64473 September 2011 · Number 2 January 2011·Number 77 By Charles Schlumberger more competition in the sector. Finally, air transport infrastructure has been continuously Background. Recent sector work on Air developed in the recent years and can generally Transport in Yemen1 found the Yemeni air be considered adequate for existing and near transport sector to be relatively small compared future air traffic. As a result, international air to that of other countries of similar size, traffic to and from Yemen has been growing population, and GDP. In 2007, the total air steadily over the past years, particularly within traffic was 1.8 million passengers, 76% being the Persian Gulf region. Nevertheless, the international travelers and 24% domestic sector faces several major issues that are bound travelers. Yemen counts three airports open to to reduce its efficiency and contribution to the international services among a total of 18 civil country’s economic development if no actions airports; however, Sana’a is the only airport are taken. These issues and proposed solutions with significant traffic (80% of total are briefly described below. passengers). The national legacy carrier, Yemenia, has operated all domestic and Main Sector Issues international routes since 1962. A second carrier, Felix, was established by private Financial Policy. The financial situation of the investors in 2008 with the objective to take over sector is unclear and there is insufficient available Yemenia’s domestic network. information regarding the overall use of funds. The annual revenue of CAMA was estimated by the Despite its limited size, the sector has some Bank to be around US $67 million. However, significant strengths. The Government of there is no publicly available statement Yemen (GoY) has clearly recognized that air detailing the sources and the allocations of this transport is essential for the development of the income. This lack of information makes country. It has created the Civil Aviation and effective decision making by the Government Meteorological Authority of Yemen (CAMA) difficult and it weakens accountability whose regulations and operations comply with mechanisms. In this context, also, it is possible international standards. It also has supported that some activities end up being subsidized Yemenia to become an airline which links although there is no official policy to that effect. Yemen well with most of its economic partners For instance, Yemenia has large sums of unpaid and is respected for its safety performance. In airport fees, which may in fact represent an addition, the GoY has endorsed the Arab indirect compensation for the airline’s recent League Open-Skies Agreement and supported losses. the creation of the private domestic carrier Felix: both have been positive steps towards The Government’s involvement in investment funding is heavy. The Treasury directly funded 1 40% (US $25 million) of the total investments The note summarizes the main findings of the Yemen Air planned in the sector in 2008, while most of the Transport Sector Strategy Note, dated September 2010, which represents one part of a broader transport sector rest was financed by loans from third parties assessment for Yemen. The main report was prepared by like the Arab Fund for Economic and Social Charles E. Schlumberger, Principal Air Transport Specialist Development. Thus, the sector relies heavily on at the World Bank, under the guidance of Jean-Charles financing from public sources while most of the Crochet, Senior Transport Economist and Task Team Leader, following missions to Yemen in 2008 and 2009. funding could come from the sector itself. Vincent Vesin, Transport Specialist, participated in the However, there is no explicit tariff policy aimed finalization of the report. at cost recovery and making the sector increase Yemenia’s capital from US $80 to $400 financially self-sufficient. million with public involvement to finance these investments and to absorb past losses. Infrastructure Development. There is no overall This strategy is high risk because of the high strategy for infrastructure development in the air degree of competition by regional airlines and transport sector and the existing evaluation of the limited size and possible volatility of some future passenger traffic is not well grounded. of the targeted Current planning is based on a projection that markets. nationwide passengers will double by 2017 for all airports but these projections have not been Felix’s successful development is uncertain. Several supported by detailed future demand analysis. operational and administrative challenges need The projected figures still represent a relatively to be solved, such as setting-up a performing small market, for which most of the existing reservation system. Moreover, the current fare airport infrastructure would be adequate or structure requires that some seats be sold at the need relatively minor investments for highest price for flights to be profitable: this enhancement. It is also unclear whether might be a major challenge as domestically development should concentrate on the three purchased tickets are traditionally on lower main airports. In addition, the ongoing tariffs. In the long term, the foreign majority investment program for secondary airports ownership may also prevent Felix from does not appear to be based on a precise plan. obtaining international traffic rights. As a consequence, many investment projects seem Competition Policy. The competition policy on the premature or unsuited to the country’s needs and domestic market is ambiguous2. Yemenia’s resources. The GoY has started the construction investment of 25% in Felix’s capital was done of a second airport in Sana’a for an estimated by ceding all its domestic traffic rights to Felix. total of US $460 million to accommodate more Shareholders of Felix can therefore lay claim to aircrafts and passengers than the existing the exclusiveness to operate domestically and terminal. A similar situation in Guatemala prevent other potential operators from actually suggests that the same objective could receiving domestic traffic rights. have been achieved by enhancing the existing terminal for a much smaller investment (US $80 Institutional Structure and Capacity. Minstry million in that example). Furthermore, of Transportation’s (MoT) institutional capacity is substantial investments have been planned in limited and its role needs clarification. Although 2008 for five airports with no scheduled traffic. MoT is responsible for defining the sector’s Several airports with low traffic have also been policies and priorities and providing oversight, recently equipped with costly VHF Omni- it does not have the capability to do so as its Directional Radio Range - Distance Measuring staffing and operating budget are extremely Equipment (VOR/DME) installations, while limited. It also seems that the delineation cheaper alternative technologies might have between MoT’s and CAMA’s responsibilities is provided just the same service. often unclear. Airline Development. Yemenia’s development The dual function of CAMA makes oversight of the strategy is risky and mobilizes public funds. sector difficult. CAMA assures the regulatory Despite its current financial difficulties, definition and supervision of the sector in terms Yemenia has embarked on an aggressive move of safety and security, operates all airports of to gain market share in international services the country, provides air traffic control services, and to transform Sana’a into a major hub and maintains the meteorological services in between Europe, Africa and Asia. This involves Yemen. Regulatory and operational important investments in the long-run, such as the replacement of half of the fleet with the 2 The Government has also given special attention to purchase of six new Airbus A350, and the attracting new airlines and investors to Aden airport but construction of hotels for anticipated new these efforts have not been met with success so far. traffic. Shareholders have apparently agreed to September 2011 · Number 2 · 2 responsibilities are therefore in the same hands, and taxes in the sector. In particular, an which potentially constrains the efficiency of increase in airport tariffs for domestic flights policy making and supervision in the sector. should be investigated as such tariffs seem Adequate data are not available on almost every quite low. aspect of the sector. The lack of sufficient, accurate and reliable data, for example in terms Infrastructure Development. Establish a strategy of traffic and finance, prevents any in-depth and prepare a master plan for civil aviation analysis of the sector and its development (essential, short-term). One of the top priorities in needs. the sector is to define an overall long-term strategy associated with a comprehensive Private companies have not invested yet in air master plan. This work should review and transport infrastructure nor are involved in airport assess infrastructure needs and outline the operations. As of the preparation of this report, financial requirements for development, based there were no public-private partnerships yet in on realistic passenger and cargo forecasts and Yemen for the finance and operation of airport economic criteria. This master plan, which infrastructure, which deprived the sector of should also address the sector’s governance possible additional funding, capacity and structure, legal framework, and potential for expertise. The Government had recently taken private investment should become the basis for steps, however, to contract out the management discussions among all stakeholders before its of Sana’a and Aden airports to a specialized implementation is approved. international firm and it was expected that a contract would soon be in place Build on already existing infrastructure and consider less costly technological alternatives (short- Recommended Strategies term). Even if air traffic doubles within ten years, given its current low level, future air Some weaknesses of the air transport sector in traffic demand can for the most part be Yemen are structural, such as the relatively low managed by enhancing and enlarging current volume of traffic, which is obviously related to facilities. This is especially valid for the three the country’s low GDP and is an obstacle to main airports of Sana’a, Aden and Al- achieve economies of scale. Nonetheless, many Mukhalla. For ATC improvement, Global of the issues described above can be addressed. Positioning System (GPS) technology should be For this purpose, the following strategies are seriously considered since it is very much recommended. (possibly eight times) cheaper than the currently preferred VOR/DME. Financial Policy. Make transparency of the sector’s finances a rule (essential, short-term). Airline Development. Revise Yemenia’s network CAMA’s sources and allocations of income and fleet development plan (essential, short-term). should be discussed under the authority of the The current global economic downturn calls for MoT, audited, and made public. Two issues an urgent fresh look at Yemenia’s strategy. The should be especially addressed: the possible national carrier’s current strategic directions, its cross subsidy of unprofitable airports by the profitability and cash flow, as well as its revenues of the air traffic control system (ATC), financial commitments for fleet renewal need to and the apparently low rate of effective be revisited in detail, discussed, and agreed recovery of airport fees as well as ATC charges. upon with all shareholders. Yemenia should Transparency is an indispensable condition for consider developing its medium-haul network the sector to be efficient and sustainable on the rather than its long-haul network, since the long-run. competition on long-haul routes is already very tough between the big carriers of the Persian Target self-financing for air transport infrastructure Gulf (Emirates, Etihad, Qatar Airways, Gulf (long-term). As a principle, the sector should Air). Moreover, Yemenia will need profitable generate enough revenue to finance its own regional routes to redeploy its four medium- infrastructure and other capital needs. This range B737 after Felix takes over all domestic principle should be used to set the tariffs, fees September 2011 · Number 2 · 3 flights, and to pay for the high ownership cost important to understand and manage its issues; of the new A350s. this will request training and funding of staff, equipment, and studies. Continue to support Felix after its launch. (short- term). To ensure profitability on its domestic Consider public-private partnerships to enhance network by selling high fares to passengers in private involvement in air transport sector (long- connection with international flights, Felix term). Given the limited public resources of the needs to become an IATA member or to enter country, the use of public private partnerships into an operational agreement with Yemenia could strengthen the sector’s attractiveness for quickly. Then, Felix’s possibility to obtain private investors, and bring more financing, international traffic rights despite its foreign capacity and expertise to the development of majority ownership should be clarified, as the sector. The Government has rightly initiated Felix’s aircrafts will be more fuel efficient on PPP arrangements for the management of regional routes. Sana’a and Aden airports. Competition Policy. Clarify competition policy on Annex material of particular interest: domestic market to allow entrance of new carriers (longterm). The move towards a liberalized air The league of Arab States Open Skies transport should go on. Felix, therefore, should Agreement: Background. (See Annex 1 of the not have exclusive domestic traffic rights. Strategy Note) Institutional Structure and Capacity. Contact MNA K&L: Strengthen the role of MoT (long-term). The Director, MNACS: Laura Tuck priority for MoT should be to develop a long- term strategy for the sector and to prepare a Regional Knowledge and Learning Team: civil aviation master plan. Therefore, it needs Omer Karasapan Roby Fields, Rory O’Sullivan Tel # : (202) 473 8177 reinforced human and material resources, as well as a clear definition of its mission. In other MNA Knowledge Notes: countries, MoT usually performs the following http://mnaknotes role for the sector: prepare a long-term strategy, The MNA Knowledge Notes are intended to develop and supervise master plans, prepare summarize lessons learned from MNA and other legislation, direct the civil aviation authority, Bank Knowledge and Learning activities. The Notes the airports, and the ATC, support the Ministry do not necessarily reflect the views of the World of Foreign Affairs in international negotiations, Bank, its board or its member countries. and foster private sector investment. Separate regulatory and operational functions in the institutional organization. (long-term). International experience suggests having separate organizations, to define air transport regulations and to supervise airports on one hand, and to apply these regulations and to manage airports on the other hand. The way CAMA works should therefore be revised to avoid possible conflicts of interest. Develop statistical capacity (short-term). Collecting and analyzing adequate data on the sector is September 2011 · Number 2 · 4