Economy

Top African airlines run into turbulence

airzim

An Air Zimbabwe plane. The carrier announced bankruptcy in 2009 and is relying on the Government to survive. AFP

Summary

  • High fuel prices and fierce competition from foreign carriers threaten to ground operations.

Major African airlines are struggling to remain in business amid high fuel costs and fierce competition from foreign carriers.

Despite a growing appetite for air transport in Africa, some regional airlines have had to shut down or be bailed out by the government because of operational hurdles such as lack of air rights.

The worst-hit airlines are in Southern Africa where smaller national carriers face financial turbulence as larger rivals like South African Airways (SAA) grapple with high fuel prices and reduced passengers.

For the financial year ending March 2012 the airline posted operating losses of $137 million (Sh11.6 billion) and is expected to make further losses this financial year despite a government bailout late last year.

The government, its sole shareholder, has repeatedly rejected calls for its privatisation amid frequent changes in management. With the airline now unable to make new investments in aircraft and routes, there are questions whether the privatisation would find takers.

“It is doubtful whether there would be investors willing to risk substantial amounts of money in the short term when a reasonable return on investment is so uncertain and probabilities are against it,” South African economist Joachim Vermooten recently told AFP.

Like SAA, Air Namibia and Air Zimbabwe are also relying on the generosity of their respective governments for survival. Air Namibia is set to receive a $120 million (Sh10.2 billion) bailout from government this year to pay outstanding debts, with another $40 million (Sh3.4 billion) planned for next year and $33.5 million (Sh3.1 billion) for 2015.

Air Zimbabwe announced bankruptcy in 2009 and has yet to bounce back. Years of business decline and operational woes including persistent staff strikes, cancelled routes, including to Nairobi, and unsuccessful revival business plans have seen the airline almost grounded.

It is currently sitting on debts exceeding $100 million (Sh8.5 billion), despite the government having injected $8.5 million (Sh722 million) into it last year.

Last year the airline was suspended from the International Air Transport Association (IATA), the global aviation lobby group, due to failing to comply with the group’s Operational Safety Audit (IOSA).

Across the border Air Malawi was grounded earlier this year giving KQ an opportunity to capitalise on the traffic demands in the country.

(Read: Collapse of Air Malawi boon for Kenya Airways)

The Malawian government called for a strategic equity partner to buy new shares in the airline, in a bid to raise capital. The regions second biggest airline, Ethiopian Airlines’ bid was successful and is likely to have a stake of the southern African carrier.

Despite the woes affecting aviation on the continent, there is optimism that stronger airlines like Kenya Airways, Ethiopian, growing RwandAir and Nigeria’s Arik Air will drive the sector to realise its potential.

Kenya Airways, the regions third largest airline in passenger numbers, reported a net loss of Sh7.9 billion for the year ending March 2013 with a stronger shilling partly to blame.

The airline said Europe’s debt crisis and the shaky political environment in Kenya leading to the general election in March depressed demand for travel. Passenger revenue, which accounts for 90 per cent of its revenue, came down by Sh10 billion to Sh85.1 billion.

Despite the losses ,KQ is still seen as well positioned with major expansion and modernisation plans highlighted in its 10-year strategy —Mawingu— on the cards.

Africa airlines are projected to make $100 million profit for this year on the back of increased demand from faster economic growth.

Although the projection is a turnaround from the loss of $100 million in 2012, it would still leave the region as the worst performing globally.

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