Two of sub
Saharan Africa’s three major airlines are in trouble. What have they in common
and why does the third continue to expand successfully?
Much of the
answer is simple. Both are suffering from Government intervention (SAA) and
trying to intervene (Kenya Airways). Government/political interests trying to
impose solutions on managements invariably leads in one direction. That doesn’t
only apply to the aviation industry.
SAA is heavy with long standing debt and
management issues and still struggles to manage its transition to the new South
Africa. Kenya Airways is very different and has only recently become increasingly
loss-making leading talk of possible bailouts, emergency loans and
recapitalization. Depending on how this is provided the Kenya government could
regain a majority stake and the independence gained at privatisation would in
effect be over.
Kenya
Airways was privatised in 1996 leaving government with a minority share. Some
politicians have always seen this as a door to being able to make
interventions. The first Chairman, Philip Ndegwa, who unfortunately died of
cancer while in office, was a resolute bulwark against this. He was also
determined to be truly non executive and keep himself away from the day to day
running of the airline. With the help of Speedwing Consulting he hired a high
performing quartet of top managers to do that and kept the political roof up
while they did the job. His immediate successor had a different view about the
about the non executive issue and acted accordingly.
SAA on the other hand has always been 100%
state-owned and currently relies on Government for regular cash injections and guarantees to continue operations. Technically it is insolvent.
Things came to a head in 2013 when Government demanded a detailed action plan
prior to release of more cash. Following the departure of yet another CEO in
2014, the new Acting CEO Nico Bezeidenhout, was charged with preparing and
implementing a 90-day Action Plan to accelerate the flagging progress on the
Long Term Strategy Plan. Measurable cost
improvements were made with route cuts, fleet leases and supply contracts but
operating results have continued to fall. ‘It’s too early to say we have turned
the corner’, said Bezuidenhout last month. CEO of SAA is not a job for the
feint hearted.
It appears that problems at SAA’s Board have
continued unabated. Late in 2014 the CEO was suspended and 6 board members were
dismissed. The Chairwoman, Dudu Myeni, attracts criticism from her close
relationship with President Zuma. A new Board is due for appointment in
September. Difficulties around the Board
table have now prompted the resignation of Chief Strategy Officer, Barry
Parsons, citing his ‘loss of confidence in the Board’. Within days the
Chairwoman announced to staff that Bezuidenhout would immediately be returning
to his CEO role with Mango ‘having completed (his) turn-round project’. One can only speculate on the underlying
reason. For the eighth time in 3 years and in the middle of a major recovery
exercise SAA again finds itself without a CEO. There is little confidence in
management stability and this has to impact on its effectiveness. South African
tax-payers will continue to have to fund SAA for a while yet.
Kenya
Airways has yet to reach these depths but the downward trajectory is
worrying. The past 3 years have seen the
carrier plunge to ever increasing losses.
The operating shortfall for 2014-5 has been declared at US$290million, a
sharp deterioration from the 2012-3 figure of US$91m, the first loss since
privatisation. In 2011 the airline was riding high with the unveiling of
Project Mawingu, a 10-year plan to effectively double the size of the fleet and
to double the number of points on the route map, including the Americas and
Australia. Now it is selling off its flagship 777s and retreating to an eight
strong (seven delivered) B 787-8 fleet. It has no further widebodies on order and
it’s unclear where Mwangu will go now.
Almost
immediately it was published the positive Mawingu forecasts took a battering.
Production difficulties delayed Boeing 787 deliveries leaving the 767s to
soldier on but not for long enough to justify a major refurbishment. Instability
generated by Al Shabaab in response to the Kenyan forces intervening in Somalia
started to affect incoming tourism particularly the high volume/low yield
coastal business. The disastrously mishandled fire at Jomo Kenyatta Airport and
the decline of the Kenya Shilling added to the general woes. Then came the even
more disastrous and worse handled Westgate shopping centre incident. Tour
operators and their clients headed for safer places. Meanwhile the new Boeing
737s and Embraer 190s continued to arrive along with the much larger than needed
B777-300s. Financing and other ownership costs kicked upwards leading to the
under utilisation of the B777-200 fleet .The -300s were recently sold and the
bulk of the long haul operation downsized to the B787-8 which hasn’t the cargo space of the 777. That and
the limited holds of the Embraers has limited the ability of cargo to make up
for some of the revenue lost on the passenger side of the business and has for
the time being jeopardised Nairobi’s position as a cargo hub for Africa.
Despite the
enforced economy measures the cumulative losses have continued to rise to the
point where the need for US$500-600m is being mentioned to maintain operations.
That has given politicians their excuse to get back into the scene. Consultants
Seabury have been charged to re-shape Project Mawingu and to recommend options
for a recapitalization. This risks a sense of instability and insecurity and
the airline feeling as if it has stalled and lost its way.
Kenya’s
northern neighbour and rival Ethiopian, historically and remarkably left alone
by its government, meanwhile marches resolutely on, expanding its fleet and
network in an almost Gulf-like fashion. It continues to grow and finance itself
and is seen throughout Africa as a good, well established, reliable and well
managed business. Its home base, while tight on capacity until its terminal
expansion is completed in 2018, raises no negative security, attitudinal and
other images. Passengers aren’t hassled. The airline’s management is home grown and knows, goes about
its business professionally and has good networks in the industry. All of these
things contribute to its remarkable success over several decades.
1.
EAST AFRICA
Air Djibouti has announced the re-launch of
operations in November this year with a mixed five aircraft fleet of B737, B757
and B767, in conjunction with Cardiff Aviation (UK). This looks a bit too mixed
for comfort.
Daallo Airlines (Djibouti with Head office in Dubai)
plans to add 2 leased ATR72s for domestic operations.
Ethiopian Airlines orders for the 6 additional overweight
early production and consequently cheap B787-8s will raise the total fleet to
19. They will be delivered mid-2016.
The hub-based
network continues to grow apace with the 19th June addition of Addis-Dublin-Los
Angeles B787s followed on 9th July by Manila coming online thrice
weekly 767s behind Bangkok.
The Q400
Goma operation hasn’t been as successful as hoped. It had to be abandoned after
a single flight but doubtless will be back.
Fastjet ,never one dwell on the negatives,
reports its intention to fully launch its Zimbabwe and Zambia incarnations
shortly. Meanwhile it has sold the non-operating Fly540 Ghana for US$1. That’s
not a lot. There is no mention of a sale of defunct Fly540 Angola so maybe
there is hope of using it as a platform to which to return later. Angolan burocracy
and deeply rooted protection of TAAG will not help. The fleets of both carriers,
– ATR42s and 72s, - were disposed of in May 2014. The minority shareholding in Fly540 Kenya,
which was bought as a quick way to a Kenyan AOC but didn’t work out was sold
back in 2014.
In the
meantime 27 July saw the launch of twice weekly A319s between Dar es Salaam and
Lilongwe adding to the previous links to Johannesburg, Lusaka, Harare and
Entebbe. There are also five 5 domestic Tanzanian routes. Kenyan CAA logs appear to continue to lie
across the road to the Tanzanian company flying between Dar es Salaam and Nairobi
despite it having been perfectly legitimately designated to do so by Tanzania’s
government. The airline continues to await confirmation by the Kenyan CAA both
for an Air Service Licence as a necessary step to establishing ‘Fastjet Kenya’
and for recognition of ‘Fastjet Tanzania’ as the designated Tanzanian carrier in
the Kenya-Tanzania BASA.
Fleetwise the lease has been signed for a fifth
A319. This one is set to be allocated to Fastjet Zimbabwe on successful
completion of its Zimbabwe AOC application.
The Air Service Permit has been granted.
Kenya Airways Services to Freetown were
resumed on 2nd June after the ebola-induced suspension.
Faced with increased competition when China
Southern start their thrice weekly Guangzhou-Nairobi A330-200 on 3rd
August services the airline has signed a codeshare agreement with the Chinese
carrier, giving them at least make a small percentage any of these flights sold
on Kenya Airways tickets. It is unlikely that will make up for likely losses of
business to the new competitor unless between the two the amount of transfer
business using Nairobi to access the rest of Africa grows hugely.
2.
SOUTH / CENTRAL AFRICA
Air
Zimbabwe restarted their Harare – Lusaka link on 22nd
June. An MA60 is used. Not an aircraft likely to have a strong following as the
customers’ first choice.
Blue Sky (Botswana) is seeking two B737-300s in
preparation for Gaborone-Maun/Johannesburg and Cape Town operations. An Air
Service Licence was awarded in January and an AOC application has been lodged.
Congo Airways (DRC) has taken delivery of two A320s
for a 15 August launch based on Kinshasa and Goma. This is intended to be a new national carrier
and its AOC is pending. Air France
Consulting is involved.
flyafrica.com Namibia is planning a revised September launch using a pair of
737-500s flying between Windhoek and Johannesburg and, separately, Cape Town.
All regulatory hurdles have now been cleared.
FlySafair (S Africa) is to launch four new
routes linking both Johannesburg and Cape Town with Durban and East London in October.
This carrier, which has grown out of the decades old all cargo Safair,
currently has a fleet of two B737-400s.
Proflight (Zambia) has launched eleven weekly flights
between capital Lusaka and copperbelt Kitwe .To help with this it has extended
and converted from wet to dry the lease of a CRJ1000.
Rainbow Airlines (Zimbabwe) plans to join the
Harare-Johannesburg fray on 31st July using a leased B737-300 twice
daily. An Air Service Permit is pending but it should be born in mind that out
of thirty of these issued by the government in recent years not one has
resulted in continuing operations. Sobering?
SAA We have covered the overall situation in our opening. Efforts
continue to sort out the future fleet. One move is to switch the existing order
for ten A320s to five A330-200s.
Adding to the staffing
and experience turmoil, Chief Strategy Officer, Barry Parsons, resigned on 24
July. He cited a loss of confidence in the Board “to lead and progress the
business” towards achievement of the 2013 Long Term Turnround Strategy
objectives.
In another move which
underlines the stability at the top 30 Acting SAA CEO, Nico Bezuidenhout,
returned to low cost subsidiary Mango with immediate effect on 30th
June. Board Chairman, Dudu Myeni, said this follows the completion of the
turnround programme which he led and that a new CEO will be appointed to the
main airline ‘in due course’. Human Resources Manager, Thuli Mpshe, is appointed
Acting CEO. Many would say that the turnaround programme is still work in
progress (see the previous paragraph) and demands strong, firm, clear
leadership protected by the Board from any external interference.
3.
WEST AFRICA
Air Guinea-Bissau:Tmhis new national carrier has a 40%
Government holding and reportedly 60% Romanian interests. Two unspecified
aircraft are initially to operate to Dakar and Praia.
Air Niamey (Niger) has received the first of
two A320-200s for domestic services. Behind the facade the carrier is an ACMI/adhoc
charter provider based in Istanbul. Government owned Air Niger collapsed in
1993.
Air Peace (Nigeria) has added two B737-300s to
its active fleet of a single Do328 and a trio of B737-500s .
Med-View Airlines (Nigeria) has acquired a single B767-300
for Lagos-Jeddah-Dubai services planned to start in November this year. This
won’t have an easy time up against twice daily Emirates B777-300ERs. The current
fleet comprises 3 B737-400 and one B737-500 operating a domestic network plus
Accra.
SmileAir (Ghana) is a proposed
start-up using ex-Iranian B747s. Toronto, Dubai and Guangzhou as destinations
along with a West African regional network. Bearing in mind the considerable
operating costs of these long haul flights it will need high load factors from
the outset. Again, the Dubai route will be quite a contest with the daily
Emirates offering.
4.
NORTH AFRICA
Air Arabia Maroc is launching twice weekly
Marrakesh-Frankfurt flights in October. This will be their seventh European
destination to be added during this year.
EgyptAir has issued an RFP for 8-10 narrow-bodies for deliveries
throughout this year.
Royal Air Maroc is planning a joint venture with
Qatar Airways giving codeshare opportunities over a wide network eastwards from
Doha. The carrier itself will fly three times weekly between Casablanca and Doha
with 787s alongside Qatar’s daily services. Plans for a direct route to Beijing
will be dropped, a considerable cost saving. It likely that membership of
Oneworld will now be sought to replace earlier plans to join Star Alliance.
Syphax (Tunisia) cancelled its 2014 order
for three A320-200s and then suspended all operations. The fleet currently
consists of two A319s.
Tunisair has received its first A330-200. It
is planned to use them from September on medium haul routes including include
Paris, Dubai and Istanbul. Further afield Montreal is also envisaged around the
same time. The previous fleet was all narrowbody, made up of 17 A320s and 4
A319s.
5.
NON-AFRICAN AIRLINES
Air China has deferred until late October the launch
of its Beijing – Johannesburg route to be operated thrice weekly by B777-300s. SAA
withdrew their flights on 28 March.
Atlantic Star Airlines (UK) .The planned London – St Helena
B757-200 charter link from Easter 2016 on completion of the airport
construction is back to square one.
Titan Airways (UK), who were to provide the aircraft have withdrawn from
the project.
British Airways, demonstrating their different take
on “Out of Africa”, is to drop Entebbe from network on 2nd October. This
follows previous withdrawals from Dar es Salaam and Lusaka. Weak results are
given as the reason. Its 767 operations on the eastern side of the continent
now come to an end. If they had continued all these routes 787s would have
taken over as the 767-300s were withdrawn. With that would have come the higher
costs of ownership of the new aircraft. This, together with more lucrative
opportunities from deploying the 787s elsewhere, may have tipped the balance.
Brussels Airlines. Unusually, this airline which when
seen as a continuum from its predecessor Sabena, is probably Africa’s most tenacious
non based specialist and which has flown most of its routes through thick and
thin since the 1940s, will withdraw from Nairobi in October after 58 years of
service. The Belgian operator thrives in what others see as difficult niche
markets and is seen by many political leaders on the continent as a steadfast
friend whereas others tend to be fair weather only and come and go. The airline
has earned a huge amount of respect for staying the course. The relationships
generated have paid and will continue to pay unseen and unquantifiable dividends
(something many airlines’ marketing and finance people find hard to grasp). Perhaps
Nairobi, with its busy and until recently successful national carrier plus a
host of Gulf, Turkish and other operators and Lufthansa due to return this
northern winter, is now a bit too mainstream and therefore no longer a natural
for this resourceful airline.
Condor launched operations on the
Munich-Zanzibar-Mombasa and Munich-Windhoek routes at the end of June. It is
assumed that the bulk contract leisure market will be its focus.
Emirates is
planning to add Bamako to its network on 25th October.
Fly Dubai launched 4 times
weekly B737-800 flights to Hargeisa, Somaliland on 9th June. This is
its 16th African destination. Asmara, planned for October, looks like being
next.
Lufthansa ,as commented above,
is back in Nairobi after an 18 year gap. Originally like most European airlines
Lufthansa served the city en route to Johannesburg. Right up to the
747-199/200/300 aircraft didn’t have the range to do Europe-Johannesburg or
worse hot high Johannesburg-Europe nonstop. Nairobi became the traditional en
route call for most. Then in the late 1980s and early 1990s came the 747-400
which could overfly en route points with ease, - so most did. The by then
traditional early morning and late evening sight of the European majors’ tails
at Nairobi disappeared quickly disappeared. There just wasn’t enough local
business to support terminators and a one stop offering in the South African
market was no longer competitive. Lufthansa did persevere for a while with
terminating nonstop A310s but they struggled, particularly against BA’s B747s
most of which continued to other points such as Dar es Salaam and Entebbe to
bolster the loads and ensure profitability. The German airline therefore withdrew
after a while due to unsatisfactory results. Now they will be back, initially
with A340-300s.
6.
MISCELLANEOUS
Nigeria .In an effort to strengthen the
industry and consolidate some carriers into which they had to pour money (See the following
paragraph) the Government may require domestic operators to have a minimum
fleet of 5 aircraft and capital requirements of at least US$12.5m and US$25.0m
for international operators.
As part of this thinking the Government is also
considering merging its debt laden airlines to create a new national carrier. This
echoes a similar, failed, 2013 proposal. Government holds a stake in several
cash-strapped airlines through the Asset Management Co (AMCON) having injected
up to US$500m in debt relief in recent years.
South Africa The High Court heard a case lodged
by Comair that the regular ‘state guarantees’ given to SAA are in fact subsidies
to avoid liquidation and these need full parliamentary approvals which hadn’t
been gained. On this basis they asked for Government’s recent action to be
declared unconstitutional and unlawful. On 1 June, the judge dismissed the case.
John
Williams
August
2015
