06-Sep-2012 10:06 AM

Europe’s LCCs are making a first entry in Algeria

Analysis

It is rare but it still exists: a market with virtually no LLC presence. Low-cost carriers have an approximate 0.8% share of scheduled seats flown to/from Algeria. Liberalisation of air transport is in its infancy across northern Africa, yet the absence of LCC services to Algeria falls short of the overall penetration of low-cost carriers in the region. LCCs have an approximate 18% capacity share (in terms of seats) on routes to/from north Africa, according to OAG data for the first nine months of 2012.

Algeria's situation contrasts sharply with the situation at its western neighbour Morocco where the no-frills segment conquered an approximate 35% capacity share in terms of seats deployed on international routes. Morocco has an Open Skies agreement with the European Union, and this explains the high market penetration of LCC on international routes, but Algeria's eastern neighbour Tunisia has no such ASA in place and LCCs still produce just 8% of seats flown to/from the country. Western Europe is the main market for these three north African countries.

Summary

Low-cost carriers (LCCs) have a minimal presence in Algeria, with only a 0.8% share of scheduled seats flown to/from the country.
LCCs have a higher capacity share (18%) on routes to/from other North African countries like Morocco and Tunisia.
European LCCs, such as Vueling Airlines and Jetairfly, are starting to operate flights to Algeria, primarily targeting the Western European market.
Air Algerie is the dominant carrier in Algeria, holding a 46% capacity share on international routes and facing competition from other European airlines.
France is the main market for flights between Algeria and Western Europe, with Aigle Azur and Air Algerie leading in terms of seat capacity.
Spain is the second-largest market for flights between Algeria and Western Europe, with Air Algerie holding a 66% capacity share, but Iberia and its affiliates are increasing their presence in the market.

But a light breeze of change might be blowing through Algeria's apparent adversity to opening its skies to budget operators. Spanish LCC Vueling Airlines will commence a four times weekly service from Barcelona El Prat Airport to Algiers Houari Boumediene Airport on 19-Sep-2012 and a twice weekly from Barcelona to Oran Es Senia Airport on 28-Oct-2012. The flights will be operated with single-class Airbus A320 narrowbodies.

Vueling will be the second European LCC to operate to Algeria. Jetairfly, the Belgian LCC/ leisure carrier owned by the TUI Travel group, already flies from Brussels Airport to Algiers and connects Brussels South Charleroi Airport with Oran. Jetairfly has a mere 1.3% share of all scheduled seats produced on routes between between Algeria and western Europe.

European LCCs are breaking ground

It is not surprising that European airlines are the first to venture with low-cost services to Algeria as western Europe is the country's primary market, accounting for about 79% of international scheduled seats flown to/from Algeria, according to schedules in Innovata for the week of 03-Sep-2012 to 09-Sept-2012. Algeria's situation is in this sense similar to its neighbouring countries Morocco and Tunisia, where western Europe accounts for 77% and 64%, respectively, of international scheduled seats.

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All other regions are markedly less important in Algeria's air transport system. North Africa represents only 9% of international scheduled seats and the Middle East 5%.

Algeria international capacity by region (seats per week): 03-Sep-2012 to 09-Sept-2012

In spite of the large size of the country (Algeria is the 10th largest country in the world and the largest in Africa) and its 35 million population, domestic traffic is limited, with just 10% of total scheduled seats deployed on routes within Algeria. The country's national carrier Air Algerie is the sole operator on domestic routes and it has also a market leading position on international routes, with an approximate 46% capacity share. Aigle Azur, a French airline, is the country's second largest carrier with a 29% share of international seat capacity. Air France is the third largest operator in Algeria in terms of seat capacity on international routes, holding a near 6% share.

Algeria international capacity share by carrier (% of seats): 03-Sep-2012 to 09-Sept-2012

Air Algerie faces strong competition in all its core western European markets

Air Algerie CEO Boultif Mohamed Salah in Aug-2012 stated that the company is seeking to strengthen its international activities and in particular on the African continent, where it currently services five gateways (Bamako in Mali, Cairo International Airport in Egypt, Casablanca Mohammed V in Morocco, Nouakchott in Mauritania and Tunis Carthage Airport in Tunisia), but at present it deploys about four fifths of its international seats on routes to western Europe.

The airline's position on routes to western Europe is under pressure. In only one of its six core country-to-country markets (Spain) is Air Algerie the main capacity provider. Operations are also suffering from poor on-time performance, and although OTP has increased from 41% in 2010 to 65% in 2011 it is still below the target of 70%, Mr Boultif admitted.

Traffic between the north African country and western Europe records a peak from mid-June to mid-September owing to ethnic and VFR (visiting, friends and relatives) travel. Vueling will enter the market on 19-Sep-2012; airberlin pulled out at the end of Oct-2011 and Spanair had an approximate 4% share of seats flown between Algeria and western Europe at the time of its collapse in Jan-2012.

Algeria to western Europe capacity share by carrier (seats per week, one way): 19-Sep-2011 to 24-Feb-2013

Algeria to western Europe capacity share by carrier (seats per week, one way): 03-Sep-2012 to 09-Sep-2012

Carrier	Capacity share (% of seats)
Air Algerie	45.2%
Aigle Azur	37.2%
Air France	7.2%
Alitalia	3.1%
Lufthansa	2.3%
Iberia	2.2%
British Airways	1.5%
Jetairfly	1.3%
TAP Portugal	0.2%

Top six Algeria to western Europe country pairs (seats per week, one way): 03-Sep-2012 to 09-Sep-2012

Country pair	One-way seats	Carriers	Capacity (% of seats)
Algeria- France	54,507	Air Algerie Aigle Azur Air France	44.9% 46.2% 8.9%
Algeria-Spain	4498	Air Algerie Iberia	66.4% 33.6%
Algeria-Italy	3068	Air Algerie Alitalia	31% 69%
Algeria- Germany	2283	Air Algerie Lufthansa	32.6% 67.4%
Algeria-UK	1732	Air Algerie British Airways	43% 57%
Algeria-Belgium	1059	Air Algerie Jetairfly	28.6% 71.4%

Aigle Azur leads in France

Owing to its historic ties, France is the main market with some 54,500 one-way seats per week, which equates to 83% of all seats flown between Algeria and western Europe.

Privately held Aigle Azur and Air Algerie are in a neck-to-neck race for market leadership and have a respective 46% and 45% share of weekly seat capacity between the two countries, based on schedules in Innovata for the week of 03-Sep-2012 to 09-Sept-2012. The two airlines recently came under public pressure in France following claims of price fixing on routes between France and Algeria, but Mr Boultif firmly dismissed the allegations as "fabrications" at a press conference in Paris in Aug-2012.

Air France offers 9% of weekly seat capacity between France and its former colony.

Algeria to France capacity share by carrier (seats per week, one way): 19-Sep-2011 to 30-Dec-2012

Aigle Azur, whose origins go back to 1946, operates scheduled service to 13 airports in Algeria from Paris Orly and Charles de Gaulle Airport and the French regional airports of Bordeaux, Lille, Lyon, Marseille, Basel/Mulhouse EuroAirport, Nice, Strasbourg and Toulouse, aboard a streamlined fleet of A320 family aircraft. Aigle Azur offers a full business class on several of its routes to Algeria.

It operates some 20,000 weekly seats to/from Algiers airport and about 87% of its international scheduled seat capacity is produced on routes connecting France with north Africa, mainly Algeria. Eight of its 10 largest international routes in terms of seats touch Algeria. Likewise, six of Air Algerie's top 10 international routes in terms of seats are to France.

Paris Orly to Algiers Airport is the largest route of Aigle Azur and Air Algerie and a further two routes, Paris Orly-Oran Airport/Oran-Paris Orly Airport and Algiers-Marseille feature in the top 10 of both carriers.

Aigle Azur top 10 international routes (seats): 03-Sep-2012 to 09-Sep-2012

Air Algerie top 10 international routes (seats): 03-Sep-2012 to 09-Sep-2012

Iberia and Iberia affiliates are increasing their footprint to Algeria

Spain is Algeria's second largest market in western Europe in terms of seat capacity but it accounts for only 7% of seats between Algeria and western Europe. Air Algerie has a market leading position on routes between Algeria and Spain, holding an approximate 66% share of scheduled seat capacity, based on schedules in Innovata for the week of 03-Sep-2012 to 09-Sep-2012. The carrier has benefited from Spanair's collapse in Jan-2012 and has doubled its capacity to Spain in terms of seats since. Spanair had a leading 54% share of seat capacity between the two countries.

Iberia is also now waking up to the opportunities. Air Nostrum, which operates under a franchise agreement and codeshare with Iberia, commenced a four times weekly service from Alicante to Oran and will launch a single weekly Valancia-Algiers flight on 08-Sep-2012. Both routes were operated by Spanair but since the latter's demise Air Algerie had enjoyed a monopoly on the routes.

Air Algerie is also losing its comfortable monopoly status and a further two Spanish routes, Barcelona to Algiers and Barcelona to Oran with Vueling commencing service on both routes. Spanair used to operate on Barcelona-Algiers and had a 75% share of seat capacity at the time of its collapse. Iberia is Vueling's largest single shareholder.

Algeria to Spain capacity by carrier (seats per week, one way): 19-Sep-2011 to 24-Feb-2013

Vueling's two new routes to Algeria are not the start of a sudden invasion of Europe's LCCs to Algeria. The Algerian authorities are keen to protect their inefficient flag carrier, but the market offers definite prospects for no-frills operators in Europe. Vueling has recognised this. It will not only tap in to the Spain-Algeria market, but it will try to take a bite out of the large France to Algeria market. The LCC has a wide network in the hexagon and offers passengers the possibility to connect over its base in Barcelona El Prat Airport.

Europe’s LCCs are making a first entry in Algeria

European LCCs are breaking ground

Air Algerie faces strong competition in all its core western European markets

Aigle Azur leads in France

Iberia and Iberia affiliates are increasing their footprint to Algeria

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