Volcanic ash clouds blown from Iceland cost Tunisair some e2.5m ($3.1m) in April and May, as the company was forced to cancel flights to parts of Europe. But it can cope. While many airlines struggle with hefty losses, Tunisia’s national carrier is set for steady expansion on the back of net profits that more than doubled in 2009 to e32m.

Key fact

Tunisair will spend $1.5bn on overhauling its fleet, selling older aircraft and buying new ones  

Source: Tunisair

The ash disruptions may deflate this spring’s traffic figures, but the wider operating context remains favourable – thanks in no small part to the determined manner in which President Zine el-Abidine ben Ali’s government is supporting the expansion of the country’s aviation industry.

Tourism boost

In July 2009, an official decree granted Tunisair a tax exemption that will run through to 2013, giving it the financial breathing space to implement a $1.5bn fleet overhaul. As part of a long-term strategy to reduce the number of aircraft types that it uses, the company will buy at least 16 new Airbus planes by 2019, with options to take a further three.

The government is supporting the aviation sector with continued infrastructure development

Meanwhile, the entire air travel sector in the Tunisia – and particularly businesses catering for the tourism market – will benefit from the new airport at Enfidha, near the beach resort of Hammamet, which opened officially for business in December. With an initial capacity of 7 million passengers a year, the airport is operated by the Turkish group TAV, which runs six other airports in Turkey, Macedonia, Georgia as and Tunisia.

The Enfidha airport will support the tourism industry and Tunisia’s attempts to position itself as a regional aviation hub for the Maghreb and west Africa region – by freeing up capacity for more scheduled services at the capital’s main airport, Tunis-Carthage.

Previously, Tunisair lagged behind Morocco’s Royal Air Maroc and Libya’s Afriqiyah in taking advantage of Tunisia’s strategic location between Europe and Africa. Tunisair has been seeking to emulate its counterparts in recent years, in carving out a slice of the trans-Saharan travel market. The airline already serves Nouakchott in Mauritania, Senegal’s Dakar, Mali’s capital Bamako, and Abidjan in the Ivory Coast, and it plans to add two new African destinations a year. The feasibility of flights to Ouagadougou in Burkina Faso, and Cameroon’s commercial capital Douala, is now under study.

Mauritania has been a particular focus of development. In November 2007, it established Mauritania Airways as a subsidiary to operate local services in west Africa and services between Nouakchott and Paris.

The African initiative is part of a wider drive to expand the contribution of scheduled services to Tunisair’s overall business.

The past decade has seen the opening of routes to the Gulf. And in April 2012, with the induction of A330-200 aircraft, the company will begin flights to Montreal – the necessary bilateral accord with Canada has already been signed. In 2013, either Washington or New York will be added to the network. Short-haul flights are also being steadily extended, with the addition of new routes and frequencies in the company’s core Tunisia-western Europe market. In 2008, the company was operating only 200 scheduled flights a week; but this summer the figure will touch 270, rising to 290 in mid-2011.

Charter services have always been an important dimension of Tunisair’s business, but the balance is steadily shifting as commercial traffic expands. Charter activity accounted for 47 per cent of all flights as recently as 2007, but, by the end of 2009, it had dropped to 35 per cent. The company’s commercial director, Ali Miaoui, recently revealed the figure would fall to just 30 per cent in 2011.

In the second half of 2009, Tunisair’s business took a severe knock – recession depressed European holiday spending, while the cancellation of visas for the Umrah pilgrimage in Saudi Arabia because of the H1N1 virus dented passenger numbers by a further 50,000.

New competition

The development of its scheduled services is driven by a strong strategic imperative: Tunisair needs to prepare itself for increased competition in the short-haul leisure travel market.

From October 2011, an open skies agreement will come into force on air travel between Tunisia and the European Union. Tunisair is aware this is likely to lead to a rise in services from low-cost operators, particularly the UK’s Easyjet and Ireland’s Ryanair.

Once considered a premium service airline, Tunisair is already preparing for the influx of European low-cost airlines by offering highly competitive promotional deals such as e199 return, including tax, on the key Paris-Tunis route.

The traditional charter business that has been so valuable to Tunisair in the past will also come under pressure as the country opens up as a tourist destination.

But through astute pricing and good connections, Tunisair will be well-placed to carve out a valuable slice of the growing market for scheduled services between Europe and west Africa, where limited competition means air ticket prices are much higher than in other parts of the world.

The strategy may also help the airline to diversify and reduce its exposure to the fluctuations in European leisure demand. In the first half of 2009, for example, the impact of a 14.4 per cent slump in charter traffic was partly offset by a 5 per cent rise in scheduled services.

Meanwhile, Tunisair is hoping its subsidiaries will also add to profits in the future. Its other subsidiary is Sevenair, a unit that caters for the short-haul domestic and Mediterranean market. Its network covers most major provincial towns in Tunisia, together with Palermo in Sicily, Malta and Tripoli, in Libya

Both Sevenair and Mauritania Airways are making losses, but Tunisair’s management hopes they will soon make a positive financial contribution to the group’s balance sheet as they are already playing a valuable role in diversifying its business base and boosting passenger numbers.

Private airlines

While the national carrier is increasingly oriented towards scheduled business, the country also has a major private sector group, Nouvelair, whose focus remains on charter flights.

Created in 1989 as a subsidiary of the French company Air Liberte, it was taken over six years later by the Tunisian Travel Service leisure group, which is headed by local businessman Aziz Milad and his son Karim.

In 2008, the company merged with Karthago Airlines – another charter carrier that was set up by the brother-in-law of the Tunisian president, Belhassan Trabelsi and the UAE-based Dubai Investment Group. The deal also gave it a stake in Koral Blue, a recently established Egyptian charter business.

Nouvelair’s fleet currently comprises 19 aircraft – 13 Airbus A320s, two A321s and four Boeing 737s. The company’s plans to look beyond the Tunisian market were confirmed in August 2009 when it increased its stake in Koral Blue into a majority holding of 51 per cent. Koral Blue specialises in the European and Egyptian leisure market.

Nouvelair’s busiest year came in 2007, when it carried more than 2.5 million passengers. Since then the global crisis has taken its toll and, in 2009, passenger numbers were down to 1.8 million.

However, as a relatively affordable tourist destination, Tunisia should benefit as the economic recovery gradually restores the spending confidence of EU consumers. Nouvelair’s parent group is also continuing to invest in the tourism sector notably through the development of a conference complex on the shores of Lake Tunis and a hotel in the north coast resort of Tabarka.

Meanwhile, the government is supporting the aviation industry with continued infrastructure development, such as the $500m airport at Enfidha. There are already plans to expand the initial capacity at the airport to handle 22 million passengers a year, through further investment by TAV, whose concession runs until 2047.

Infrastructure investment

Other airports in the country have also been extended. The construction of a second terminal at Tunis-Carthage has recently increased capacity to 5 million passengers a year, while an extension to the airport on the island of Djerba has increased its annual capacity to 4 million passengers.

Tozeur, Sfax and Monastir – where TAV took over the operating concession in January 2008 – have also been developed, while, in 2007, work started on a new airport for Gabes. With airports at Gafsa and Tabarka designated as gateways for foreigners, Tunisia now has nine international airports that facilitate direct links to resorts around the country.

The new airport projects have created significant employment opportunities. The opening of Enfidha has directly created 1,200 permanent jobs, with up to 10,000 indirect positions expected over the longer term.

The biggest single investment in the country’s aviation sector remains Tunisair’s fleet overhaul. The company will sell off 11 older planes, including all its Boeing aircraft, and acquire 10 A330s, three A340s and three A350s in the next nine years.

The programme will be 85 per cent funded by new debt, while 15 per cent is expected to come from the company’s own funds. Chief executive officer, Nabil Chettaoui says there will be no increase in the group’s capital this year, but he has hinted the state may be prepared to inject extra funds in 2011.

Provided the investment climate is positive, Tunisair may even turn to the stock market for a capital boost. Some 20 per cent of the company’s shares are currently listed, but Chettaoui says this could be raised to 30 per cent in the near future.

Meanwhile, in what remains a tough operating environment, Tunisair has reported encouraging early indications for this year’s performance, with scheduled flight reservations up by 3 per cent and charter bookings holding steady.