2015 – THE YEAR OF BITTER AND SWEET TRUTHS FOR MANY OF EAST AFRICA’S AIRLINES
(Posted 09th January 2015)
When looking back at 2014 it was no doubt a year of many trials and tribulations for the airlines in Eastern Africa and across the Indian Ocean islands with far too few happy notes unable to change the tunes overall.
Kenya Airways had to announce major losses at the end of Q2 and while finally able to phase out their aged B767 fleet and replace these six aircraft with the modern B787’s the impact of some 20 percent less fuel burn, and the presently much lower price for JetA1 will perhaps only in the next financial year show their full impact.
Jambojet, KQ’s low cost subsidiary, was launched with some fanfare, but has yet to show a full year result in terms of passengers carried, load factors and most important, profits made if any.
Across the border, in Ethiopia, does one find Africa’s most successful airline, Ethiopian Airlines, which last year, and very likely this year too will turn in a handsome profit. The airline has been on a relentless expansion drive with new destinations across the globe and with new aircraft joining their fleet. It would probably take a combination of endless disasters to knock ET off the top of the rankings in Africa, a very likely reminder for other national airlines of how one should go about the business, long serving CEO’s included unlike in South Africa, where those come and go at record pace in recent years.
In Uganda did the Uganda Civil Aviation Authority the unthinkable when they single handedly destroyed Air Uganda, perhaps out of incompetence, perhaps with sinister ulterior motives or perhaps really just to cover their exposed backs when ICAO signaled an upcoming citation for failing industry standards on almost all key criteria which were audited. They pulled all AOC’s for flights across the national borders, in part citing safety reasons, but lo and behold had no such concerns when letting the Ugandan registered airlines continue to fly on domestic routes.
In Rwanda did RwandAir continue on their growth curve, sadly though, as the entire aviation industry in Africa, taking a beating over the evolving Ebola scare with passenger numbers affected by lower demand for travel to West Africa. That however did not stop them from taking opportunities by the scruff of the neck and were swift to accept fifth freedom rights from Entebbe to Juba, after Air Uganda was forced to vacate the route. They launched a new route earlier in 2014 to Douala, making it their fifth West African destination after Brazzaville, Libreville, Lagos and Accra and late in 2014 launched flights to Mwanza, Tanzania’s second largest city on Lake Victoria. Regardless of the challenges of 2014 did RwandAir also announce the upcoming delivery of another brand new Bombardier Q400NextGen which will be followed, either in late 2015 or early 2016 by another brand new B737-800NG. This decision stays the course of expansion ahead of the arrival of two B787’s in 2017/18 and the opening of the new airport in Bugesera no matter the present dent in their growth due to the Ebola scare.
Also, undeterred by the reluctance of the Kenyan aviation authorities to let them use added fifth freedom rights from Entebbe to Nairobi and on to Juba, they sought and got a timely intervention when President Kagame raised the issue of blatant obstruction at the last summit of the Northern Corridor Cooperation. This resulted in a clear directive to open up the regional airspaces, but being the slippery eels they are said to be did the Kenyan regulators find new obstacles, leading so far only to added flights by Kenyan airlines and still leaving RwandAir in the cold. Word from the grapevine has it that the individuals responsible may in fact be named in person at the next summit in Kigali, then hopefully facing the wrath of the powers that be and punishment for their hand in glove relationship with 5Y airlines.
Said a regular source when asked to comment: ‘The Kenyan aviation authorities are today perceived as the biggest obstacle and threat to regional integration. They dislodged Tanzania as the whipping boys, and given Tanzania’s own obstinate refusal to join the Single Tourist Visa and other initiatives, that says something about how badly this is going down in the region. The showdown and outbursts at ICAN last year in Bali when they met their Tanzania counterparts and their continued refusal to let Fastjet fly from Dar es Salaam to Nairobi will become a powder keg with a very short fuse, ready to blow up in their faces any time now’.
And with that, considering that Burundi has no significant aviation industry, comes the final piece in the jigsaw puzzle of East African aviation.
In Tanzania does Precision Air continue to struggle with both the legacy debts incurred by the former management, which in retrospect clearly lost sight of what is possible and what proved ultimately impossible. Air Tanzania lingers along with an owned and a leased aircraft, constantly having the market guessing if they are still there next month, and if so how much of them is still there, considering their massive debts. And then there was and is Fastjet. For that airline, perhaps more than for many others, will 2015 be a year of truth. Thwarted on several fronts in their quest to expand the brand into key markets in Africa have their plans to increase their fleet and with it their reach taken a hammering. In Kenya it was their erstwhile choice of partner which did them in, which allowed for Kenya’s own LCC Jambojet to be first out of the blocks and well near saturating the key routes with flights.
In South Africa it was a perhaps unfortunate combination of their initial choice partners not having the same understanding of the Fastjet vision together with a man at the helm who lacked good fortunes and the Midas touch. Now thankfully gone did he leave no tangible progress behind, the result being that operating in South Africa remains a distant dream for the airline.
Not being present in these two key market places, and as and when those challenges to set up have been successfully overcome finding themselves in crowded skies where the low cost concept is not novel as it was in Tanzania, will be the most important hurdle in their future to overcome. Failure to do so may prove costly if not worse.
On the upside though has the airline successfully started their AOC process in Zambia, with stage one cleared and stage two underway. Once all stages have been successfully completed will Fastjet have to resume their acquaintance with the South African civil aviation regulators, who will probably be doing the same as they did to Fastjet in Tanzania, to keep their application pending as long as possible in order to extend protection to loss making national airline South African Airways.
‘Few sectors are as notoriously closed up and reek of protectionism like aviation. The Americans are doing it to Norwegian, the Kenyans are doing it to everyone around them and the South Africans will be no different when Fastjet gets their AOC and becomes a designated airline for Zambia. And going by insider stories they have been invited to set up in Zimbabwe. There they will have no issues getting licenses but it will again be the key route to Johannesburg which will very likely give them headaches’ contributed a regular source with insight into regional aviation affairs.
Traffic figures and data for Tanzania, due to the holiday season, will only be published and announced on the 12th of January but already now it is clear that key indicators will show a sustained growth in 2014. Passenger numbers are up by a huge margin, aircraft utilization and load factors are up too but the crucial element of the bottom line will still give the management and the shareholders cause for concern. If in 2015 they cannot expand beyond Zambia and perhaps Zimbabwe. i.e. if the Kenyan market remains closed for them over all sorts of issues raised by the Kenyan regulators, they will find it increasingly difficult to make a real impact on that market as Jambojet and other low cost hybrids will have solidified their position. ‘As and when they are allowed into Kenya to operate domestic flights, they will probably have to hit the market with low fares like 1.500 Shillings for the cheapest fare and at the high end also remain under what their competitors charge. This will cause serious startup losses, all due to the fact that they are late in coming and you know why that is so. Their former Chairman clearly believed in a mirage with dancing beauties and when the fog lifted the picture revealed knife bearing wraiths coming for him’ added another source in an almost cheerful fashion, showing how glee and pity go often hand in hand.
Fastjet’s Uganda venture too does not seem to go much beyond the now four weekly flights from Dar es Salaam as Juba requires daily or better double daily flights, which Fastjet’s aircraft is too large for at this stage. The same applies to the other fifth freedom route handed to them, Kigali. Only Johannesburg with perhaps an initial three flights a week might be able to fill that large an aircraft out of Uganda, but then, lo and behold, hostile regulators await again at the other end.
Fastjet’s only hope for financial consolidation will be to grow inside and out of Tanzania and flights to Nairobi will form an important part of that equation while hoping that not too many regulatory hurdles are placed in their way when the Zambian operation kicks off, probably in mid or late Q2 of this year.
Across the region are the Twitter TL’s now full of speculation how many LCC’s can East Africa support and the opinions range from just two real LCC’s to as many as five. My best guess would be perhaps three, at most, as they all have to contend with a full service but affordable fare airline called RwandAir which has gained in popularity across the region and the countries they fly to. Their main strength has to be the full backing of their government and the airlines is clearly on the roll with new destinations and aircraft lined up for 2015.
Out on the islands has Air Seychelles once again turned a profit, the third year in a row since Etihad came on board as equity partner and new routes to Dar es Salaam, Antananarivo and Mumbai, made possible by the acquisition of a brand new A320, will no doubt help to solidify their position as a key player in the Indian Ocean. This is more so as home grown opposition is as far away from taking to the skies as when the intent to set up a new private airline was first announced.
Air Mauritius too seems finally out of the financial doldrums and the announcement of orders for the already famous A350 to replace their ageing A340’s will no doubt help to further turn the airline’s fortunes around.
Further South yet, in Reunion, has Air Austral also staged a major turnaround and a modern fleet of aircraft, and changes in the Visa policy – Reunion is part of France – for South Africans, Indians and Chinese has led to a boom of sorts with sharp increases in passenger numbers from those destinations. The key ‘Vanilla Islands’ remain in demand as preferred holiday destinations, political stability is a guarantor for that and baring any natural disasters will this trend continue in 2015.
May the best airline win? Not if some of our regional regulators have anything to do with it who like to tilt the playing field and have a score of 2:0 in favour of their home boys on kick off.
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