How to address the limited airline competition, high fares in E. Africa

Kenya Airways and Ethiopian Airlines planes at Kamuzu International airport in Malawi. PHOTO | COURTESY

This week’s issue of The EastAfrican has a story about the three East African national carriers sinking into deeper financial troubles, with seemingly no light at the end of tunnel for them to make profits any time soon.

To start with, Kenya Airways reported its ninth consecutive half-year loss of Sh9.9 billion, even though that is a slight improvement compared to the same period last year where it made a loss of Sh.11.49 billion.

For Uganda Airlines, it made losses worth $43 million during the 2020/21 fiscal year and is expected to report further losses for this financial year. The airline recently entered the Dubai route and will also be expanding to Guangzhou, London and Mumbai in the first quarter of 2023 and this is expected to drive up its operating costs.

Air Tanzania is the other national carrier struggling to stay in the skies and has been flagged twice by the country’s Auditor-General for losses. According to the Auditor General, Air Tanzania has incurred losses of $64.6 million over five years, including $25.8 million in the financial year under review.

There are various reasons why these airlines make losses but one of the big problems is a lack of progressive regional regulation. There exist a lot of anti-competition concerns that’s affecting cheap travel within the region.

It’s cheaper travelling to Dubai than going to Rwanda from Nairobi. Sometimes getting to Uganda is also as costly as going to Dubai when it's just next door.

In July this year, Uganda scrapped taxes on airlines using the Entebbe International Airport in order to lower the cost of transiting through the airport. This policy targeted sharing the passengers who transit through JKIA, which is largely used as the transiting point in the region, with Entebbe.

Ideally, the tax incentive was to offer competition to JKIA by offering low tickets going through Entebbe. But it is still struggling to gain this market share. This is because of lack of harmonised aviation policy under the East Africa regional bloc that would have addressed the lack of competition the tax incentive by Uganda targeted.

One of the policy proposals that a single regional aviation policy would have pushed for is significant swapping of take-off and landing slots in the main airports of the region so as to address the anticompetitive harm.

The reason why the Uganda tax incentive to promote Entebbe airport hasn’t worked is because Kenya has locked the passenger transit market by limiting takeoff and landing slots.

Swapping of take-off and landing slots would reshape flights around the region and ultimately address the high fares in the region.

Kenya will definitely be worried about opening its airport for more regional airlines, but it stands to gain more if the cost of travelling around the region is lowered. It will largely maintain its transit hub because of its strategic location and airport facilities and having more travellers within the region will mean more passenger numbers.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.