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UAE-based budget carrier Air Arabia, the Arab world’s largest listed carrier, announced its intentions to build a new hub in Egypt that would offer connections to Europe, Africa and the Middle East, one month after formalizing a partnership with Egypt’s Travco Group, the Middle East’s largest travel and hospitality group.  “At a time when the global aviation industry is witnessing serious challenges as a consequence of the worldwide financial crisis, we continue to move forward with our strategic expansion strategy, as demonstrated by this important announcement,” said Air Arabia Chairman Sheikh Abdullah Bin Mohammed Al Thani.

Despite the airline industry’s overall close historical correlation with broad market indices, “budget travel” represents an industry subgroup that, from an investment standpoint, can be as good a defensive play as any medical and consumer product company, brewery or tobacco firm.  Air Arabia may be a case in point, having been named the best low-cost carrier globally in a study conducted by Aviation Week magazine earlier this year.  Its gross  (20.31%) and EBITDA (16.94%) margins are leaders in the industry, as is its 3.1 quick ratio.  The company’s net profit for the first half of this year stood at AED 193 million, an increase of 21% from the first six months of last year.  Moreover, during the first half of 2009, the company registered a turnover of AED 922 million, up 6% from the first half of 2008.  Finally, its “average seat load factor,” which measures passengers carried as a percentage of available seats, was 80% for the first half of 2009.

However, those numbers dampened afterwards on the back of excess capacity diluting yields, and it remains to be seen whether or not Air Arabia will stand up to both economic and intra-industry pressure.  According to its CEO, Adel Ali, Middle East airlines are suffering disproportionately from yield dilution than carriers in other regions worldwide, due to excess capacity as a result of strong aircraft ordering, new market entry and the global economic downturn.  “There has been an 18% yield dilution in the Middle East basically because the capacity is more than the demand at the moment because of the recession.  This is more severe than the global average yield dilution of 12%”.  In the Middle East, the demand is growing, but not as fast as the capacity is growing.  Also because demand is growing, it becomes an attractive place for other GCC carriers and international carriers,” he told reporters.

Forecasts of three analysts for Air Arabia’s third-quarter profit ranged from AED 110 million to 129 million in a Reuters survey earlier in October.  And the airline also faces increased competition from local rivals, such as Kuwait’s Jazeera Airways and Dubai-owned flydubai.


Abu Dhabi-based Etihad Airways announced that it expected revenues to grow 24% to $3.1 billion this year as the company takes deliveries of 11 aircraft and boosts passenger numbers by adding at least six new routes.  “We are taking a bullish approach in 2009 despite tough market conditions,” Etihad Chief Executive James Hogan noted.  There are risks, there’s a global recession and we are seeing weakening currencies, softening demand worldwide, volatile oil prices.  But 2009 and 2010 are also years for Gulf airlines to continue to grow.”

That said, world airlines are set to lose $4.7 billion in 2009 as a result of shrinking passenger and cargo demand, industry body IATA said. The International Air Transport Association had estimated in December the industry would lose $2.5 billion in 2009. “The state of the airline industry today is grim. Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago,” its Director-General Giovanni Bisignani said.

African stocks are getting noticed, according to this AP piece from Zambia, as “foreign investors [and] economic growth fire up the continent’s indexes.

The following are some of the article’s most interesting points:

  • While the U. S. stock market faltered in late 2007, [Zambia’s] Lusaka Stock Exchange grew by more than 40 percent and racked up an overall market return of 102 percent, making it one of Africa’s top performing markets. Zambia’s stock exchange emerged in 1994 (with assistance from the World Bank) as part of a wave of market-opening measures that followed the country’s transition from one-party rule to multiparty democracy in 1991, and the selling of formerly state-owned businesses—including the country’s lucrative copper mines. Real growth started in 2004, thanks to high global copper prices, increasing mining investment and the cancellation of most of Zambia’s $7.2 billion foreign debt. Foreign portfolio investment increased by 57 percent from 2006 to 2007. Says Exchange boss Joseph Chikolwa, “You have to remember that Zambia came out of 30 years of socialism, so the concept of private capital wasn’t really appreciated. When the stock exchange was set up, there was about 700 known individual shareholders. Now we have well over 30,000, the majority of them Zambians.”
  • Only five sub-Saharan African countries had stock markets in 1989, according to the International Monetary Fund. Now, that number has risen to 16. The Johannesburg Stock Exchange is the largest and most developed; Swaziland has the smallest, with only eight companies; and Ethiopia just opened a new commodity exchange in Addis Ababa.
  • The Nigerian Stock Exchange also posted some of the highest gains in the world in 2007, as its all share index grew by almost 75 percent, propelled by banking stocks that tripled or quadrupled in just six months.
  • High yields can be attributed partly to high commodity prices (especially copper, oil and uranium in resource rich countries such as Nigeria and Zambia), economic growth, debt relief initiatives and recent market-friendly economic policies. However, with the U. S. (and European) economies wobbling, American and European investment funds are taking an increased interest in Africa, buying bargain-priced shares of undiscovered companies. Foreigners are even eyeing the stock market in politically isolated Zimbabwe, should President Robert Mugabe step down.
  • Most African stock markets aren’t affected by global trends, according to Joseph Rohm, a London- based vice president and analyst at investment firm T. Rowe Price International, which created an Africa and Middle East fund (TRAMX) last September. Rohm travels extensively in Africa and is particularly interested in Nigerian banks, infrastructure companies and consumer-oriented African stocks like mobile phone companies and Zambeef Products PLC, a Zambian food supplier whose stock price grew by 146 percent last year.
  • Foreign investment firms still rank most African markets as “high-risk,” and to that extent Rohm says that political instability remains the top risk for investing in African markets, despite recent democratic trends. Regulation and oversight varies. Zambia, however, has its own Securities and Exchange Commission, set up with help from the World Bank and donors. Among conditions set for listing, companies have to have a history of making profits for at least three years.


This blog will focus on Zambia at some future point. In the meantime, however, those interested should check out London economist Cho’s informative blog on the country and its ever improving market conditions. I found his post on Zambian Airways, for example, to be quite informative.


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