Executive Magazine

Lebanon needs to build a railway network

by Carlos Naffah July 9, 2019

written by Carlos Naffah

The absence of public transport in Lebanon has a substantial economic impact on the country, with congestion clogging the country’s main transport arteries. Without a sustainable transport system in place, this will only get worse; the average delay per vehicle will nearly double and the average speed will be halved according to a 2015 working paper from the Issam Fares Institute at the American University of Beirut. The effect is multidimensional; there is no solution to traffic congestion woes without a public transport system in place. The backbone of any public transport system is a railway network for the transport of passengers and freight. It is, therefore, crucial to have railways—and timely too, given Syria and Iraq’s reconstruction needs.

Several studies have attempted to quantify the economic impact of congestion caused by the lack of public transport, with estimates ranging between 5 and 10 percent of GDP. In a March 2018 press release announcing the World Bank’s approval of a $295 million package to overhaul Lebanon’s transport sector—the Greater Beirut Public Transport Project—Ziad Nakat, senior transport specialist at the World Bank was quoted as saying that, “In economic terms, the annual cost of traffic congestion is above $2 billion, representing a large impediment to growth and regional connectivity.”

Too much petrol

The absence of public transport is also fueling the high petrol bill that is negatively affecting the balance of payments, as petrol constitutes a large part of Lebanese imports. In 2017, Lebanon’s exports amounted to $3.91 billion, and its imports to $20.8 billion—of which, $3.77 billion was for refined petroleum, one of its top imports. If the country develops public rail transport, it could significantly reduce fuel usage and emissions, if the latest technology—trains that run on non-emission hydrogen fuel cells—is adopted. Transport in Lebanon accounts for around 23 percent of the country’s emissions of greenhouse gases, mainly from road transport, according to a 2016 Ministry of Environment report.

Many past opportunities to develop infrastructure projects in the country have been dismally missed. They included projects at the energy, waste management, water, and transport levels. In 2016, the French company EGIS rail conducted a feasibility study on three railway lines: 1) a Beirut-Tripoli cargo line to connect the ports of Beirut, Jounieh, and Tripoli; 2) a Beirut-Tripoli passenger line with eight trains per hour and a capacity of 2,000 passengers each; and 3) an intercity train between Beirut and Tabarja with eight trains per hour and a capacity of 1,200 passengers each. Since that date, the file has been sitting with the Council of Development and Reconstruction (CDR) with no action taken and no indication of why the file lies untouched. Likewise, there has been no action on the Tripoli–Syrian border railway link, which has been with the CDR since 2014. (There have been indications that the Chinese were interested in investing as recently as May this year, but no concrete steps have been taken.)

Stimulate the economy

Rehabilitating the railway network will have a positive impact on employment—currently local unemployment is estimated at around 25 percent. A new railway network would create thousands of jobs at no cost to the state as they will be supported by the private sector. The Lebanese government could also stimulate the economy by relinking the country to the region at a time when its neighbors are rebuilding their rail network—a regionally linked network to which Lebanon used to be connected. In March this year, Syria reopened its Tartous-Qalamoun line, while Iraq reopened its Baghdad-Fallujah line in late 2018, after years of war had brought both rail networks to a halt.

On a broader regional level, Chinese and French companies are leading many rail projects in Algeria, Egypt, Morocco, Qatar, the United Arab Emirates, Saudi Arabia, and Jordan. Lebanon should step in and take advantage of this unique economic opportunity to reestablish a railway network that was historically connected to the GCC and to Europe.

One hundred twenty-four years ago, railways connected the French port of Marseille to the port of Beirut as part of what is known as the Levant gate. French investment brought rail service to life backed by Swiss, German, and French technologies. It drew a chapter of cooperation between the West and the East, centered on Lebanon. Perhaps Lebanon should rewrite the same journey of cross-cultural and economic exchange by joining the Chinese “One Belt, One Road” initiative, a global development strategy launched by President Xi Jinping in October 2013, or by reconnecting the Levant region to Europe via a new Levant railway open to the southern part of Europe and North Africa via the Beirut and Tripoli ports. Only time will tell, but a political decision should be made quickly before Lebanon misses the train.

July 9, 2019 0 comments

Comment Last Word Mobility Opinion

Sustaining mobility in Lebanon

by Marc Haddad July 8, 2019

written by Marc Haddad

Lebanon’s transport sector is one of the most unsustainable in the Middle East region. This is mostly due to the continuing absence of any public transportation by bus or rail for over 40 years, and the lack of infrastructure for alternative transport means, such as bicycles and walking. The result is an exclusive reliance on cars and trucks that are overly polluting; according to local research, 98 percent of all fuels used in Lebanon’s transport are gasoline and diesel, with 60 percent of all cars having large engines, and 70 percent being older than 10 years. Mobility in Lebanon has become synonymous with traffic congestion and noxious fumes, harming human health, the economy, and the environment.

It is clear from the diagnosis of the problem that serious solutions by the state are needed immediately, under the organizing umbrella of a national transportation strategy that is still missing to date. But in a tough economy and without effective state institutions today, it might be more useful to look at feasible solutions that can be done in the near-term at the level of municipalities and non-state actors, such as non-governmental organizations (NGOs) and the private sector.

Where the government is not able to fulfill its mandate, many NGOs and experts have been active, but each one working in a separate part of the sector. To increase chances for success, NGOs should unify their voice and engage the state, the private sector, academia, and international bodies in a constructive dialogue, pooling resources. This can push forward low cost, near-term projects and pilot projects with tangible positive impacts on the daily commute.

For example, in the absence of a comprehensive public bus service across all regions, smaller regional initiatives by municipalities and the private sector can be very effective in improving mobility within cities and high-density areas. Such initiatives can also serve as pilot tests ahead of any future deployment of a country-wide bus network by the state, providing valuable insights about passenger demand, service costs, and bus technology performance, potentially even becoming feeders for the main network in the future. These projects would also encourage the gradual development of local capabilities in the sector, from training and maintenance of facilities to information service providers.

However, such initiatives cannot replace the state, which has the primary role and responsibility for providing a nationwide and modern public transport service to its citizens, with all the significant infrastructure and resources needed to operate it. This is why it is equally important to continue lobbying the state for this right, especially at this critical juncture where funding pledges for the transport sector out of CEDRE amount to a third of the $11 billion pledged.

In its current form, the CEDRE -linked Capital Investment Plan (CIP) for the transport sector is entirely focused on infrastructure projects such as roadways and tunnels, but does not account for public transportation needs. And while many of these projects are useful and needed, they will not, however, improve mobility in the long term, as more cars and trucks will eventually overfill the additional capacity—according to a 2016 Bankmed report, on average, over 35,000 new-model passenger cars alone enter our roads each year. This is why some NGOs, like “Transport Coactives” (TRACS), which itself is formed by a number of active NGOs and experts in the transport sector including myself, are actively lobbying today to reprioritize the CEDRE/CIP spending toward transport projects that include public transportation.

In the meantime, more of the feasible and affordable initiatives can be implemented easily and can have a positive impact, if not on congestion levels, at least on human health and the environment. In a 2017 study by the Ministry of Energy and Water and the UNDP on the potential use of low carbon fuels in the transport sector, one of our short-term policy recommendations was to reduce taxes on hybrid electric vehicles in order to make this cleaner technology more affordable, and thereby encourage its adoption in Lebanon. In that study, hybrids were estimated to save nearly 30 percent in fuel consumption and greenhouse gas emissions compared to conventional engine vehicles, while also significantly reducing emission of some of the air pollutants harmful to human health. And while the government did recently reduce taxes on these vehicles down to 20 percent, more reductions are necessary to speed up their adoption, as Lebanon remains largely behind global and even regional trends.

But perhaps the most important takeaway is that collaboration on feasible solutions, while necessary and useful, is not sufficient to sustain the transport sector in Lebanon. Only a national transportation strategy that organizes efforts and resources can begin to tackle the problem at its root cause.

July 8, 2019 0 comments

Disaster Risk Management Economics & Policy

Lebanon needs a disaster policy for earthquake risks

by Basil Mahfouz July 8, 2019

written by Basil Mahfouz

Over the past 2,000 years, Lebanon has experienced over 13 major earthquakes. These tremors are a result of the country’s location within an active tectonic system called the Dead Sea Rift, which divides the African and Arabian plates.

One of Lebanon’s most devastating earthquakes occurred in 551 AD, a 7.5 magnitude quake along the Mount Lebanon Thrust (MLT) resulted in a tsunami, which, according to a 2007 paper in the journal Geology, “destroyed most of the coastal cities,” “drowned Tripoli,” and caused damage so severe that Beirut “did not recover for 1,300 years.”

Seismologists predict that the MLT has a recurring cycle of every 1,500-1,750 years, meaning a major earthquake could fall anytime within the next 250 years. The World Bank’s Global Facility for Disaster Risk Reduction (GFDRR) puts Lebanon at a medium-risk level, estimating that there is a 10 percent chance for a potentially-damaging earthquake and tsunami to occur within the next 50 years.

Additionally, Lebanon’s offshore oil and gas operations are scheduled to begin along the MLT, and could trigger a larger earthquake in a shorter time frame. A 2016 article in Scientific American highlighted that “scientists are increasingly confident about the link between earthquakes and oil and gas production,” while criticizing regulators for being slow to react.

To mitigate these risks, the government, with the support of international agencies, has been working to improve the country’s resilience to disasters. The government established a Disaster Risk Management Unit in 2009, followed by the National Coordination Committee on Disaster Risk Reduction in 2013, the latter of which has been setting up a network of emergency control rooms, conducting drills and simulations, and raising awareness.

Despite these steps, the GFDRR notes that Lebanon still “does not have an operational disaster management plan.” With the overall risk of earthquakes in Lebanon coupled with the potential seismic tremors of the MLT and ongoing offshore oil and gas activities, it is time to begin the conversation and make a consolidated effort toward preparing for the worst. In addition to saving lives, the World Bank estimates that every dollar invested in disaster prevention saves $4 in disaster damage.

The Sendai Framework for Disaster Risk Reduction outlines principles and global best practices that aim to improve global resilience to natural or man-made hazards. These range from governance structures to policies, tactics, and technology, as well as rescue guidelines. One key aspect is insurance. A 2015 OECD report finds that ability to mobilize finances quickly to pay for rescue operations, compensate victims, and rebuild destroyed property after a disaster is a key challenge most governments need to overcome.

Similar to conventional insurance schemes, the system works by pooling financial resources from a large number of people in advance of a disaster, and then using these funds to compensate potential victims for natural or man-made hazards. However, the technicalities of the scheme varies, which allows room for innovation.

In some developed countries, insurance firms offer private disaster insurance cover. These schemes, however, usually cover businesses and tend to be unaffordable for the more vulnerable lower-income households or companies. Alternatively, government-supported insurance programs are becoming increasingly popular across developing countries. In this system, stakeholders pay a mandatory—usually affordable—premium that is used to finance a common fund—usually reinsured on the global private insurance market—that is then accessible for disaster relief in case of a catastrophe.

In Morocco, draft law 110-14 seeks to add a compulsory, affordable tariff to existing car insurance policies to fully cover 5 million people against catastrophes. The fees contribute to a national solidarity fund that will compensate uninsured victims in case a catastrophic event causes personal harm or damage to a family’s primary residence.

In my opinion, Lebanon’s caisse mutuelle (mutual fund) system provides an excellent infrastructure for citizens to voluntarily create a common pool disaster insurance autonomously from the government. A group of stakeholders can band together, agree on the terms and conditions for payouts, and contribute directly to a mutual fund that protects against natural or manmade hazards. The same funds can likely be reinsured on the private market as well, enabling access to more money when people might need it the most. The current framework provides a good stepping stone that could pave the way—with the right reforms, control, and oversight—for a national one. It is time to start the conversation, and ensure Lebanon will be ready when the time comes.

July 8, 2019 2 comments

Economics & Policy Electricity

Despite protests, Mansourieh power lines go live

by Lauren Holtmeier July 8, 2019

written by Lauren Holtmeier

On June 17, in Mansourieh, the last 2 km power line link went live in the 369 km, 220 kilovolt (kv) loop that runs from the south of the country up to the north, out to the Bekaa Valley, and connects Lebanon’s network to Syria. For 17 years, the government has been trying to close this loop, with this latest move prompted by attempts to implement the new electricity plan adopted in April. Mansourieh residents, however, have been protesting the construction for years, citing potential health risks, specifically a possible relation to increased childhood leukemia.

Minister of Energy and Water Nada Boustani tells Executive that completing the loop will increase current carrying capacities on the network as a whole and increase the network’s stability. The government’s new electricity plan seems to have provided impetus to finally complete this last link of the “electrical highway” that connects the country. Ramzi Dobeissy, the head of the high-voltage transmission lines department at Lebanon’s public electricity utility, Electricité du Liban (EDL), says that the 220 kv loop—including the Mansourieh link—is the “backbone of the Lebanese network.” At present, the link is needed to inject power from the main power plants in the north and south toward Beirut and its suburbs, he says.

The importance of this loop raises questions as to why it has taken so long to complete. Successive governments have attempted to close the Mansourieh link since 2002, but according to Dobeissy, who has worked at EDL since 2005, the project was never fully implemented on the ground due to the protests of local residents. Until the link was completed in June, there had been piecemeal progress over the years—the final pylons were erected in Mansourieh in 2006, and a 2016 Council of Development and Reconstruction progress report noted that all had been completed bar the Mansourieh link, which it said would be done in 2016 “if all goes well”—but there was no official reason given for why these had not been successful.

The objections

For their part, these protestors tell Executive that their primary concerns are the potential for adverse health effects, as well as noise pollution, and safety concerns about having these lines overhead (the lines are at a minimum of 16 meters overheard to comply with EDL standards). The resident’s objections predate 2002 to 1997 when the original planned path of the lines changed, according to a map from that year that protesters showed Executive with the original straight path passing through then uninhabited land. Carole Ibrahim, a Mansourieh resident, tells Executive that when she bought her home in 1996, no plan existed for power lines to pass near it. For them, the original path remains a sticking point in their continued objection.

Mansourieh residents also tell Executive that construction workers entered their private property during construction, and they have filed a lawsuit against the Ministry of Interior (MoI) and the Ministry of Energy and Water (MoEW) that aims to invalidate a decree that allowed for temporary occupation of private land to place installation equipment. Boustani told Executive that while she had read about the lawsuit, she had not yet received it. Executive spoke with a representative from the MoI but did not receive a response prior to publication.

For the government, closing the loop is one of the first steps in expanding transmission capabilities.

Boustani tells Executive that right of way payments and temporary access payments—compensation for the lines running overhead and money paid for workers to briefly access private property for installation—will be made to all residents in the path of the new power lines. The amount offered for these payments is confidential, but Dobeissy says that it depends on how close the power line is to the home and on the area itself. In 2012, the government had offered to buy 15-20 of the apartments set to run under the cable, but no residents accepted the offer. The prices, according to Dobeissy, were set to be near the original prices of the land.

Regarding health risks, Mansourieh residents and the MoEW, in combination with EDL, both cite studies that back their own perspective on the issue. The major health concern for the protestors is a potential link to childhood leukemia. One 2005 study conducted by Oxford University, often cited by these protestors, found that children living within close proximity to powerlines had an increased risk of leukemia, but the study’s author, Gerald Draper, admitted that the results were likely due to chance, with no causal mechanism found.

Other effects that protesters say are possible are anxiety, headaches, suicide, depression, and nausea; however, the World Health Organization (WHO) says that scientific evidence does not support a correlation between these symptoms and exposure to electromagnetic fields. Regarding leukemia, the WHO International Agency for Research on Cancer has classified extremely low-frequency magnetic fields as possibly carcinogenic to humans. “WHO, in the absence of certainty of adverse health effects, recommends the adoption of prevention and avoidance of potential health risks,” reads a prepared statement Executive received from WHO.

Aside from the possible carcinogenic nature of the powerlines, there is debate over to how many microteslas—a unit that measures the strength of a magnetic field—humans can safely be exposed. Mounir Rached, who was a speaker at a May 24 press conference on the power lines under his capacity as a lecturer in energy studies at the American University of Beirut says—in agreement with other protesters—that the allowed limit should not exceed 0.4. This, however, is disputed by EDL, with Dobeissy pointing to studies conducted by Electricité de France and other EU countries that show that values exceeding 100 microteslas have not been proven to affect human health—according to EDL modeling, no more than 20 microteslas would reach the balcony of the nearest apartment.

To bury or not?

For the residents of Mansourieh, like Thomas el-Saad, the possibility that these lines could be carcinogenic is enough to ask that the government consider other options, such as underground installation. “The line is obviously very important for all of Lebanon, and nobody contests this,” he says. “Of course these lines must exist, but not around our homes, and it’s doable to do it beneath the earth.”

Protesters, alongside Rached, point to the existence of underground lines in Beirut as evidence that these lines exist in Lebanon and would be a viable alternative, but Boustani and Dobeissy say it is not feasible for technical reasons. In Beirut and Tripoli the lines must be underground because the density of buildings leaves no space to build pylons and string the cables, Dobeissy says. He adds that because the capacitance—the ratio of the change in an electric charge in a system to the corresponding change in its electric potential—of underground cables is 20-75 times more than overhead lines, it is very technically difficult to control voltage spikes—specifically during times of minimal demand—when utilizing underground cables over long distances, which could lead to risk of network collapse. Because of this, no more than 5 to 8 percent of a line should be located below ground, and with the 369 km loop, 5 percent equals 18.45 km that can safely be buried. He adds that Lebanon already exceeds this with about 13 percent of the lines, primarily in Beirut, being underground.

Dobeissy also says that installing underground lines can cost up to two-and-a-half to three times what it costs to install them overhead, for which he says estimated installation costs equal 450,000 euros/km ($503,000 at time of writing). Underground cost estimates were not completed for Mansourieh because the technical barriers rendered them unnecessary.

For the government, closing the loop is one of the first steps in expanding transmission capabilities. With the lines now live, protesters’ concerns about adverse health effects have not subsided, and many tell Executive that they will continue to organize and raise public awareness of their concerns. They say that they have started organizing with surrounding communities that have overhead lines to gain a larger foothold. And while Saad admitted that he feared the past protests would prove futile—and they did—he hopes that if they maintain momentum they can get the lines moved underground in the next 10 years. But with the percentage of the line buried already exceeding the maximum EDL tells Executive is acceptable, burying the Mansourieh lines seems like a distant possibility.

July 8, 2019 0 comments

Economics & Policy Exports Manufacturing

Exports must be part of economic growth strategy

by Sami Atallah, Nancy Ezzeddine & Jana Mourad July 8, 2019

written by Sami Atallah, Nancy Ezzeddine & Jana Mourad

Successive Lebanese governments have largely neglected the manufacturing sector. Policies were instead limited to a number of financing schemes, based on subsidized interest rates and several trade agreements with EU and Arab countries. Industrialists were left to contend with multiple challenges, including high production costs, inefficient provision of public services, and significant skills mismatch. Consequently, the manufacturing sector’s share of the GDP has shrunk from around 10 percent in 2005 to 6.2 percent in 2017, despite employing 25 percent of the labor force. More recently, the sector’s exports dropped from a high of $5 billion in 2012 to $3.9 billion in 2017.

Ignoring the sector is a big mistake. Empirical evidence, based on the 2006 findings of Harvard economist Dani Rodrik, shows that manufacturing-led structural transformation creates higher productivity and better paying jobs. According to UNIDO, every one job in the manufacturing sector creates 2.2 jobs in other sectors. Despite the poor performance of the sector, Lebanese exports exhibit interesting patterns that seem to have gone unnoticed by the government. For one, Lebanon’s exports are well diversified both in terms of products and markets. In 2017, Lebanon exported 1,147 products, the majority of which were distributed across the following sectors (based on international classifications): 18 percent were in precious metals, which includes gold and jewelry; 15 percent in machinery, which includes computers, electric generators, and insulated wires; 14 percent in metals; 13 percent in foodstuffs, such as processed fruits, raw sugar, chocolate, and other food items; 8.7 percent in chemicals, including packaged medicines, phosphoric fertilizers, and perfumes; 8 percent paper and wood products; and 5 percent plastics and rubbers.

Lebanon can potentially achieve an increase of exports by an annual $1.7 billion.

Lebanon’s ability to produce and export products in sophisticated sectors such as machinery and chemicals is telling. Indeed, it shows that despite the current large share of exports in less complex products such as foodstuffs and metals, the country has the advanced productive capacity and know-how to manufacture a wide variety of complex products.

Diversification is key

Export diversification is not only across various sectors of the economy, but also within the manufacturing sector. One way to measure this is by calculating the share of the top three products from the subsector total exports. In the processed food sector, the top three exported products make up only 28 percent of the subsector total exports. Even in the chemical subsectors, this amounts to 37 percent of the subsector total exports. In fact, in six out of the 15 sectors, industrialists produce a variety of other products within these sectors where the share of the top three products does not exceed 40 percent of exports.

Furthermore, Lebanese industrial exports are well-positioned in the global market with an opportunity for further growth. For one, Lebanese products reach more markets than some countries within the same upper-middle income group, per the World Bank’s 2018 classification. For instance, Lebanon exports to 171 countries, whereas Costa Rica exports to 108, Jordan to 156, and Serbia to 159.

In terms of markets, 40 percent of Lebanese exports go to Middle Eastern countries, where the top export destinations in 2017 were the United Arab Emirates ($265 million), Syria ($246 million), and Saudi Arabia ($240 million), based on data from the Observatory of Economic Complexity (OEC). Outside the region, 29 percent of Lebanon’s exports go to Africa—including South Africa ($317 million), Gabon ($236 million), and Ivory Coast ($177 million)—and 23 percent to Europe, according to the OEC.

Lebanon export markets are also diversified across the manufacturing sector. In seven out of 15 sectors, the top three export destinations constitute less than 40 percent of the sector’s market reach, which means that Lebanon is not dependent on a few markets. For instance, the top three importing markets import only 20 percent of basic manufactured goods, 37 percent of chemicals, and 37.4 percent of processed foods exports—noting that such export percentage shares, albeit subject to fluctuations, are generally indicative of an ability or inability by exporting economies to penetrate importing countries’ markets and compete therein.

Given the country’s accessibility to overseas markets and the growing global demand, an LCPS study shows that Lebanon’s exports exhibit high-potential in various markets. First, the Middle East is considered the largest export potential region with an untapped potential worth $406 million, but most of this potential is confined to the agro-food sector, with some in the machinery and chemicals sectors. Second, there is a large potential for diversification into higher complexity exports to North Africa and West Africa, with products in the machinery and electrical equipment industry, including generators, as well as the chemicals industry. Third, potential exports to Western Europe are confined to medium-complexity products, like printed books, guts, and nuts. The diversification into the production of more complex products could pave the way to further exports toward Western European markets. Fourth, North America is considered a very small potential export market that has not been penetrated sufficiently. Avenues for possible penetration into this market include a diverse basket of goods such as food and beverages, but also other higher complexity products from the machinery, electrical equipment, and chemicals industries.

Prioritize industry

In sum, based on its current market position, market accessibility, and global demand, Lebanon, assessed under the methodology used by LCPS for measuring export potential, can potentially achieve an increase of exports by an annual $1.7 billion. Since this does not assume any change in the cost structure, the value of exports could even be higher if the cost of production decreases.

Lebanon must capitalize, rather than ignore, the export potential of the manufacturing sector. Providing support and public inputs such as infrastructure and proper regulation to existing manufacturing sectors with the aim of improving their productivity can lead to significant growth and advancement within the sector’s exports. The government, represented by the Ministry of Industry, and the Association of Lebanese Industrialists, should set up regular public-private dialogues where evidence-based policy is furnished so systematic, rather than ad hoc, decisions are made. To this end, the strategy must target specific markets with specific products through promoting competitive production—i.e., reducing production and export costs—and supporting research and development to advance diversification into higher complexity production.

July 8, 2019 0 comments

Entrepreneurship Mobility Shared Mobility

Shared mobility apps provide more options, but may fuel congestion

by Lauren Holtmeier July 8, 2019

written by Lauren Holtmeier

Beirut suffers from heavy congestion and a lack of proper public transportation that causes commuters to be stuck in traffic for long periods of time and fuels CO2 emissions. The likes of shared mobility apps like Carpolo, Loop, and Careem give some Lebanese residents more options for getting around while seeking to reduce congestion and carbon emissions. Globally though, ride sharing apps have a mixed record and have even proven to contribute to the very problems they aim to solve.

In Lebanon, measuring the effect of apps like Carpolo, which launched in 2016, and Loop, which had its soft launch in May 2017, is difficult. Representatives from both tell Executive that their companies have made strides in attracting a user base, and they are optimistic that their efforts will help make a small but positive impact on reducing emissions. Urban and transportation experts, however, tell Executive that while apps like these do provide more options and added convenience, reversing high congestion will ultimately take large-scale efforts by the government to develop and implement a proper public transport system, such as a bus rapid transit system, coupled with new policies and infrastructure.

Maya Abou Zeid, an associate professor of civil and environmental engineering at the American University of Beirut (AUB), with a research focus on urban transportation planning, says that the large number of vehicles that commute in an out of Beirut each day are driving the congestion problem. A 2018 World Bank project appraisal document for the Greater Beirut Transport Project estimated that 650,000 vehicles entered Beirut daily on what it calls “critical highway sections” referring to the northern, southern, and eastern roads leading to the capital. Road congestion costs Lebanon nearly $2 billion a year, or 5 percent of its GDP. A Ministry of Environment report conducted in conjunction with UNDP from 2016 found that in 2012, the transport sector alone was responsible for 23 percent of total emissions, most of which came from private passenger cars.

Carpolo’s co-founder Ralph Khairallah says that alleviating this stress is one of his app’s functionalities. With its community-based sharing or public sharing option, users outside Beirut can find a ride into the city on the app, boosting car occupancy rates—currently 1.2 riders per vehicle in Lebanon, 0.2 behind the global average. “We’re a search engine for unused car seats,” Khairallah says. Carpolo seeks to “fill up those [unused] seats, reduce pollution, congestion, [and] increase productivity.” Khairallah figures, using UNDP statistics, that if Lebanon is able to catch up to the global occupancy rate of 1.4, CO2 emissions would drop by 288,000 kilograms per day, and overall mobility savings—such as fuel and insurance—would be $329,000 per day. By the Carpolo team’s estimations, reaching the global occupancy rate would reduce the number of vehicles entering Beirut daily by 85,000.

Carpolo, which currently has about 7,000 users, looks to partner with businesses so that people within the same network can find rides within it, but it also has a public option that anyone can access. It has entered into a CSR partnership with Byblos Bank as of March 2019 to form a carpooling network that Byblos Bank employees can use to find a ride to any of the bank’s branches or the headquarters, which houses more than 700 employees. Carpolo is looking to replicate this model with local universities and companies, and are seeking partnerships with organizations looking to cut down their environmental impact, Khairallah says.

Hail that ride

Unlike other carpooling apps, like Europe’s BlaBlaCar, no cash is exchanged via the app. Instead, Carpolo uses a “gamified point system” where users earn rewards—such as points that can be redeemed at Medco or Zaatar w Zeit, sponsors of Carpolo.

Where Carpolo helps link up ride seekers with drivers who are going to the same place, Careem, like the globally operating Uber, is a ride hailing app. Based in Dubai, Careem operates in 14 MENA countries and was acquired by Uber in March 2019. It launched in Lebanon in 2014. Ibrahim Manna, managing director of Careem for emerging markets, tells Executive in an email that Careem sought to focus on the lack of easy access to reliable, affordable, and modern transportation in the region. They have recently launched the “Servees” function that operates like the Lebanese red plate shared taxis.

Poor individuals are not able to easily access these services, because they are typically slightly pricier, and will still rely on other modes.

While both apps increase options for riders in Lebanon, specifically Beirut and its suburbs, they may only serve specific segments of society—such as the middle and upper classes and urban populations—and typically do little to alleviate congestion. Abou Zeid refers to a 2019 study on Uber and Lyft in San Francisco, conducted by the University of Kentucky and the San Francisco Transportation Authority, that analyzed data from 2010 and 2016 and found that these apps increased traffic delays by 40 percent over a six-year period due to factors including “deadheading”—or moving while out of service—and by contributing to congestion on busy streets by disrupting traffic for passenger pickup and dropoff. The study’s authors also estimate that between 41 and 61 percent of Uber trips substitute walking, cycling, or other modes of transport.

In Beirut, where biking can be treacherous and other viable options of transit are limited, the percentage of ride hailing app users opting for Careem or Uber instead of other forms of transport may be smaller. In terms of travel time, “[These apps] don’t have an advantage, but you can do in-vehicle activities,” Abou Zeid says. However, one advantage is time and money saved in parking because parking in Beirut is scarce and costly, she adds.

Mona Fawaz, professor of urban planning at AUB, points to socioeconomic factors and says these apps are only accessible to certain segments of society. “Uber and Careem might be a good option because people don’t want the financial burden or responsibility of owning a car, but it’s class related and linked to credit cards,” she says. Poor individuals are not able to easily access these services, because they typically are slightly pricier, and will still rely on other modes, such as the informal public transportation system to get around. She explains there is also a geography factor in that these apps work better in urban population centers; for those living in rural areas access is a challenge as rides become increasingly expensive over long distances.

Carpolo and Careem may not reduce a rider’s travel time, but an option that has that ability is Loop, an electric scooter fleet management company. Because the scooters can weave through traffic, they allow users a quicker trip from point A to B. And because these are electric scooters, there is an added environmentally friendly component. “The traffic and the pollution are bad,” says Loop’s general manager Mira Raham. “This service helps attack these two major issues in Beirut.”

Raham tells Executive that with around 25 scooters in the fleet and after rolling out a new station every two to three months, there are currently 17 stations scattered throughout Beirut, they will expand to 100 scooters and 50 stations before the year’s end. When a user finishes using a scooter, they plug it in at the station, which are equipped with chargers. Each scooter can travel 50 km on one charge with usage fees of $.050/km and $0.01 a minute to park.

Raham says that with around 2,000 subscribers and 600 active users as of mid 2019, the increased fleet size and reaching around 700 active users is essential for Loop to start turning a profit. Between mid 2017 and January 2018, when they fully launched, Raham says they used that period to raise awareness and introduce the concept of fleet sharing, which was non-existent here. “It was a bit challenging,” she says.

Disrupt the system

Other challenges associated with scooter sharing include the safety of operating in Beirut where traffic is hectic and roadways are often less than ideal quality, Raham says, adding that, fortunately, they have had no accidents yet. Loop also provides training for new subscribers on scooter safety. Starting with just one station in Beirut Digital District (BDD), which served as a pilot to measure interest, they have now expanded the map in Beirut. “The demand increased bit by bit,” says Raham. Once Beirut is rolled out, they will look to expand to Jbeil, and investors in Greece and Cyprus have shown interest, she says.

Loop, like Carpolo and Careem, provide options to people in Beirut looking for alternate modes of transportation in a city where public transport is minimal. While profit-seeking enterprises, these apps also seek to disrupt the current system, alleviate congestion, and reduce the environmental impact from cars. In terms of offering an alternative form of mobility—at least to certain segments of society—there is potential for these apps but, so far, there is little to indicate they can alleviate Beirut’s chronic congestion problem—and the experience of other cities suggests they could even add to it.

July 8, 2019 0 comments

Comment Mobility Opinion Special Report

Smart mobility in Lebanon

by Ralph Khairallah July 8, 2019

written by Ralph Khairallah

The first digital revolution was centered around the movement of data and information in the virtual world; the next digital revolution may very well be around optimizing the movement of people and things in the real world. The concept of “smart mobility” is the intersection between the real and the virtual worlds, and this is why it has been gaining traction of late.

Movement, like communication, is a core human need, and technology plays an integral role in how people move—mobilize—in the real world. This explains why mobility startups like UBER, Tesla, Lyft, Careem, DiDi, Ride, Lime, Grab, Deliveroo, and BlaBlaCar—to name a few—have become household names in their respective markets. People need to move more freely and efficiently to keep up with the pace of the information age.

In the case of Lebanon, our mobility infrastructure is plagued with years of neglect and lack of resources. A partial solution for the traffic congestion is to activate new smart mobility systems that tap into a widely abundant resource: unused car seats.

A 2015 environment ministry report cited a vehicle occupancy rate of 1.2, meaning the average Lebanese is driving a five-seater car to only transport themselves. Moreover, with the World Bank estimating there are around 1.6 million cars in Lebanon that means there are 6 million unused car seats cruising our roads pointlessly each day. This is the raison d’etre for new shared mobility solutions, and the reason why young entrepreneurs—including myself—launched Carpolo in 2017 for the Lebanese public. Our app works as a search engine for those unused car seats; it unlocks a sophisticated public transportation network using two simple resources: mobile devices and existing cars on the roads.

Unlike traditional mobility infrastructure systems—roads, bridges, railways—smart mobility solutions require less investment for the value created. For the general public, it might be as simple as downloading a mobile app; for companies, it might mean creating an internal carpooling system for staff; and for governments, investing in smart mobility initiatives can have exponential returns in economic, social, and environmental value.

When we look at the social value created, carpooling apps provide turnkey, smart mobility platforms that unlock a new mode of public transportation for subscribed cities and communities. Moreover, this smart mode of transportation can be activated immediately and requires no hardware and no land appropriation.

The value created as a result of implementing these kinds of smart mobility solutions is multi-fold. It decreases congestion in the city and makes movement less costly; thus allowing people, businesses, and governments to operate more efficiently.

The question remains: Now that we have proven than we are able to create value through smart mobility solutions, who are the stakeholders who should invest in long-term mobility solutions for Lebanon?

The need for public support

Looking at the buses and vans that compete for passengers on Lebanon’s roads, it is immediately clear that the private sector is not doing well when it comes to managing the country’s chaotic mobility sector. Just like urban planning, smart mobility requires a holistic vision of the city’s transport needs.

Our experience as a startup taught us that the private sector can spark the creation of smart mobility initiatives, but the catalyst to activating smart mobility as a mainstream solution will be the public sector. Mass adoption of new mobility concepts takes time, and will only come once this becomes part of a national program.

Low-cost/high-value mobility solutions are among the most important investments that any city or government can initiate nowadays to improve their infrastructure. Collaboration with the private sector to create mass adoption for such mobility concepts is the role of the public sector.

This is exactly what we aim to achieve in the long-run as we seek to establish new mobility habits in the minds of our users. However, apart from building a technology and updating it based on user feedback, startups have to invest resources to introduce new habits. Such investments require persistence and dedication to make a change—something that few early stage investors are willing to do. On the other hand, a big portion of public spending is directed toward traditional brick and mortar infrastructure solutions—projects that require time and resources to be implemented. These priorities will need to be reassessed in the near future. With smart mobility solutions, we save time and money, and build a basis for a smarter society in the future.

July 8, 2019 0 comments

Comment Mobility Opinion Special Report

The case for increased cycling in Lebanon

by Zeina Hawa & Elena Haddad July 8, 2019

written by Zeina Hawa & Elena Haddad

Worldwide, the bicycle is making a comeback as part of the future of sustainable cities. Here in Beirut, despite appearances, there is the potential to foster a bike-friendly city. Beirut’s small size, compact urban form, organic and narrow street structure, and the inter-connectivity of neighborhoods make it an ideal city to cycle in.

Even the more seemingly chaotic aspects of the city, the double parked cars and near constant obstacles, actually work in favor of cyclists by slowing vehicles down. Sprawl, wide avenues, and fast moving vehicles are extremely challenging for cycling, but these barriers are nearly absent in Beirut. The case for cycling is even stronger in Tripoli, Saida, and Sour, all of which are smaller and flatter than the capital and remain unscathed from car-oriented infrastructure projects such as urban boulevards. Beirut has been disfigured by the latter, making it more difficult to travel by foot and bike, and in some cases splitting apart entire neighborhoods—known as community severance.

Barriers to change

Despite the potential that exists, cycling is still not a common sight in Beirut. There are social and cultural barriers to cycling in Lebanon, such as associating bicycle use with poverty and the inability to purchase a car, or seeing cycling as a leisure activity rather than a form of transport. We at the Chain Effect, a non-profit promoting and facilitating the use of bicycles as a form of urban mobility, surveyed those who participated in Bike to Work 2019—the third edition of a day-long event that provides those willing to try cycling a free bike to use, as well as parking points and dedicated bike lanes—to see what barriers—perceived or otherwise—discouraged the use of bikes in the city. Safety was one of the biggest concerns, with 48 percent of the 165 respondents saying that they perceived cycling in Beirut as dangerous. Other barriers included the lack of affordable bike options, the poor infrastructure (no places to park bikes, no showers in workplaces), and few resources on how and where to buy bicycles.

Bike to Work Survey — Source: The Chain Effect; Bike to Work 2019 survey

Beyond these personal concerns, Beirut is still very car-centric, making it harder to foster a cycling culture. Larger establishments like malls and hospitals can be less receptive of cyclists and their bikes, given restricted parking and concerns about visual obstructions. In Downtown, a car blocking an entire lane of traffic is acceptable, but locking your bike on a street pole will cause security personnel to come running with clamours of mamnou’ (forbidden). Driving is immensely facilitated and subsidised; on-street parking is cheap and available, and valet parking is common. Post civil war transport projects have prioritized the movement of vehicles at the expense of pedestrians and cyclists, implementing transport plans dusted off from the 1960s and 1970s with little regard for the current makeup of the city.

The case for city cycling

There is, however, much potential for bicycles to contribute to Beirut’s social, economic, environmental, and cultural development. The bicycle is a tool for better mobility, wellbeing, social cohesion, improved air quality, reduced environmental strain and, overall, better quality of life.

Take combating congestion as an example: Private car trips account for 69 percent of transport in the Greater Beirut Area (GBA), according to the Ministry of Environment (MoE). The World Bank estimates that Lebanese lose 70 percent of their travel time in traffic delays due to traffic congestion, yet 50 percent of trips within the GBA are less than 5 kilometers, according to the MoE. The brevity of these trips means they have the potential to be taken via bicycle, with cycling infrastructure moving people much more efficiently—and at a fraction of the cost.

Countless studies have highlighted the enormous personal, public health, mental health, and air quality benefits that walking and cycling can bring. Regular cycling can help to combat sedentary lifestyles and obesity, as well as help lower the impact of transport on air pollution. In Beirut this is a particular boon, given high levels of air pollution affect 93 percent of Beirut’s population, according to researchers at AUB, with motor traffic being the main source. Studies carried out internationally also find that bicycle commuters report being significantly happier or more satisfied than car or other commuters.

Economically, investing in cycling is a no-brainer, bringing enormous savings from reducing congestion, accident, health, space, climate change, and pollution-related costs associated with mobility. In 2018, the World Bank estimated the cost of Beirut’s traffic congestion at over $2 billion. Individually, citizens spend a significant proportion of their salary on fuel, parking, and maintenance, according to the World Bank. Poorer households in general, suffer disproportionately from the car-dependent culture.

There are also spillover economic benefits from cycling. People on bikes tend to stop more and so spend more on average than people in cars. Marrying cycling with tourism in Beirut could impact other areas like food tourism and visitor numbers to cultural sites. Already, a number of small bike-based Beirut tours and touring companies have emerged in the last year alone, paving the way for similar initiatives.

Finally, cycling in Beirut is a political statement, a symbol of defiance and a means to reclaim the city in the face of an alarming trend of privatization. Its immense value in building bridges between communities should not be ignored.

The way forward for Beirut

Beirut can learn from decades of bicycle promotion experience in other cities. Planning bicycle infrastructure in a city that has none is an enormous opportunity to rethink how people move and create links in severed areas.
Data collection must be amplified for planners to understand the current baseline and potential changes. A long-term mobility strategy that places active travel at its heart is vital to build a city vision. Rather than cycling only, an inclusive vision that promotes active, healthy, and holistic streets, and communities, has wider benefits—organizations should push for solutions together. Efforts like Cycling 2030—an initiative launched by ourselves in 2018 to mobilize different stakeholders to collaborate over a cycling strategy—and TRACS—a coalition of active NGOs and experts in the transport sector—demonstrate an appetite for cross-collaboration, but must be supported with horizontal and vertical communication.

Without a metropolitan transport authority, it is important for Beirut to coordinate a long-term vision and network with neighboring municipalities to fully reap the benefits of cycling.

The availability of well-executed segregated bicycle infrastructure has a direct impact on increasing cycling rates. A bicycle network strategy will help prioritize infrastructure investment as opposed to current haphazard bicycle lane plans. Gradually reallocating road and parking space from cars to pedestrians, public spaces, and bicycles is complementary to other plans. Educational programs for youth and adults are just as important for a behavioral shift. Driving on congested main roads means bicycle-friendly streets remain lesser-known. Way-finding and alternative routes become valuable, especially in a city that is not entirely flat. Private companies have a role and benefit in facilitating active travel. Resources that facilitate car commuting can easily be redirected to cycling.

Long-time Beiruti cyclists notice the airs of change. Cycling has become much more of a prominent topic than it was five years ago. The Bike to Work 2019 survey found that 65 percent of participants would consider utility cycling—using bikes as a mode of transport—more regularly. One thing is certain: the era of the car in the urban environment is coming to an end, making way for more sustainable cities in the future.

July 8, 2019 0 comments

Mobility Photo Blog Special Report

Lost in Trainslation

by Greg Demarque & Nabila Rahhal July 8, 2019

written by Greg Demarque & Nabila Rahhal

Kan ya ma kan (once upon a time), Lebanon had a well-developed railway network established by the different foreign authorities that governed the country before its independence.

The first major rail line was developed during the Ottoman period in 1895 and ran from Beirut to Damascus. It was constructed by the French upon a concession from the Sublime Porte.

The second major rail line ran from Haifa, a port city in Palestine to Tripoli, north Lebanon and was constructed in 1942, during the second world war, by the Australian army.

In between those major lines, smaller lines or links were also developed. The first was constructed in 1904 and connected Riyaq (Rayak) in the Bekaa to Syria’s Homs passing through Baalbek. The other was constructed in 1911 and ran from Tripoli to Homs to Aleppo.

Trains in Lebanon continued to function regularly until the onset of the civil war in 1975 when infrastructure gradually deteriorated. Since the end of the civil war, until now, there have been no functioning trains in Lebanon.

The photos in the photo essay were taken by Greg Demarque during an educational field trip organized by I Learn Academy. Information for text and captions was provided by Train/Train.

Locomotive and train carriage in Riyaq, central Bekaa
Locomotive and train carriage in Riyaq, central Bekaa
Interior of Chouit Araya Station
Chouit Araya Station, Mount Lebanon
Chouit Araya Station, Mount Lebanon
Riyaq (Rayak) Station doubled as a workshop for locomotives and included a rest house
Remains of tunnel and tracks in Dahr el-Baidar, through which the Beirut-Damascus line used to pass
Baabda (Babda) Station
Manual train switch in Baabda
Old railway bridge in Mar Mikhael
Remains of train tracks in Mar Mikhael

July 8, 2019 0 comments

Mobility Q&A Special Report

MEA focused on local Lebanese market

by Thomas Schellen July 8, 2019

written by Thomas Schellen

Middle East Airlines (MEA) is one of Lebanon’s indisputable assets in the wide realm of mobility. The flag carrier throughout its 74-year history has reflected the varied economic fortunes, ambitions, and realities of Lebanon. To inquire about MEA’s positioning and strategic outlook today, Executive interviewed Walid Abillama, the airline’s head of commercial strategies and alliances.

E: MEA very recently declared that it was a launch customer of latest single-aisle Airbus version: the A321XLR. This aircraft has a longer range of up to 4,700 nautical miles and 30 percent lower fuel consumption than other planes in the A320/321 family. What is MEA’s strategy behind going for the XLR version? Do you primarily want the fuel efficiency or the larger range?

We want both. Our strategy is based on one clear fact that we have to always remember: MEA is a small airline that is competing at Beirut airport with the biggest airlines in the world. We compete with all these guys, and our natural market is Lebanon, which is a small country. Our strategy is to service most markets to and from Beirut airport that make sense and are sustainable. We either service [these markets] using our own fleet or by using our commercial agreements with carriers that operate into markets where we find common benefits.

The difficulty for us is that the market is decentralized and that we need to set priorities as to which point makes the most sense. We don’t fly to other markets—outside of destinations in Western Europe, the Eastern Mediterranean, the Arabian Gulf, and Western Africa—but we service them through code-sharing agreements, especially in North America (Canada and the USA) where we have commercial agreements either as special pricing agreements or as code shares. What makes it difficult for us to serve destinations other than the ones I listed for you is either a lack of economic feasibility for using our own aircraft or a lack of partner [airline], which usually means the unwillingness of a [potential] partner to cooperate with us.

We are a small airline and [we take] the perspective that it is always wise for the national airline to be dimensioned at the size of the national market, which is a lesson that we learned the hard way. When the civil war ended, the management of the airline came up with a strategy that they should go after the Lebanese diaspora. Between 1990 and 1997 there were many losses because we were concentrating on serving Lebanese outside of Lebanon. This is a high-risk strategy, because people residing in a country are interested in and loyal to the airline of that country. Thus the strategy of servicing the Lebanese diaspora outside of Lebanon was at a risk of the competition being in a better position for serving this community. So we lost money.

E: Didn’t MEA at that time also have a very large headcount in comparison to the number of planes in operation?

Yes.

E: And it was widely perceived as a result of the conflict years when many employees were taken on for political reasons?

True.

E: How much of the loss in the years 1990 to 1997 was based on the strategy of seeking to service the market of Lebanese diaspora customers, and how much was based on the very large headcount?

Approximately one third of the losses were attributed to the irrational network, one third to the irrational fleet, and one third to headcount.

E: You undertook a massive restructuring in the early 2000s, rationalizing networks, aircraft choices, and employee numbers. What is your approach today?

We take risks but we take very calculated risks because we are a small airline, plus we focus the risks that we take on the Lebanese market. Our strategy is to grow—we cannot escape growing—but the challenge is to do it rationally and at the right time.

E: Between renewal and expansion you are looking at quite a large investment in the next three years. Is that perception correct? One of the sales argument for the XLR seemed to be that you can reach destinations that are further afield, with this single-aisle twin-engine jet and don’t have to use the larger dual-aisle machines. Is MEA looking at using the greater range for expansion into destinations like Sao Paulo?

Let’s stick to some facts. The XLP range extends from Beirut to Dakar in West Africa or to Reykjavik and Dublin but it cannot go across the North Atlantic. It can do so from Europe but not from Beirut. It also cannot go to China. [In any case] it is not always good to be a leader. Sometimes it is better to be a follower, and we have learned a lot from low-cost airlines. You can learn from their mistakes and you can learn from their successes. We are very good at observing what other people do and taking the best practices of what they do.

“I don’t think there is a difference between us and a LLC in the way in which we think commercially.”
– Walid Abillama, MEA’s head of commercial strategies and alliances

Opening new routes is about when you do it and how you do it. We have a top ten bucket list of what to do, of points where there is [the] most traffic that is not being serviced by direct flights. We monitor this every month and plan accordingly. Sao Paulo is very far [down] on our list and South America is very far on our list, and so is the Far East. North America is on the top of our list but has political obstacles. The next points in Africa that are hot on our lists are points like Abuja in Nigeria, Kinshasa [in Congo], and [other destinations] that come right after [the existing connections to] Abidjan, Lagos, and [Accra]. I would say the XLR could operate in flights to many new [destinations] in Africa and perhaps in Asia, where the challenge is to find the right partner to China. China is a big question.

E: As you said, the experience of low cost carriers (LCCs) has many lessons to offer, in learning from failures of airlines like Germania or Wow earlier this year and from successes of LLCs in the Middle East market, where Air Arabia and flydubai were founded and became active in the past 10-15 years. This must have had implications for your strategy.

Yes, but I want to note and clarify something. I don’t think there is a difference between us and a LCC in the way in which we think commercially. At the end of the day, they, just as we, pay for fuel, maintenance, they pay their crew, taxes, and airport fees. So they have to make money and since they do not have business class to sell, they have to make their money in the economy segment. Their strength is that they are very flexible from very low to very high [economy class fares]. We are less flexible but we both want to make money. So it all boils down to who is monitoring the market better and gives the market what they want at the right time. We also have other tools like loyalty [schemes] and incentives to travel agents but the flexibility in the pricing we have learned to include.

E: Isn’t there a difference between the fact that the LCCs are at the mercy of the market and shareholder interests whereas MEA is the flag carrier-affiliated, albeit by ownership via Intra and its shareholder BDL, with the state? Is your mandate at MEA to make profit at all costs or is your mandate to serve the Lebanese market and look at your profit always in connection to this role?

No, the primary objective is to make money. But we understand that to make money, you have to [do it a way that fits your purpose]. Do you watch football? In football, everybody wants to win, the objective is to score goals and win. But to win and sustain a good team, you need to play well and play nice. And this is something that you have to believe in. Our objective is to make money, but we have to service the Lebanese market and the needs of Lebanon, in the sense of the needs in terms of tourism and people who reside in Lebanon. We need to do this correctly because this will sustain our money-making objective. But the objective is to make money.

E: But when comparing with purely private sector LCCs, are you not less vulnerable to shareholder decisions that might be driven purely by profit motives?

In 1998, the situation [of MEA finances] was very delicate and I don’t wish to be back in those shoes. Since then, we have built a robust airline with concentration on conservative growth. Our financial position is robust. Our current commercial position in the market is very robust. We have loyalty in the Lebanese market, and we enjoy strong market shares on our routes because of the services that we offer. We offer the right capacity at the right times and go out of our way to operate extra flights—and it is very expensive for us to do that [as it means] to react in the last moment to sudden surges in demand.

“We have built a robust airline with concentration on conservative growth. Our financial position is robust.”
– Walid Abillama, MEA’s head of commercial strategies and alliances

One fact is essential to the airline industry and this fact is that the aircraft size is fixed. This [inflexibility of supply] has implications on the pricing level that very few people understand. If I don’t keep selling until the last minute, my competitor wins. If I am out of seats in the month of August and my competitors will have seats and would sell at the price that they wish to sell at; they will have an easy ride while I have to reject all this demand and will not be able to serve my customers, and I will lose them. The best thing for the consumer is to always have a choice and once the consumers cease to have choice, they lose. So to preserve the choice for the customer, I have to have seats available—and that is what I do.

E: And from the 20-year experience between 1998 and 2017, the trajectory of pricing of the average seat on MEA was downward, and this was better for the consumer, wasn’t it?

Yes.

E: How are MEA experiences concerning increased connections to Europe through LCCs when flights to Western or Eastern Europe are concerned? Do you have any Eastern European destinations on your target list?

European traffic is now segmented into two types of traffic. It is either direct or through Istanbul. Turkish Airlines and Turkish low-cost airlines have cleaned up [the market for connecting to] all the European stops. Lufthansa is now selling either direct to Frankfurt or long-haul: USA and Canada. [It’s] the same thing with Air France. With Aigle Azure and Transavia (which launched Beirut services in 2017: Editor) there are low cost airlines to Paris, and we were not affected because we immediately adapted our pricing model and our commercial model. As long as the market is healthy and as long as growth is there, one has always room to adapt if you know how to apply the correct policies.

Right now, Eastern European destinations are far behind Western European destinations. But we are [present through code-shares]. We are code-sharing with Czech Airlines and are selling a lot of seats on their flights as they operate in this market. Czech Airlines and (Romania’s) Tarom are part of SkyTeam and Lot (Polish Airlines) has started operating (flights to Beirut as of June 2019: Ed), and we are cooperating with them commercially.

E: The impact of aviation on climate is an emotive topic; are protests or calls in Europe for climate change-related taxation of airline fuel a point of concern?

If you are in Sweden and want to visit Lebanon, how can you do it if you don’t fly? It is their right to have clean air, and it is our duty to service the demand with technology that maintains clean air—but demand will always be the driver. If there are tourists in the Netherlands or Germany who want to visit Lebanon, they have to fly. These people can protest, but they will have to answer to the tourists who would like to visit Lebanon before we have to answer to them. We do not build airplanes, we try to find the cleanest ones, but we want to bring tourists to Lebanon.

E: You have been doing this well, and now Lebanon and all of us are in a situation where the airport has to increase its capacity. How is the projected expansion of Beirut airport in the near and longer terms impacting MEA?

It will be for the better. Our product is limited by the infrastructure of Beirut airport. The better the quality of service is at Beirut airport, the better it will reflect on MEA and we support the project.

E: Will you, additionally to scheduled aircraft renewals, expand your fleet and your network with a view to ongoing improvement and later expansion of Beirut Airport or will you say, in terms of target market and strategy, let’s do more of what we are good at and are doing already?

We are expanding our fleet. It looks like we are just replacing aircraft [in 2019 and the coming years], but that is not really true because the A321 will have 150 seats, while the A320 currently has 126 seats.

E: And in the number of aircraft, you are looking at what total fleet size in the next few years?

We currently are at 18, and we may have one or two more aircraft, but even with the equal number of aircraft [when comparing the fleet of the recent past to the future fleet], there is an immediate 20 percent increase in capacity. So [the overall capacity increase] may be in the order of 30 percent if we decide to add one or two additional aircraft.

E: Would the newly ordered XLR jets be on top of that, increasing the fleet by four more jets in years from 2023 that Airbus announced as the year when it would begin deliveries of this model?

The four jets will be part of the fleet increase by two more jets.

E: So the net increase of the fleet is looking to be two jets and the increase in capacity is to be 30 percent.

Yes.

E: What can you say about your profit and performance data in 2018 and 2019 to date?

In 2018, we made less profit than in 2017, because all additional revenue that we made [last year] by carrying more passengers was eaten up by fuel costs. In 2018, we made $50 million more revenue, but fuel cost translated into $60 million increase in cost. In 2019, we are going to inverse this phenomenon, because the fuel cost has dropped and we will be able to enjoy the extra revenue that we are making in terms of profits for 2019 if everything goes as expected in the high season and in the rest of the year—2019 should be financially better than 2018. And this is needed at a time when we are investing in the fleet and taking the risk.

E: How much is the total investment into the fleet that MEA is undertaking today?

I do not have visibility on this, but we are receiving nine new aircraft in 2020 and another nine new aircraft in 2021.

E: A number quoted by Reuters reporting from the Paris Air Show was that the four XLR will cost something like $500 million in list prices—which are usually not the prices that airplane buyers end up paying—but is it correct to think that the total investment into replacement and expansion of the MEA fleet would amount to several billions of dollars?

Correct.

E: In terms of looking forward into the next few years, we have the airport expansion, the fleet renewal and then, on another level, there are implications from the impending arrival of the new Electronic Trading Platform to Lebanon’s capital markets next year, where the message from the governor of the central bank not long ago was that privatization should be pursued on MEA. How do you view this prospect?

I am not in a position to comment on this. But we are a strong brand and the public trusts MEA. We are competing and we are surviving and offer a quality product at rational prices.

E: But when it comes to the financial side of privatization, much emphasis is being placed on corporate governance structures, due diligence, and all financial preparations for taking a company public. I surmise from what you just said that you cannot tell me if MEA has contracted any advisers or investment banks in this direction. Can you tell me, however, why you did not publish annual reports in 2018? I did not find them on your website where I saw the 2016 board of directors report as the most recent entry under financial statements.

(Asks “Aren’t they published?” on phone with staff members: Ed) 2018 is not published yet, but the results that I gave you are correct. There will be around $10 million less profit [for 2018] due to the increase in fuel cost. We had about $50 million increase in revenue but the additional fuel costs [ate away at this].

E: And results for the first five months in 2019?

The trend is opposite in terms of fuel. Now fuel cost has increased due to increased activity, but since the price [of fuel] has decreased, it has helped us to maintain our costs so the extra revenue we made we are seeing as moving to profits.

E: Can you say how much profit for the period is higher when compared to the same period in 2018?

Profit so far for the first five months in 2019 is $6 million, but this is an estimate.

E: Is this similar to how the profit was in the same period of 2017?

Hopefully better.

E: In an earlier interview with an aviation magazine this year, you said that passenger increase was around 6.5 percent?

This is now much higher. Traffic is at the level of 11 percent.

E: This is 11 percent up in the first five months of 2019 when compared to 2018?

Yes.

July 8, 2019 0 comments