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Cabinet still at impasse over extending MEA’s exclusivity

18 August 2012

BEIRUT: Cabinet ministers are still at loggerheads over whether Lebanon’s flag carrier Middle East Airlines should retain exclusivity ahead of a decisive session of government.

While some analysts argue that state-enforced monopoly cripples the industry, others see the measure as necessary to safeguard a key profitable company.

Lebanon granted MEA exclusive rights as the country’s sole commercial airline in 1969 in a bid to boost the company after an Israeli attack destroyed most of its fleet.

The deal, originally set for 20 years, was extended on many occasions into 2012. It is set to expire mid-September.

The exclusivity deal forbids any other airline from registering as a Lebanon-based carrier. The many charter airlines based in Beirut, for instance, are barred from selling tickets directly to the public and are restricted to sales for tours operated by travel agencies.

Some ministers, including Transportation and Public Works Minister Ghazi Aridi, have long voiced support to extending exclusivity, citing concerns over MEA’s profitability and protecting more than 4,000 employees at the company.

MEA’s operating profits declined to $40 million in 2011 from over $90 million in 2010 due to a rise in the prices of fuel, the soaring cost of employment benefits and the fierce competition from other airlines that offer cheaper tickets.

“I hope you preserve your unified and unshakable word and stance, so that we can once again meet and advance by achieving the decision to renew MEA’s exclusivity,” Aridi told MEA employees recently as the company joined international airline alliance SkyTeam.

The Cabinet Thursday postponed to next week discussions over an official request filed by MEA to extend its exclusivity agreement until 2032. Some ministers are reportedly pushing for a measure that would instead limit exclusivity to the next five years.

In its request, which was published by An-Nahar newspaper Friday, MEA argued that “International standards for security and safety [have become] very expensive and it would be difficult to meet, financially and technically, by any newly setup airline.”

MEA chairman Mohammad al-Hout declined to comment on the issue when contacted by The Daily Star Friday.

In its request, the company also argued that exclusivity rights do not qualify as a monopoly, arguing it has been already competing with over 45 international airlines which are free to operate in Lebanon since an open skies policy was introduced in 2001.

“The company has reduced the average economy class fares 27 percent from $219 to $160 between 2008 and 2011,” MEA said, arguing the measure would safeguard the company’s ability to take advantage of economies of scale in what it described a small aviation market.

But Hamdi Chaouk, former director-general of the Civil Aviation Authority, told The Daily Star that MEA’s exclusivity deal was restricting growth potential for the industry.

“For instance, the abolition of exclusivity rights would allow for the introduction of local low-cost carriers and could for instance open a lot of growth in travel for many [social] segments which cannot afford to travel at MEA rates,” he said.

Chaouk argued that since Lebanon has already endorsed the open skies policy, it would be pointless to continue restricting Lebanese companies from entering the business.

“Effectively you are restricting Lebanese investors form the business but opening up to all others,” he said.

Chaouk also pointed out that MEA’s real value is being tarnished by the exclusivity deal as any potential investor would refrain from investing in a protected business that lacks healthy competition.

“[Exclusivity] violates all international orientations to liberalize the aviation industry. While all other countries open up their aviation market for competition, we are still thinking about restrictions,” he said.

Chaouk argued that abolishing exclusivity would not significantly harm MEA. “MEA is a strong and long-established firm that will thrive in spite of the exclusivity clause. Abolishing exclusivity would allow for healthy competition that would improve MEA’s position instead of harming it.”

© Copyright The Daily Star 2012.

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