SAA is in the final stages of seeking government approval for its latest Turnround Strategy. It is the 9th such plan in 13 years. This one covers 12 years which should be long enough to keep its present management in business for at least a few years until government decides that something more immediate is required. The US$625m being sought from the shareholder is dependent on success. On past performance eventual implementation will be patchy. A previous CEO has commented that failure to implement 60% of the recommendations in previous plans has played a large part in the current cash crisis.
In the Plan, route restructuring with extra focus on boosting African points is accompanied by a comment that Government will nominate long-haul routes to be flown in pursuit of ’National Development’ objectives. New CEO, Monwabisi Kalawi, is likely to find this particularly irksome. It is a backward step. Governments acting in a prescriptive manner in network decisions are almost always acting counter to the best interests of the airline, and certainly not in the intersts of profitability or even medium to lon term viability. Agreement on which routes, what level of subsidies and the actual payment thereof will take many hours of management time better spent on improving the efficiency of the business. Mr Kalawi could do well to seek, as other airlines have done with varying degrees of success, an agreement that if government wants specific unprofitable routes to be flown, the airline should do so as a contractor on a costs plus basis in exchange for the government being handed all revenue generated by those routes. Managements have little to lose personally by taking such a robust line. If they don’t and the losses continue they will probably be fired anyway.
Government-owned Air Namibia knows this well. Tourism development is a government priority and therefore Air Namibia flies hugely loss-making operations to Europe. Originally after independence government was happy to cover the costs, but over time these have inevitably soared and are now so large that government/airline relations are always severely strained. The 2 newly leased A330s will exacerbate the difficulties. The local image of Air Namibia diminishes each year as the losses rise. Governments, as shareholders, have been known to say, ‘Last year you asked for a lifeline subvention of x million dollars. We didn’t pay and you’re still operating, so why should we pay this time?’ This is a one way downward process.
As our item of 26th September about the Hong Kong airlines’ challenges to Jetstar Hong Kong demonstrates, the licensing of new carriers anywhere be they LCC or ‘full service’, unleashes turbulent times for established airlines. The underlying fear is of any new competition. That’s something any business has to put up with and respond to dynamically. The more reasonable fear is of genuinely unfair competition, ie, the potential swamping of limited markets with excess capacity to the potential detriment of all. Faced with this possibility, Ghana-based regional operators Starbow and Antrak have threatened to close shop and migrate to neighbouring countries unless government tempers its enthusiasm for 5th Freedom licencing of foreign based or owned carriers. Target number one looks like Fastjet. The incumbent airlines’ real problem is that it wouldn’t take much loss of revenue to remove their margins and any hope of profitability. Potentially cut-throat pricing is a further fear. In South Africa, Comair, is legally challenging the licensing of new LCC Fly SafAir. In Tanzania PrecisonAir has for nearly a year seemed bemused by and reacted slowly or not at all to the launch of LCC FastJet on competing domestic routes .It has though now launched even lower prices on the Dar es Salaam–Mbeya route in an effort to head off Fastjet’s impending entry with some prices as low as $20 a seat with A319s against its ATRs. Has a race to the bottom been started?
Among the smaller regional nations there are welcome signs of increasing liberalisation. New Open Skies Agreements between Rwanda, Burundi, Lesotho, South Sudan and Lesotho plus Swaziland may not be earth-shaking today but they herald an alternative to the slow take-up of Yamoussoukro Decision operating freedoms. Common visa travel between Kenya, Rwanda and Uganda has also been agreed. These are all useful steps in generating more business, more city pairs and more frequencies. Daily services should be the minimum aim anywhere but double and triple daily really make an impact, giving air travel a chance to really take hold and for other businesses to thrive on the back of it.
Another big problem for Africa and other fundamentally low pay or otherwise difficult areas has been the migration of workers and professionals,once trained, to places where they can earn more money, enjoy a better lifestyle and provide a better education and future for their children as well as funds for their families and extended families back home. How does an airline which has to spend large sums training pilots, engineers and other staff ward off the attractions of tax –free or much larger salaries elsewhere and keep its people at home rather than see them emigrate particularly to the nearby Gulf states? Always progressive, Ethiopian, in securing funding for the building of more than 1,100 staff houses in Addis Ababa ,is showing unusual proactive and well-aimed determination. In some countries money isn’t the only or even biggest issue. Where staff are faced with poor management practices , blatant unfairness, tribalism or racism ,the temptations to up sticks and go somewhere else are even higher. Human Resources Directors and departments should be bastions against these insidious factors but on occasion they have not only been passive but part of the problem.
Finally …. sometimes the eye is deceived. The headline that appeared to say Boeing is to extend 787-10 production to the new airport at remote St Helena was certainly eye-opening. But a second reading revealed it to be Helena, Montana. Perhaps next time.
1. EAST AFRICA
Air Tanzania. Omani investors have repeated an intention to invest US$100m including the purchase of 2 E175s and 6 ‘Bombardier aircraft, presumably modern Dash 8 turboprops. This looks a lot more attractive than other proposals in the airline to aquire a fleet of 5 MA 60s, and 2 Y-12s from China’s manufacturer AVIC through the latter’s rather hopefully named JoyAir, its scheduled service operator. Anything less likely to appeal to the travelling public and draw them away from competitors Fastjet and PrecisionAir is difficult to imagine.
Meanwhile the airline is planning to slim down from its current 300 staff to 172 and eventually just 50 “essential” ones. That is ambitious but demonstrates the level and cost of the current overstaffing. It would though probably require outsourcing of airport handling and maybe engineering .(Aug 2013)
Ethiopian Airlines doesn’t rest for long and in August launched 4 weekly B737-800 services to Enugu in Nigeria. The city ,with a population of 773,000, is inland in south east Nigeria, north of the Niger delta and about 150 miles due north of Port Harcourt. The airport, Akanu Ibiam International, has a recently extended runway of 3,000 metres and apart from Ethiopian’s new route which does now jutstify the “international” title has only two other scheduled destinations, Lagos and Nigeria’s capital Abuja. These each see a single daily 737-700 by Arik Air. On the 4 days it operates the Ethiopian departure at 1330 is the last of the day . On the remaining 3 days this honour goes to Arik’s 1205 to Lagos.
The airline is also contemplating a return to Kano after many years’ absence. (Aug 2013)
Meanwhile on the cargo side of the business on15th August Ethiopian launched its Lome cargo hub with a single B737-400F for Asky regional services linked to a twice weekly MD-11F Lome-Liege (Belgium) freighter. At Addis Ababa itself ground-breaking is imminent on the company’s new cargo terminal. This will be capable of handling 1.2 million tonnes a year and is reportedly being built by ICM Technics of Germany.(Aug 2013)
On the fleet modernisation and expansion front , the airline is to lease 3 more B787-8s for 2014 delivery. A further 5 on order will bring total fleet to 13. “We like the aircraft ,– we are going to order more” says their CEO. (Aug 2013)
FastJet .
On the one hand there is a lot of pain. The company has just announced (another) loss. US $24.9 million gurgled down the drain in the first halfof this year, including the further writeoff of sums assosciated with the purchase of Fly540.
Regading the latter the company’s report relates:” We have further reviewed the fair value and the goodwill and impairment of the assets aquired as a result of the Lonrho Aviation and Fly540 aquisitions and made further impairments totalling US $5.7 million. We have taken a further impairment of US$8.7m on our investment in Fly540 Kenya.”
Taking everything into account the total loss then equates to about half a million dollars a week. Added to previous losses, the high price paid for fly540 , the franchise and management fees, and bearing in mind the cost of investing in a fleet large enough to realise the pan-African low cost carrier dream, it looks like being a long time before investors see a real return. Struggling to gain traction across the continent , with all sorts of obstacles in its way , the company has started a cost-cutting drive including staff reductions at Dar es Salaam . It is not known whether items such as the franchise fee it pays for a brand which didn’t exist until it took to the air and salaries and consultancy fees paid to its senior hierachy will be included in the exercise.
The launch of its first international route, scheduled for 27th September, was delayed at the last minute due to “administrative difficulties” in South Africa. It is hoped to resolve these for an October start.
Beyond that a 1st November launch is planned for a thrice weekly Dar-es-Salaam to Mbeya service. Useful but not dramatic. Currently the route sees a daily common-timed PrecisionAir ATR
Could it be that the airline’s basic problem may be its failure to blend with the landscape and become part of Africa? It stands out as not being that, but something new and different. (See below for the plus side of that) .Such positioning may seem logical and advantageous from a western marketing viewpoint but, as in medical science, foreign objects tend to risk ejection or rejection by any body.
On the other hand there is a more cheerful and optimistic picture. Fastjet is actually doing a whole range of things which, if spread across the continent, could be a major game changer in Africa and prod some players from dusty 20th century ways of doing things to current 21st century best practice. Pricing, distribition, use of IT including for fare payments are all elements of Fastjet’s lead. The beneficiaries would be the travellers and national economies. The losers would be some overweight , high cost and high fare legacy carriers and their still protectionist governments.
Fastjet’s strategy is well conceived and includes a mix of recipes for launching the brand in different contries . Particularly for smaller nations it offers a way into the airline business far removed from the old recipe of a brace of classic 737s and a handful of turboprops weighed down by a disproportionate number of staff and high overheads.
It would be a great pity if this venture were overcome by the various defensive logs across the road. (Aug 2013)
Kenya Airways launched a thrice weekly E190 service between Nairobi and Blantyre, further reversing the virtual aviation isolation of Malawi’s commercial capital which has existed since the then President Dr H Kamuzu Banda ordered the diversion of all international routes to Lilongwe when the new airport was opened there in 1977. Ever since then Blantyre has struggled with a totally inadequate Air Malawi link between the two cities. Two ATRs daily are simply not enough.Blantyre businesses have suffered considerably as result at considerable cost to the nation’s far from robust finances. The town now has Lilongwe-bypassing international services to Harare three times a week,(3 x daily Air Zimbabwe/Air Malawi Viscounts in the 1970s), Nairobi three times a week (Daily DC9s/SuperVC10s pre EAA demise in the 1970s) and five services spread over four days a week to Johannesburg (More than daily Air Malawi 1-11s/VC10 and SAA 727s in the mid 70s) and Addis Ababa daily (They did not operate to Blanytre in the 70s).
The reappearance of Kenya Airways is very welcome other than for the fact that the EMB190 offers little or no cargo capacity , something Blantyre cries out for .This is a problem it is encountering wherever the Embraer flies in eastern and central Africa.
The freighter conversion of the second pair of 4 B737-300s has been delayed.This will add to the problems caused by the Embraers’ lack of cargo space. In the past, Russian freighters have been chartered in to clear backlogs but that doesn’t make for an ongoing, smoothly running reliable cargo product.
Best news of all for this airline is that the date of the first long awaited B787 delivery now looks firm for March 2014. 9 are on order. They can’t arrive soon enough to displace the varied collection of ageing 767-300s which make it difficult for the airline to deliver a consistently high quality brand or product on its longer haul routes. Hopefully by next spring, the problems a plethora of new operators are experiencing with their freshly delivered aircraft will be a thing of the past. Right now actual deliveries are running 7-14 days behind recently published target dates and post delivery problems are too frequent. Norwegian has reportedly grounded its second aircraft and hired in an A340 to cover until Boeing go and fix it. It looks as if delivering a large number of small initial fleets ,designed no doubt to keep as many customers as possible at least just a bit happy,- as opposed to fewer larger ones,- is stretching Boeing’s new customer support teams. (Aug 2013)
Jambo Jet. Kenya Airways now anticipate the launch of their LCC Jambo Jet subsidiary in Quarter 1 of 2014. Against a background where an arms length relationship with its owner will be essential to avoid taking on its level of costs and other elements of legacy style and substance , the new airline will perhaps worryingly initially use the existing KQ fleet for domestic operations. The vision is that it will “eventually “ take over most of KQ’s domestic and shorter regional operaions with a discreet fleet. Again the question is whether this is really the way for Kenya Airways, not itself an enormous carrier, to go and whether it will confuse or dilute the parent’s overall strength and presence as a pan-African carrier. Ethiopian in particular will watch with interest, and maybe a wry smile. Jambo Jet’s Project Manager Willem Hondiusis now being redesignated CEO. (Sep 2013)
Precision Air , in which Kenya Airways has a 41% share ,is seeking a USD32m ‘capital injection’ says Chairman Michael Shirima. In 2012-3 the company reported an unexpected USD19.1m loss. Fastjet’s arrival on the Tanzanian scene, often at rock bottom prices , didn’t help but earlier problems stem from the ongoing costs of the 2007 US$ 137 m order for 7 ATR72/42s, followed by poor share take-up in 2011 IPO. (Aug2013)
Rwandair launched 3 weekly Kigali – Juba CRJ900 services on 20th September. This is another growing regional carrier building a limited hub network which bypasses Nairobi . As we are going to see on long haul routes ,thanks to the introduction of the 787 series with capacities from as low as 200 upwards but seat mile costs to rival larger aircraft, the game of bypassing or overflying competing hubs is set to become a major battlegound for at least the rest of the decade.
Tropical Air (Zanzibar) is also interested in Mbeya and despite Fastjet’s November arrival on the Dar- Mbeya section of the route is launching a thrice weekly ATR42-300 Zanzibar-Dar-Mbeya services. The airline also serves Arusha, Pemba, and Mafia. Their fleet comprises 2 ATR42-300s, and a single Let410. (Aug 2013)
2. SOUTH / CENTRAL AFRICA
Air Cemac Fresh talks with Air France have indicated a possible ‘early 2014’ launch .(Sep 2013)
Air Namibia Late September will see the first of 2 leased, new, A330s delivered. They are to replace the 2 existing A340s . This will give higher lease but lower fuel costs. (Sep 2013)
FlySafair (S Africa) Leasing and maintenance provider Safair has announced a new venture to take flight in the fourth quarter of this year with 10 Johannsburg- Capetown flights a day. An Air Service Licence is understood to have been issued but Comair/Kulula is objecting.(Aug 2013)
SAA . As mentioned above, the airline is entering the final stage of seeking government approval to its Long Term Recovery Plan. A requested US$625m subvention requires government confidence of success . They may not be happy with that but nevertheless would be reluctant to see this iconic international standard bearer for the country go under.(Sep 2013)
SAA’s Low cost subsidiary Mango launched twice weekly Johannesburg-Zanzibar, B737-800 services on 21st September . Another hub buster (see above) overflying Dar .(Sep 2013)
3. WEST AFRICA
Air Burkina Poor operating results and debt have prompted the government of Burkina Faso to review the airline’s future with majority shareholder Aga Khan Fund for Eco Development (AKFED). The fleet consists of 1 CRJ200 and 3 MD87. The latter are expensive on fuel and maintainence. All the aircraft are jointly operated with neighbouring AKFED carrier Air Mali whose services are currently suspended due to the 2012 civil unrest. (Aug2013)
Air Cote d’Ivoire plans to expand regional services and introduce domestic flying with the imminent arrival of a third A319 and the first of two Q400s in November. A leased E170 is also operated. (Sep 2013)
ASKY is planning a secondary hub in Kumasi, Ghana, on completion of main runway strengthening and repair. Regional rather than the domestic operations to which Antrak and Starbow are currently objecting are the intention.
Meanwhile their CEO has higlighted high levels of reliability and punctuality which come thanks to a modern fleet and strong technical support, as well as efficient hubbing at Lome as reasons for strong growth. The fleet is made up of 3 B737-700s and 4 Bombardier Q400. Ethiopian Airlines shareholding is 40% and its influence is evident.
The latest network addition,-on 15thSeptember ,-is Bissau, now included on the the Q400 operated Lome-Accra-Monrovia route (Sep 2013)
Binter Canarias (Canary Islands/Spain) is to launch a weekly Las Palmas-Dakar CRJ200 service in October. (Aug 2013)
Camair-Co extended its 3 weekly 737 Douala- Lagos services to Abijan in September. It has 5th freedom rights on the sector and brings the total weekly flights on this highly underserved city pair to 6 per week. The other three are by a through running Asky Dash 8 via Lome. This also carries an Ethiopian codeshare flight number. (Sep 2013)
The company’s CEO Matthijs Boertien has been replaced by Frederic Obounou. (Sep2013)
Discovery Air (Nigeria) is planing to join the Nigerian domestic fray with 2 B737-300s (Aug 2013)
Eagle Atlantic (Ghana) has secured an AOC and is planning to start operations with a MD82 serving the coastal route from Accra –to Abidjan, Freetown and Monrovia. (Aug 2013)
First Nation Airways restarted operations with 2 leased A319-100s in August. Their website currently (30Sep) offers only flights between Lagos and Abjua, a sector on which the competition currently offers over 70 well spaced weekly flights, almost all operating daily. Their route map is shown as being “under development”. A frequent flyer scheme is also offered.( Sep 2013)
Med-View Airlines, a Kano based carrier has accepted a 4th B737 and is planning new regional and international routes .A launch to Dubai is planned before the end of 2013. Emirates has so far shown no interest in Kano, probably due to its currently unstable politics. (Aug 2013)
Pison Airways (Ghana) is talking of a December 2013 regional start-up with a B737 and a B757 though London is said to be the real intended destination of the latter . An international executive search is taking place for top level managment. (Aug 2013)
4. NORTH AFRICA
Afriqiyah launched a weekly A320 Misurata-Cairo service on 20 August. The only other operator on the route is Libyan Airlines, also with a weekly A320. (Aug13)
Tunisair is to suspending Dubai and Kuwait services.(Aug 2013)
5. NON-AFRICAN AIRLINES
Air Arabia , the highly successful Sharjah based low cost carrier is planning to expand into West Africa through its 40% owned Air Arabia Maroc subsidiary if traffic rights negotiations are successful (Sep2013)
British Airways continues its scramble out of Africa with its withdrawal from Lusaka and Tunis from the beginning of the winter schedules at the end of October .In slight recompense , though not networkwise, Accra frequencies move up from 7 to 10 weekly. As is now customary in the European winter and South African summer season ,Cape Town frequencies increase from 7 to 14 a week. (Aug 2013)
IAG’s other brand ,Iberia, launched twice weekly A 319 Madrid-Accra services in August. (Aug 2013)
Sri Lankan plans to inaugurate thrice weekly Colombo-Mahe-Nairobi flights from October 2014. (Aug 2013)
Turkish Airlines has launched services to Asmara, Eritrea, and in December plans to add 4 weekly B737-800 flights on a Istanbul – Kano – Ndjamena – Istanbul routeing. (Aug 2013)
6. MISCELLANEOUS
DRC is seeking to establish a new national carrier. Expressions of Interest closed on 31 August. Ethiopian, Turkish, Kenya, Brussels Airlines and Air France-KLM have recently been mentioned as possible partners. (Aug 2013)
East African Community (EAC) Citizens’ passport free travel between Kenya, Rwanda and Uganda has been agreed to take effect from next January . Also agreed is a common visa for visitors (Aug 2013)
Kenya . A fire, a terrorist attack on a shopping mall , the reaction, organisation, capability and behaviours of it police and army have gained the attention of the world’s media for Kenya,- although in a substantially negative way.
First came the destruction of Nairobi Jomo Kenyatta International Airport’s arrivals terminal by a fire on 7 August. What appears to have started as a small conflagration was allowed to get out of hand and in the end the whole building was destroyed. The police appeared to rescue the contents of the cash machines and banks , leaving no time for the passengers’ baggage to be saved. The army was later reputed to have taken care of the safe later on. No doubt the money will be returned to its righful owners in due course.The fire damage initially resulted in huge operational disruption costing Kenya Aiways an estimated US $ 4 million in lost revenue and passenger handling /accomodation etc costs. In a display of Kenya’s remarkable resilience ,robustness and entrepreneurial ingenuity flights began to be restored within a day and were back to normal within a week. Ad hoc passenger handling facilities ranged from marquees to the Presidential VIP building and will remain in use for some time while a temporary terminal is constructed. Passenger reports on these arrangements are generally favourable and say that they and their bags progress from aircraft to kerbside quicker than before.
Next came Somalia-based Al Shabaab’s attack on a the modern Westgate shopping mall. This included their ruthless execution of a large number of customers and staff including women and children. Again, according to reports so far and putting aside some early heroic and successful actions and rescues by plain clothes police and individuals on and called to the scene, many of the the actions and inactions of the police and army were disastrous and to made things even worse. Blowing up structural pillars and collapsing heavy floors is seldom a good idea. Again their actions appeared to include extensive looting.
What’s this all got to do with transport, aviation and tourism ?
Apart from damage to future bookings there are serious implications for aviation security in particular.
One has only to speculate what would have happened if, instead of targeting a shopping mall, the terrorist group had headed for Nairobi’s airport, one group concentrating on the ramp and another on the passenger terminals. The idea quickly becomes horrific. Could massive loss of life, aircraft and premesis have been halted by the resources immediately available? The almost unthinkable consequences could at a stroke also have devastated the country’s tourism and its position as a major hub for air travel within the continent and between Africa and the world.
Nigeria has awarded rights to 4 Ghanaian carriers to operate between the 2 countries. Ghana has long claimed, almost certainly rightly, bureaucratic obstruction by Nigerian authorities. (Aug 2013)
Sierra Leone. The government is courting US operators to operate to Freetown . Recent upgrades at Lungi Airport bringing it up to ‘international standards’ are quoted. The airport’s biggest disadvantage remains its dreadful ferry and helicopter dependent links to the city which is on the opposite side of a very wide bay . (Aug2013)
Zanzibar’s government is grappling with delays and quality of work issues on airport terminal and ramp expansions. BCEG, China, is the contractor. Build quality, as well as subsequent maintainence, has frequently been an issue regarding many Chinese building projects and goods sold to Africa. This airport development is financed by a Chinese US$77m loan (Aug 2013)
John Williams and Peter Woodrow.
30 September 2013