ERITREAN AIRLINES
FIRST EVER-DIRECT AIR SERVICE BETWEEN ASMARA & DUBAI
By “Herui” Abebe Tecle

	Best Airlines – by Travel Class International Service Best Economy Class
	1 Emirates
	2 Malaysia Airlines
	3 Singapore Airlines

	Regional Top Ranking Middle East – Region
	1 Emirates
	2 Qatar Airways
	3 Gulf Air

Source: Skytrax Airline of the Year is the global barometer of airline passenger opinions.

Dubai International is an essential airport for Eritrean, because about 5,000 passengers mainly Eritreans from Australia, Asia and Europe are expected to connect to Eritrean this year. The current origin and destination (O&D) traffic between Asmara and Dubai, and Djibouti to Dubai on Eritrean is experiencing about load factor of 50%, which is on the low side for the Queen Bee” or the “Virgin Bee” (B767s). However, the market will be well served when the “Busy Bee”, B737-300, 120-seater is added to the fleet.

Currently, Eritrean is operating one flight a week, but effective June 1, 2005; the service will increase to two flights a week on Wednesday and Sunday. This improved frequency will provide an ample time for business people to do their shopping and return within three to four days. Eritreans in Dubai should take this new opportunity to develop wholesale warehouses and inexpensive guest centers for their new customers. As the Eritrean economy improves with time, Dubai and beyond (Far East) will be the new markets for Eritrean and the African business people. The so-called European Nations are our traditional business partners and business should continue as usual is a thing of the past. As Mr. Naikuni (CEO Kenyan Airways) said, “We’ve been colonized to think there is only business in Europe.”[5] Simply put a realistic statement, what Africans buy in Europe is mostly made in the Far East. I think it’s time to get the products direct from the source than the middleman in Europe. In this respect I certainly see the ASA between the CAA and DCA to include market points beyond the two gateways. Whenever, we use the term beyond, we are referring to the “Beyond Rights”, which is the Fifth Freedom right.

I shared this great news with an Eritrean Friend and he commented as follows, “without foreign currency what are the business people from Eritrea going to do in Dubai”? I am sure this is a concern of many other Eritreans in Diaspora rather than in the country. In these economic hard times, the business people in Eritrea may be low in foreign currency, but this business community has always depended on its own resources to obtain hard currency to conduct business. Additionally, it is not only the Eritrean business people who travel to Dubai, there are the leisure travelers, connecting passengers to other destinations and workers (Eritrean and non-Eritrean) in the Arabian Peninsula vacationing in Eritrea. My good friend tends to dismiss these new market potentials on the pretext that the country is not ready for tourists. This is another point of concern. The UAE is much smaller country than Eritrea (83,000 vs. 121,325 Sq km respectively, Eritrea is 1.46% bigger than UAE). UAE is classified as a desert land, yet its sun, sand, sea, sports, shopping, hotels and restaurants made it one of the fastest growing tourist destinations of the world[6]. Eritrea has the same attributes except better climate, topography and unpolluted coasts (with no oil spills unlike that of UAE). Eritrea needs investors to put up the first-class hotels, restaurants and other facilities. After the events of September, it looks like some major investors feel safer to establish on the Eritrean side of the Red Sea coasts for similar developments. If the prevailing conditions permit, Eritrea may be able to attract the same investors as UAE has done.

If we want to make the case hopeless and discredit the efforts of the CAA as useless exercise, we may add the following scenarios. Since Eritrean is flying to Dubai, Emirate Airlines (hereafter “Emirates”) has the right to operate to Asmara. When Emirates starts flights to Asmara, the existing small traffic will split between the two airlines and both will operate at loss and Eritrean will phase-out from the market due to lack of cross subsidy from other profitable routes.

Further more, the airline industry in the UAE is relatively well developed. There are six high cost and budget airlines based in the country. The biggest and national flag carrier is Emirate as detailed in table below.

Airlines Based in United Arab Emirates by Aircraft Type
Airline	A300	A310	A320	A330	A340	B737 NG	B767	B747	B777	Total
Emirates		1		29	16			2	21	69
Etihad	1			5	1		2			9
Air Arabia			4						0	4
Amir Flight						2		2		4
Dubai Air Wing						1		3		4
Menajet			1							1
Total	1	1	5	34	17	3	2	7	21	91

Emirate is a powerhouse among the world’s major airlines. On March 25, 2005, Emirates took delivery of its first two Boeing 777-300ER aircraft from Boeing. The airline plans to receive ten B777-300ERs in 2005 (from other sources). In 2004, Emirates operated a total of 69 widebody airplanes. Of the 69 airplanes 21 are B777s and plans to increase the number of B777s to 51 by 2007. This kind of financial strength is not only a market threat to airlines in the region, but it has become a major concern to Lufthansa, Air France and British Airways in the European market. Given the current fuel prices and fare wars among the European carriers, competing against fuel producing country like UAE, seems having a war of attrition on their hands.

At this time, Emirates doesn’t have narrowbody aircraft that can serve Dubai- Asmara market segment. What if Emirates decided to exercise its Fourth Freedom right to fly to Asmara? Why would a global player like Emirates want to fly to a small market like Asmara? In this case, most of us would agree that Emirates would not fly to Asmara.

Perhaps, this is what we think thousands of miles away from the actual situation. Guess what? The all mighty Emirates has requested landing rights to Asmara for seven (7) flights a week. The landing fee alone is a great source of revenues to the Eritrean Airport Authority. Ground handling is another major income for Eritrean and air navigations fees for CAA. What if the government of Eritrea awards the Approval Destination Status (ADS) to UAE? That is giving unrestricted passage to citizens of UAE to visit and invest in Eritrea?

At the end of the discussion my critic friend said, “you are a mysterious man, never mind about Eritrean Airlines, let’s get Emirates seven flights a week, they must be bringing in heavy rollers”. What are they planning? What does the poor country of Eritrea has to offer to attract world-class airlines like Emirates? May be there is something that we do not know about this country, like the ADS you just mentioned? Seven flights a week can only mean huge investment along the Red Sea coast. Let’s milk the tourist said the critic. I thought you do not like any thing about Eritrea, I asked. Well, seven flights a week from Dubai makes you change your religion let alone your politics he added and we laughed.

My good friend was a business savvy from the 60s in Asmara. It looks like he was engaged in the hospitality business at that time. He told me about a monthly flight that used to come from Duran in Saudi Arabia to Asmara in 1965-67. According to him, the flight was a B707, mostly US military personnel or oil field technicians who worked in Duran. The flight brings in about 150 men for about four days and they used to move the city. He spoke for half an hour about how modern restaurants, nightclubs, bars, hotels…etc used to move when that flight arrive. He concluded his fascinating story by saying, I know what one flight a month used to bring to Asmara, and I cannot imagine what seven flights a week from that side of the world would bring.

The next day, my good friend requested for a closed meeting to follow up on the Asmara-Dubai air route opportunity. He wants to know how aviation bilateral agreements work in the airline industry and what do they mean? According to him the air services agreement seems too good to be true. Why would UAE give Eritrean Fifth Freedom right to take Dubai passengers to Karachi or Mumbai (or to other market points beyond Dubai)?

We met and discussed for three hours about the eight freedoms of air, which are the pillars of any air services agreement. We hope some of the people in the field will join in. Just for reference the eight freedoms of air are as follow:

1) The privilege to fly over a country without landing.

2) The privilege to land for non-commercial purposes (technical stop)

3) The privilege to carry passengers, mail and cargo from home state of the carrier to the grantor state (in this case Eritrean Airlines to UAE).

4) The privilege to carry passengers, mail and cargo from the grantor state to the home state of the carrier (the reciprocal of #3, Emirate Airlines from Dubai to Eritrea).

5) The privilege of carrying traffic between the grantor state and third states along an agreed route (for Eritrean it would be Asmara-Dubai-Mumbai; for Emirates it could be Dubai-Asmara-N’djamena or other agreed route).

6) The sixth freedom applies to traffic carried between two countries via the home state of the carrier (this is a combination of third and fourth freedom traffic secured by the carrier from two different countries with the same effect as fifth freedom traffic vis a vis both foreign countries).

7) Seventh freedom applies to international traffic carried by an airline operating entirely outside its home state.

8) The eighth freedom (cabotage) refers to the privilege of carrying traffic between two points in a state by a carrier not residing in that state.Y

After a thorough review of these eight freedoms of air, it’s imperative that Eritrea struck a new air service deal with UAE or signed a memorandum of understanding. The main purpose of the agreement is to provide legal framework for direct air services to operate between the two countries, which is intended to facilitate trade, tourism and cultural exchange.

Most of the ASAs follow a standard format. A typical agreement that has been signed in UAE before consists of 23 articles. Article one itemizes definition of terms used in the text. Articles two through eleven are critical, because they deal with obligations of the contracting parties. The parties in this agreement are the civil aviation authorities of the respective countries rather than the airlines.

On the basis of the first eleven articles, both authorities agree to designate an airline(s), airport, route(s) between and beyond the gateway, capacity, and number of frequencies to each country or entitlements (it looks entitlement for UAE would be seven flights per week as requested and Eritrean would have the same). The articles also include reciprocal provisions on a range of aviation related issues such as safety, security, customs regulation, and commercial aspect of airline operations.

In addressing the issue of designation of an airline for Eritrea is simple, because there is only Eritrean. UAE has six airlines. Usually, one of the six airlines must have expressed the route between Dubai and Asmara. However, if the initial request is made by Eritrea, UAE has to consult with the existing airlines in the country and obtain comments. Since, UAE has requested to fly seven flights per week, it implies that the national flagship carrier has been designated.

The contracting parties come to the negotiation table after consulting with various agencies in their respective countries and have had a study on a range of subjects about both countries. The results of the consultation, country political brief, country fact sheet and list of treaties are referred in the annexure of the agreement.

Let’s take a practical preview of the agreement. At present Eritrean (Nation A) is exercising Third Freedom (above) to fly to Dubai (Nation B). Eritrean has the right to drop passengers at Dubai and collect passengers back to Asmara). Emirates will uses the reciprocal that is Fourth Freedom to do the same. However, when each of these parties request for additional frequency, each of them have to prove the need based on available traffic statistics. In the event there is no sufficient traffic, the grantor state is to suspect abuse of sixth freedom. Of the above-enumerated freedoms, the Fifth and Sixth Freedom are often times the source of conflict between two states (nations). In our example, if there is no sufficient traffic from Dubai to Asmara for seven flights a week, then Emirates must be carrying Eritrean National from Frankfurt (or Amsterdam) to Dubai and then to Asmara. The Sixth Freedom permits the traffic right of that type, but the two parties have to agree on it during negotiations, because it may affect Eritrean. Eritrean has the natural right to carry its nationals from Frankfurt or Amsterdam to Asmara. If the traffic originates from Sydney to Dubai then to Asmara; Eritrean does not fly that route, there should not be an objection at this time. A demonstration of Sixth Freedom right is indicated below. In this example, the carrier is Emirates, starting from Germany (C) and flying to UAE (B) and then to Eritrea (A) carrying Eritrean nationals from Frankfurt and UAE.

On March 30, 2005, India and Mauritius (a small island nation, on the Indian Ocean, off the Southeast cost of Africa) signed ASA related to Fifth Freedom rights. According this agreement, Mauritius airlines (Nation A below) to serve routes from its gateway Port Louis (in Mauritius) to New Delhi (Nation B) and beyond: to Karachi (Nation C or beyond) and Shanghai (or Beijing) in China. India would fly to Port Louis and beyond to two cities in South Africa. India is a subcontinent with huge population and economic potential. Mauritius is a tiny island, but it was India that requested for the ASA. In air services, the size and income of the country is not the only factor, the strategic market position is as equally important (Fifth Freedom is indicated in the chart below).

In the case of Eritrean, there is a price to pay when Eritrean Nationals fly from Frankfurt to Asmara via Dubai. The distance from Asmara to Dubai is 1,081 nautical miles and it takes two and half-hours (2.30 hrs.). The distance from Frankfurt to Asmara and from Frankfurt to Dubai is almost equidistant, and the time required is 5.42 and 5.53 hours respectively. Thus, the difference is two and half-hours (Dubai to Asmara), plus two hours (2.00 hrs.) legal connecting time, that is a total of at least four hours. Many people don’t want to add four hours to a trip of six hours. So the issue of Sixth Freedom in this case does not produce significant impact on Eritrean traffic.

From	To	NM.*	KM.	SM.	Time (hrs.)
Asmara	Dubai	1,081	2,003	1,243	2.30
Frankfurt	Asmara	2,550	4,723	2,933	5.42
Frankfurt	Dubai	2,603	4,821	2,993	5.53
Variance		53	97	60	0.11

* NM: Nautical miles; KM: Kilometer; SM: Statutory miles

Let’s look at the nonstop New York (JFK) to Dubai International option. Eritrean nationals may take Emirates on this route, because they can avoid traveling through European cities and save time if they can afford the airfare. In the agreement, is this route subject to 6^th. freedom? I don’t think so.

What price to charge for the route (s) is another significant issue addressed during air bilateral agreement. Generally, airfares are set at IATA’s regional conferences and the parties have to agree on a range of airfares. The aviation authorities must have approved the fares indicated below. For one thing, Eritrea’s fleets are configured in two-classes: business and economy. Thus, the F (first) class booking below must reflect Emirates configuration request.

Air Fare Asmara - Dubai Round Trip
Fare Base	Fare in $USD	Booking Class
FOW	$ 532	F
FRT	$ 1,064	F
COW	$ 450	C
YOW	$ 375	Y
YRT	$ 750	Y
BE6M	$ 484	B
ME3M	$ 440	M
ME2M	$ 418	M
ME1M	$ 396	M

In my opinion, flying to Dubai is an excellent decision, but if the bilateral agreement confines Eritrean only to serve the last leg of the trip, there is no significant benefit. Emirates as well as other long-haul airlines desperately slash prices to fill seats and spread expenses. The apportioned price each passenger pays per connecting leg has dropped relative to the distance traveled during that leg. In other words, the airline that served the last leg gets little money regardless of the distance. Let’s take a practical example. A passenger who travels Asmara to Rome and another passenger Asmara-Rome-Frankfurt on the same flight pays almost the same (or the same). The Rome–Frankfurt portion is almost free.

At the end of the day, the final issue is competition. Will Eritrean compete against Emirates on the route? Eritrean survived against Lufthansa; it should be able to manage with Emirates. Emirates is by far a stronger airline than Lufthansa in the region. At any rate, the number that really matters is the yield (the price a passenger pays to fly one mile) and cost of seat per mile. In every airline all costs are based on per seat per mile. What does it cost to operate one seat (with all costs factored in) and what is the revenue for that seat per one mile in cents. In technical terms, revenue per available seat mile (revenue per ASM) in relation to cost per available seat mile (cost per ASM), which is the same as Yield-c RPM vs. Cost-c ASM as indicated in the table below.

I reviewed published financial operations of thirty airlines[7]. A summary result of 15 airlines is indicated in the table below.

- The first five airlines experienced revenue per seat (or yield) that exceeds cost per seat per mile (revenue is higher than cost). Southwest is top of the list in profit per seat mile; because its yield is $11.71 cents (about $12 cents) and the cost per seat per mile is $7.58 cents (about $8 cents). This produces about $4 cents in profit per seat per mile (multiply distance traveled by $4 cents to get total profit from each ticket). Raynair charges $10.46 cents per seat, but Raynair’s seat cost is $7.69 cents and its profit is $2.77 cents per seat mile per seat.

- The second set of five airlines experienced moderate profit per seat mile. Emirates and Lufthansa are on the same category. Emirates reported $1.44 cents profit per seat mile and Lufthansa $1.2 cents. Emirates ticket cost is $11.33 cents per seat per mile, but Lufthansa is more $18.1. Lufthansa’s expenses are $16.9 cents per seat vs. $9.89 for Emirates, Lufthansa has to charge more per seat to cover higher operating costs. That is why Lufthansa’s tickets are always higher than Emirates. Emirates is hard to compete with. At present, Eritrean charges per seat and cost per seat mile are significantly lower than Emirates due to low labor and aircraft costs, but as Robert Mann (airline consultant) said, “If you have the upper hand with a 500 – gorilla, how long do you have it?”

- The third set of airlines reported high charge per seat/mile. Alitalia experienced the highest net loss per seat mile and was bailed out by the Italian government in 2005. Alitalia continues to face cash crunch in 2005.

				Yield Management
		Fiscal Year Ended 12/31/2003
		Yield-c per	Cost-c per		Profit	High/Low	Main
Ref #	Airline Name	RPM	ASM		Per ASM	Comments	Office
1	Southwest Airlines	11.71	7.58		4.13	High Yield	Dallas
2	Turkish Airlines	14.01	10.52		3.49	High Yield	Istanbul
3	British Airways	17.69	14.21		3.48	High Yield	UK
4	Ryanair	10.46	7.69		2.77	High Yield	Dublin
5	EasyJet	13.95	11.26		2.69	High Yield	London
1	Gulf Air	10.02	8.58		1.44	Moderate Yield	Bahrain
2	Emirates	11.33	9.89		1.44	Moderate Yield	Dubai
3	Lufthansa	18.10	16.90		1.20	Moderate Yield	Frankfurt
4	Iberia of Spain	15.78	14.60		1.18	Moderate Yield	Madrid
5	American Airlines	11.67	10.51		1.16	Moderate Yield	Dallas
1	Air India	9.48	10.38		-0.90	Low Yield	Mumbai
2	Japan Airlines	19.61	20.66		-1.05	Low Yield	Tokyo
3	Asiana Airlines	12.90	14.06		-1.16	Low Yield	Seoul
4	Alitalia	20.75	22.05		-1.30	Low Yield	Rome
5	Eva Airways	7.66	11.40		-3.74	Low Yield	Taiwan
	Average	13.67	12.69		0.99

Air ticket from the following airlines is expected to be expensive because of the dollar amount they are charging per seat per mile in order to cover their high sea cost per mile. Why are people buying tickets from high cost airlines? They do it for many reasons. It could be due to quality of service, convenience or national pride. However, as time goes on, these reasons don’t hold water. Low airfares are the major factors that attract consumers and Eritrean will manage to deliver just that. It has already lowered airfares by 10% for summer 2005.

				High Cost Airlines
		Fiscal Year Ended 12/31/2003
		Yield-c per	Cost-c per		Profit	Comments on	Main
Ref #	Airline Name	RPM	ASM		Per ASM	Ticket Price	Office
1	Scandinavian (SAS)	33.66	25.37		8.29	Very High	Stockholm
2	All Nippon Airways	22.60	20.84		1.76	Very High	Tokyo
3	Alitalia	20.75	22.05		-1.30	Very High	Rome
4	Air France	19.61	17.54		2.07	Very High	France
5	Japan Airlines	19.61	20.66		-1.05	Very High	Tokyo
6	Lufthansa	18.10	16.90		1.20	Very High	Frankfurt
7	British Airways	17.69	14.21		3.48	Very High	UK
8	Swiss International	17.49	16.66		0.83	Very High	Switzerland
9	Iberia of Spain	15.78	14.60		1.18	Very High	Madrid
10	Turkish Airlines	14.01	10.52		3.49	Very High	Istanbul

Source: Aviation Week & Space Technology, Jan. 17, 2005

On April 19, 2003, the Queen Bee made its first touchdown at Asmara International Airport. In about two weeks it will celebrate its successful second year anniversary. In its short history, we have learned that the airline business is a vibrant part of the national economy. If the airline is managed well it will continue to play a vital role in the local economy.

In my view, the landmark agreement with UAE will boost air connectivity, increase trade, tourism and may invite foreign investments and should be considered as a positive step in the right direction. I also hope that the air link between Asmara and Dubai to include market points beyond the designated gateways and will help deepen the relationship into the unexplored Red Sea coast economic zone.

With sincere hope and best regards.

“Herui” Abebe Tecle

Miami, Florida.

[1] Purdue University, Aviation Technology Course AT300. Open course www.tech.purdue.edu

[2] Direct flight does not involve change of aircraft, but may have stopover.

[3] Eritrean Airlines inaugural flight lands at Dubai Int’l Airport. United Arab Emirates, February 27, 2005.

[4] Qatar Airways Expands UK Services With New Gatwick Route. Qatar Airways, 27 November 2004.

[5] Kenya Airways Targets New Routes. Airwise News. April 4 2005.

[6] Travel Channel coverage on travel destinations of the world

Y Bin Cheng. The Law of International Air Transport, p13

[7] Aviation Week & Space Technology, January 17, 2005

ERITREAN AIRLINES FIRST EVER-DIRECT AIR SERVICE BETWEEN ASMARA & DUBAI By “Herui” Abebe Tecle

Yield Management

High Cost Airlines

ERITREAN AIRLINES
FIRST EVER-DIRECT AIR SERVICE BETWEEN ASMARA & DUBAI
By “Herui” Abebe Tecle