Introduction
Libya is considered one of the most underperforming among the Arab nations with a significant reservoir of oil. Prior to 2011, the country was ruled by a dictator, and this led to scant attention being paid to the country’s infrastructure. The country also faced significant economic sanctions from 1991 till 2006, for supporting terrorism. Though things began to improve after 2006, the situation in the country remained poor with the result that the aviation sector failed to develop, in spite of the size of the country. Even private airlines had been started in the country but the uprising in 2011 led to the winding up of operations of these airlines.
The Arab Springs uprising in 2011 brought about a popular change in Government with the demise of the previous dictator Colonel Muammar Gaddafi. After the uprising, the country is in the process of rebuilding itself. Prior to the uprising, the country had been under severe economic embargo for 25 years due to the dictatorship of Gaddafi and his apparent links with sponsoring Islamic terrorism. As a result, the country in spite of having the world’s eighth largest oil reserves is in poor economic shape. The country has two national carriers, Libyan Airlines and Afriqiyah Airways. Though talks were on in 2009 for the merger of the two airlines, the uprising has led to a postponement of this decision. After the uprising, the two airlines may look at possibly merging into one entity.
At the same time, several companies from Europe and the Middle East are looking to set up their presence in Libya. This is likely to improve the number of tourists as well as business travelers visiting the country. To cope with tis, Libya’s airlines will have to gear up their operations and improve connectivity to both Europe and the Middle East. Libya also has a strong historical connection with the rest of the African nations. Afriqiyah Airways was actually West African airline Air Afrique, which was taken over by Libya when the former went into losses. Therefore, maintaining this connection is also of importance to Libya, given the rising economic importance of the continent for outside investors as well.
This research explores the present conditions of the Libyan economy and airline industry, the possible competition and the options available to the Libyan air industry to revive the airlines, including privatization, mergers and possible opportunities for growth. Using secondary research material, the paper will look at possible management options that the airline can undertake in order to thrive in the present circumstances.
Literature Review
For 40 years, Libya was ruled by Muammar Gaddafi as a dictator. During this period, the air travel industry did not receive much attention. In spite of being one of the largest oil reserves, Libya was bypassed by development, at a time when most of the Middle East and North Africa was undergoing rapid development. Libya lagged behind countries like Saudi Arabia, Egypt and even Kuwait in terms of its development. Though the country had one national carrier (Libya Arab Airlines), the country agreed to take over the ailing Air Afrique and renamed it Afriqiyah airlines. The two airlines connected Libya to most of the Middle East and Africa, in addition to some locations in Europe. However, with the economic embargo and restrictions on Libya, very few travelers wanted to travel to the country. A few companies had operations in the country, mainly from Russia and Italy, besides Eastern Europe.
Major unrest broke out across the Arab world in 2011, with Tunisia, Egypt and Libya all affected by what came to be known as the “Arab Spring” movement. The country’s government was displaced and replaced by rebel groups. During the uprising, the country’s airports saw over 50 per cent drop in air traffic. The airlines were grounded and resumed operations only in the first half of 2013. They now face a significant challenge in revamping their services. However, with the change of government, the country is now attracting investors and visitors. In the weeks after Gaddafi’s death, a small influx of international carriers announced their intentions to resume operations (Arnold, 1). These airlines are now competing directly with the Libyan airlines for passengers. Countries like Turkey, Egypt and the UAE, besides Italian, Dutch, French and German aviation companies have shown interest in flying to the country (Libya Business News, 1).
Among the two airlines, historically Afriqiyah had been the larger airline. Afriqiyah in 2009 had been in expansion mode, with a number of new connections being added. This includes cities both within and outside Africa such as Dubai, Istanbul, Delhi and Beirut. It was also in the process of increasing frequency of flights to other destinations. To meet this demand, three new Airbus A330-200s were acquired. Flights were also set to launch for new destinations like China, Johannesburg and a number of other cities in Africa (Endres, 1). In 2008, the airline carried over 655,000 passengers, with a projection for 1 million passengers in 2009. The total number of destinations for the airline was 20 in 2009, spanning Africa, Europe, and the Middle East.
Libyan Airlines was earlier known as Libyan Arab Airlines. In 2008, the airline was making losses, hence could not absorb Air Afrique. However, it managed to survive and by 2009 had a schedule to a total of 20 cities - 10 in Europe, 5 in North Africa and 3 in the Middle East. London, Rome and Cairo were actually connected by both Libyan Airlines and Afriqiyah Airlines. The airline planned to add Madrid, Athens and Mumbai, but was unable to do so due to logistical and operational constraints. The airline had plans for further expansion into Europe such as France and Germany, but the dichotomy of two airlines created problems in signing bilateral agreements, with countries willing to provide concessions for only one of the two airlines. While Libyan Airlines also has responsibility for domestic travel routes, the cost is kept prohibitively low by the government, and these are heavily loss making operations which reduces the number of flights and aircraft committed to domestic services. However, since road infrastructure is poor, the demand for airlines is fairly high, with over 350,000 passengers traveling domestically in 2009. Also, Libya is the third largest country in Africa, so the need for a smaller regional aircraft service that connects various cities is high. If a suitable economic pricing structure is worked out, the domestic aviation sector can be revived.
The resumption of air service is important to Libyans in proving to the rest of the world they can successfully overthrow a dictator and improve their country. There is an increased focus on improving the influx of tourists to the country, with Libyan tourism operators commonly advertising 'Post-War Libya' packages (Economist, 1). The country was quick to allow foreign airlines to access the country as a sign of the normalization of activities in the country, but this has inevitably place pressure on the national entities to mobilise quickly in order to maintain their position in the market and capture the best possible share of the market in the face of this competition. However, to do so, a significant revamping of the two airlines is crucial and therein lays the problem. The airlines will require significant capital infusion and support systems to get the planes operating again, necessitating a merger or investment from at least another foreign airline or a significant aid grant from the world financial community (CAPA, 1). This aid will have to be offset against potential oil revenues, which may affect the recovery process of the rest of the economy. This provides a dilemma for the interim authorities on how they should proceed in order to bring about the revamping of the two national airlines.
International passenger volumes for the present are still well down on pre-uprising levels, as the situation is still not completely stable. However, given the improving conditions, steps need to be taken now to see the results in the months to come. The airline industry is not one which can generate a supply of planes and crews on an instant basis and aircraft delivery timelines stretch into years of orders. Cash-strapped Libya in its current state cannot afford to pay premiums for aircraft and has to depend on outside investment to bail the airlines out of their present position. To do so, investors have to be able to see a suitable rate of return for the risk that they undertake. The question therefore lies in what steps the Libyan government can take to attract capital to revive the airlines through a multitude of options. These include sell-off, a strategic stake sale, merger, recapitalisation and a host of others. If the new regime is able to establish a secure and attractive environment, there is every reason why aviation should take off.
Keeping this in mind, Libyan airlines need to come up with suitable plans to rebuild the airline, as well as restart operations to tackle competition. After years of neglect, the airlines will also need strong management and support to rebuild their capabilities. To do so, the management of the airlines needs to decide how they will approach several issues:
- Should both airlines exist separately or should they merge? What will the process entail?
- What needs to be done to revamp the operations of the airlines?
- What are their respective strengths, and what support will be needed?
- What are the opportunities and threats in the current market scenario?
Research Agenda
This study attempts to understand the position of Libya’s airlines in the Middle East and African aviation market, and what advantages and opportunities it holds for the airlines to expand. Also it will look at the way the airline was run in the years prior to the Arab Spring revolution, and what steps were being taken. It will attempt to evaluate whether those steps were correct and if it is possible to revive the program being undertaken. Also, the research will explore alternate ways in which the Libyan airlines can resume and expand operations both within and outside the region. It will also look at the ways and means of doing so – either through recapitalization, infusion of funds through new investors, through merger or alliances with other airlines, etc. The global aviation market also comprises of several alliances such as Skyteam, One alliance, etc. the report can analyse what will be required for the airline to tie up with these alliances or to set up regional code-sharing agreements with various airlines. The core of the research is aimed at exploring how fast and how far the Libyan airlines can grow, now that there is a change of government and a favourable investment climate in the country is driving foreigners to come to Libya.
Therefore the aims and objectives of the research are outlined as follows:
- What is the present state of the airlines and what is the scope of work required to restore these to an operational status as a regional / international airline?
- What are the market opportunities that will support the investment and provide substantial returns for any investors investing in the rejuvenation of the Libyan airlines?
- What are the various steps that the airline and Government need to undertake for the rejuvenation of the Airline?
Methodology
The purpose of the study is to explore ways in which the Libyan Airlines can be revived and rejuvenated. To do so, an extensive study of the aviation sector in the world will be required. How airlines operate across the world, what are the considerations in the setting up and operations of an international airline - all these questions need to be considered. To do so, an extensive review of available literature across the airline industry is required. The industry is a mix of national and private carriers, and it is important to understand which model would work better in the case of the Libyan airlines. In addition, since Libya has two international airlines, the process of their merger (which was underway in 2009 but was interrupted by the 2011 uprising) also needs to be taken into consideration. Alternatively, one of the airlines may be sold off to facilitate the revival of the other. All these are options that face the management of the airlines. Therefore, the solution for this research cannot lie in consumer data. The data required has to be obtained from suitable industry sources such as literature, papers on airline industry, research on the working and revival of international airlines, etc. these sources will provide sufficient information to determine the steps to be taken. At the same time, the financial condition of the country and the airlines both have to be taken into consideration before determining the suitable steps forward. This again requires examination of documents relating to the financial and operating conditions of the airlines. An understanding of international finance in aviation will also be needed. Here, intervention is possible from a multitude of sources – international finance bodies such as the World Bank, IMF, Africa Development fund, etc. as well as private investors. Other airlines too may be interested in acquiring a stake in the Libyan airlines to strengthen their own position in the market, as has been done by Etihad in Jet airways in India. Evaluating these options will also require significant secondary research.
Therefore, it is proposed that this project be carried out as a secondary research project, using information acquired from various international sources. If possible, industry experts from aviation and finance can be interviewed for the process of getting a better understanding. Based on the various inputs, a set of observations can be drawn up and lead to various insights regarding the present position of the airlines and the available options for their rejuvenation. Each of these options can then be objectively evaluated and the best possible solution recommended as the findings of this research paper.
Limitations to the Study
Any research study that tries to investigate the wide ranging economic and other considerations of a management level decision has to take a multitude of factors into consideration. To propose a suitable solution, certain assumptions have to be made, based on the existing trends and historical precedents of similar nature. Since exploring the various solutions cannot be done in a laboratory setting wherein factors can remain constant, a certain set of limitations and restrictions are assumed to be present. This is particularly true where the phenomenon being investigated involves such large scale decisions. The variation in the outcomes can be dependent on a number of variables. In this case, we have to proceed under the assumption that the future political and economic situation in Libya will continue to show signs of improvement, thereby denoting a stable environment in which the management decisions regarding the airlines can be taken. This is a restriction that makes the results applicable to that set of conditions, but may not hold true for others. However, for purposes of clarity and due to the paucity of time and effort that can be put into such a project individually it is essential to create this set of restrictions. Without these, the study would become unmanageable and cumbersome, yielding very little actual output. The restrictions placed by the author however should not be seen as an encumbrance but rather a set of guidelines that give clarity and direction to the study.
Conclusion
After the popular uprising in the country, Libya is undergoing a significant change in economic and political terms. The Libyan airlines which have been neglected for a significant portion of time are in need of a significant investment to turn around and become viable. The first problem in reviving the airlines is the dual airline structure present, with Afriqiya airlines and Libyan airlines both co-existing as the country’s carriers. This cannot continue and a suitable solution needs to be found for the same, either in the form of a merger between the two airlines or as a strategic sale of one of them. In addition, the airlines need a significant investment in capital to become viable again. Given the reviving interest in the Libyan economy, the recapitalization of the airlines will have to be done through one of several options – by privatization, through stake sale of the airline to a foreign carrier or investor, by recapitalization using international aid, etc. The best option for this will also have to be evaluated. In order to provide the best possible solution, an extensive in-depth study of the international aviation industry is required, which will provide insights and solutions into how the airlines can be revamped and made profitable again. Based on secondary research, it is possible to figure out what solutions are best suited to the Libyan airlines and recommendations made accordingly. This research report seeks to undertake this study as a management exercise which will determine the future of the country’s airline industry.
Reference
Arnold, Tom “Liberated Libya finally on the move again” The National, 2012 Web. Last accessed 20 November 2014.
CAPA “Rebuilding Libya's aviation industry crucial to economic recovery” CAPA Center for Aviation, 2012. Web. Last accessed 22 November 2014.
Economist “Unfinished business” The Economist, 2012. Web, Last accessed 23 November 2014.
Endres, Gunter “Libya to restructure air transport sector” Flightglobal, 2008. Web, Last accessed 22 November 2014.
Libya Business News “Lufthansa wings Back to Libya Capital”, Libya business news. 2012, Web. Last accessed 20 November 2014.
