Friday, 28 August 2015

US majors continue their "Unfair" campaign.

The US majors ,with their history of  protection from financial reality by Chapter 11, continue to cry "Foul" about "unfair" competition from the Gulf trio. They now say they lose 20% of their US-Middle East business to these carriers.

Nothing to do with the fact that despite having the rights to do so the US airlines fly very few city pairs between the US and Middle East,- or far fewer frequencies. Or the fact that many customers don't quite get the appeal of flying on a US legacy airline with its highly unionised "We are here primarily for your safety" legacy style cabin service when there is a very different alternative way of spending the next 15 hours parked next to it.

As we have said before and doubtless will say again, the US and indeed some of the European legacy majors also overlook the fact that the geography of the worlds's air routes has changed. The generation of ultra long haul airliners started with the 747-400 and has expanded across all aircraft sizes from the 787-8 to the A380 . This means that America originating and destined passengers can now bypass the traditional need to change in Europe to get pretty well anywhere in the Middle East, West Asia or Africa. Instead they can and do fly nonstop to all these places via an easy transfer in one of the Gulf states or Turkey from an increasing number of US cities.So they do,- as well as getting excellent service on the way. It's not unfair.

Tuesday, 25 August 2015

African Roundup June-July 2015

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.


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.


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. 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.


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.


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.


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.


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