickets as components of packages through travel agencies and tour operators.
Come fly with me
“We are trying to serve unserved destinations,” explained Mikaoui, who is a pilot himself and, ironically, was a former senior executive at MEA before taking the controls at menajet. “In doing so, we are trying to bolster tourism and helping the Lebanese public by creating greater interconnectivity. Beirut airport could serve six million passengers. Now we’re barely serving a million. And unless the destinations not being served are served, we will see no improvement. But we’re not being allowed to compete. Syrian Arab Airlines operates, like us, between Brussels and Beirut, and Germany and Beirut. They are competitors. But we cannot compete because we cannot sell or advertise,” said Mikaoui, adding, “Lebanon is supposed to have an ‘open skies’ policy. But in effect it is a regulated ‘open skies’ policy.”
Menajet, which cost $15 million to set up, is currently losing half a million dollars a month. This, insists Mikaoui, is a “sustainable” loss as his aircraft are all flying. Mikaoui said that menajet shareholders had been prepared for the constraints governing the sector in Lebanon, were aware of the development cost involved in creating direct links to unserved destinations, and would accept initial losses. Nonetheless, they are robustly lobbying the Lebanese government to relax the rules and allow the company to become more competitive.
“We hope that sooner or later we will at least be allowed to operate on a scheduled basis, through advertising and direct selling,” Mikaoui said, “because no airline can start up in Lebanon and succeed under the current conditions.”
Another source of uncertainty for the airline is a rule stipulating that non-scheduled Lebanese-registered charter airlines’ permission to fly be renewed by the government every two, four or six months. “If tomorrow the government says we’re not renewing it, our projections fall flat. Permission must be secured well in advance and protected if a charter airline is to develop,” Mikaoui said. He said he didn’t think the MEA exclusivity decree was politically motivated, but rather a response to the then dire financial state of publicly-owned MEA. “Now the situation has changed,” he said. “MEA is in good health. There is no reason for exclusivity anymore.” The exclusivity clause protecting MEA is valid until at least 2011 and despite the high-level lobbying there has been little indication that is going to change.
Forging alliances
“It will be difficult to survive, but not impossible,” Mikaoui asserted. “We have great hopes that the circumstances will change because there is pressure coming from Europe, especially since a European-Arab ‘open skies’ policy is set to come into effect in 2006.” In the absence, though, of any immediate progress on the lobbying front, menajet is expanding the breadth of agreements with Lebanese and foreign tour operators, especially in Germany, Belgium and France.
“The problem, though, is that sometimes airlines and tour operators don’t have the same priorities,” complained Mikaoui. “There are certain offers and packages that we would like to develop but can’t. We constantly have to make sure that the packages offered by the tour operators meet the minimum cost requirements of the flights.”
In Europe, menajet has struck a cooperation agreement with German-Lebanese tour operator Middle East Europe, which is based in Berlin but also has offices in Belgium. Other accords may be in the pipeline.
“I learned today that Thomas Cook is interested in talking to our agents in Belgium to see if they can sell menajet flights from Brussels to Beirut,” noted Mikaoui, “and I have also learned from our agents in Berlin that there may be some contacts with TUI, the biggest tour operator in Germany.”
Menajet has also sent a delegation to France and Belgium, to discuss with travel agents and tour operators ways of improving sales of packages involving the airline. In Lebanon, menajet has struck an accord with travel and tourism heavyweights Nakhal, but is also talking to Wild Discovery, Kurban Travel and Anastasia Travel about possible future collaboration. For the moment, menajet is operating flights between Beirut and Aleppo in Syria, Charleroi in Belgium, and Berlin. A one-way ticket to Aleppo costs $45, a round-trip $90, and a roundtrip with two nights in a hotel will set you back $150. The packages incorporating the flights involve a stay in Europe or Lebanon of up to three months, and are advertised in newspapers.
The bottom line
For the moment, menajet operates one aircraft – an eight-year-old Airbus 320-211, which seats 155 passengers. The aircraft has been leased from a sister company of Europe-based Airbus, at a current cost of about $250,000 a month, excluding maintenance. The airline needs to book at least 120 passengers on a round trip flight to break even on the flight. On the day Mikaoui spoke to EXECUTIVE, the menajet flight scheduled to arrive from Brussels had only 40 passengers booked.
“As an unscheduled charter company, we deal with seasonal travel. That doesn’t generate enough business for us to be expanding and introducing more and more aircraft,” said Mikaoui. “Financially, it would be possible to introduce more than one or two aircraft. But we would have to find the destinations and then be able to sell tickets and advertise the destinations.” The earliest any business growth might conceivably allow for the introduction of another aircraft is the summer of 2006, Mikaoui said.
In preparation for this summer, and in addition to the destinations in Belgium and Germany already served last year, the company has set its sights on Bahrain, Egypt, Italy combined with France (two destinations), Spain (two destinations), Greece, Turkey, Denmark and Sweden – wherever it thinks there is demand. It expects a flight schedule totaling 200 to 250 hours a month, or about seven hours a day. This schedule will, Mikaoui hopes, allow menajet to break even for 2005, and possibly even make half a million dollars. “And if tour operators are willing to sell packages to or from London’s Stansted Airport, we’d open up a flight between Beirut and there as well,” he remarked.
As a no frills charter airline, menajet has to ensure costs are kept to a minimum. It employs as few people as possible and serves tickets in only one class. “We have qualified employees operating a one-man department; we are going to try to sell as much as we can through the internet to avoid having offices; we subcontract all our services; and we deal directly with our agents,” said Mikaoui.
The road ahead
Internet purchases, too, are governed by the MEA exclusivity decree. They can only be offered through an online booking service in conjunction with a tour operator or travel agent. Mikaoui said arrangements were being made with menajet’s agents to begin internet sales of packages involving the airline within two months.
“The demand from Europe to Lebanon is there,” said Mikaoui, “particularly from the unserved destinations. I have tour operators in Hamburg and Hannover who want flights out of those cities. Agents in Hannover want 10 to 15 flights this summer. Berlin wants an additional flight. What we are trying to do now is develop travel from Lebanon to Europe.”
This effort is being hampered by visa restrictions on Lebanese, which intensified since the events of 9/11. “The restrictions are not an insurmountable obstacle, but they will take time to overcome,” proclaimed Mikaoui guardedly. He said advance planning for any packages as well as the lobbying of European embassies would help.
But there is far less menajet can do about the decline of the dollar against the Euro – something that has rendered a trip to Europe financially daunting for Lebanese tourists. Nonetheless, for the moment only 20% of menajet passengers are Europeans. In an effort to entice more Europeans to Beirut, menajet is trying to promote the Lebanese capital as an enjoyable stopover on a trip to the Gulf – especially Dubai, which already well publicized as a tourist destination for Europeans – and is also offering juicy packages and highlighting the advantages of a direct flight.
An increase in European passengers would benefit menajet in its quest to break free of seasonal confines because, in contrast to Arabs, Europeans tend to travel all year round, Mikaoui said. Menajet’s high season is June to October. In another revenue-seeking venture designed to offset the difficulties associated with Lebanon’s MEA-favoring regulation, the holding company of menajet is hoping to become a shareholder in subsidiary companies of a new $20 to $24 million airline to be created by the government of Ras al-Khaimah, the smallest emirate in the UAE.
“We already have agreements. We are working very hard to start the project. The studies are in place. We will be involved with management, development, expertise, transfer of know-how, maintenance, operation and may own shares, possibly within subsidiary companies,” said Mikaoui. Tens of millions of dollars would be spent on the subsidiary companies involved in maintenance, operation, cargo etc, he said.
“Don’t forget that menajet’s shareholders [which include the speaker of Kuwait’s National Assembly, Jassem al-Khurafi, as well as a number of finance houses and holding companies from Bahrain and Saudi Arabia] are from the Gulf Cooperation Council (GCC) countries,” Mikaoui added. “They are not just interested in Lebanon.”
