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Shipping & Logistics

State bailout airlines’ only salvation in tough times

A KQ plane
A KQ plane at Jomo Kenyatta International Airport, Nairobi. FILE PHOTO | NMG 

Coronavirus continues to cause major disruptions in the logistics world with most airline grounding their operations last week as countries close their airspace. The aftermath of the pandemic is expected to be a huge financial dent on the bottom line of major carriers.

Thanks to their grounding, many airlines, majority of which are loss making, will now rely on government for a financial bailout if they are to remain airborne.

Much to the relief of traders and consumers, while most countries have restricted passenger services, cargo aircraft will continue to operate.

Regionally, Uganda was the first country in East Africa to close its airspace for passenger flights after it recorded the first case of the virus. It was followed by Kenya, then Rwanda.

Regional airlines, which are still grappling with low aircraft numbers, make much of their income from passengers, and cargo only supplements the income, especially for carriers with smaller fleet such as Kenya Airways #ticker:KQ.

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For instance, in the last financial report by the national carrier, the cargo wing only contributed eight percent of its total revenue.

The situation is expected to worsen this year with the carrier having grounded all of its international flights and is at the moment operating just two daily local trips in Kisumu and Mombasa.

The International Air Travel Association (IATA) has already projected that airlines will make huge losses in 2020 because of the virus.

“It is unclear how the virus will develop, but whether we see the impact contained to a few markets and a $63 billion revenue loss, or a broader impact leading to a $113 billion loss of revenue, this is a crisis,” said IATA.

The aviation body has called on African and Middle-East governments to provide financial support to airlines in order to protect their operations.

The agency is calling for direct financial support to passenger and cargo carriers to compensate for reduced revenues and liquidity attributable to travel restrictions imposed as a result of Covid-19.

“Our request is that airlines, which are essential to all modern economies, are given urgent consideration. This will help keep them alive and ensure airline staff — and people working in allied sectors — have jobs to come back to at the end of the crisis,” the agency said.

The impact of the virus will not only be felt by the airlines but also the airports, which rely on the number of aircraft using their facilities in order to make revenue.

Africa’s air transport industry’s economic contribution is estimated at $55.8 billion supporting 6.2 million jobs and contributing 2.6 percent to GDP.

The lockdown in most of the countries in the world, especially in Europe which is a major market for Kenya’s horticulture produce, means that there will be no enough cargo to haul.

The flower auction in Amsterdam has closed implying that no cargo can be ferried to Netherlands for trading. Flowers form a major component of the horticulture produce that are exported to Europe.

The closure of the market means that flower farms are now left with the option of looking for direct market in order to salvage the situation.

Mary Kinyua, human resource director at the Oserian Flowers, said they have been left with just the option of direct market after the Amsterdam closure.

“We are now looking for Britain as our market at the moment for direct sales after the closure of the auction in Amsterdam,” said Ms Kinyua.

Kenya Airways suspended cargo flights to major freight destinations in Africa, Middle-East and Europe last week as it sought to comply with government directive on Covid-19.

In a memo dated March 17, KQ commercial manager Peter Musola, said the airline has suspended a number of cargo flights to Djibouti, Dubai, Kigali, Johannesburg and Bangkok for close to a month.

The carrier has also cancelled flights to London Heathrow Airport from March 19 to April 16, with the flight to Mumbai having been downgraded to a smaller aircraft B738.

Mr Musola said they will continue making adjustments on the schedule in the coming days as deemed appropriate.

Local freight carrier Astral Aviation, which operates cargo flights to Europe and Africa says it will continue with its operations even in the face of the Covid-19 crisis. “ Ästral Aviation wishes to advise its clients that its freight flights will continue to operate throughout the crises. We will have key-staff working at our headquarter…,”said the airline in a statement.

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