At-risk national airlines: Africa’s dilemma

Over 50 African countries continue to dabble in the airline industry despite the continent’s poor track record, mainly because a national carrier is believed to be a source of patriotic pride and economic status – both of which are seldom borne out in reality. WOLE SHADARE writes

 

 

Sing song
The sing song in Africa for now is national carrier. Governments may need to ask if there’s still value to having a national carrier other than patriotism or pride. And they may wonder whether it still makes sense to prop up airlines as more countries open their skies to new entrants and foreign carriers.
The Nigerian government is making its third attempt at a national carrier with operations expected to launch in December 2018.
It’s clear the government is driving it and wants its own national brand with a global reach.
Officially named Nigeria Air, the airline’s logo and livery were unveiled at the Farnborough Air Show in London, which elicited mixed reactions at home.
The Federal Government will own just five per cent of the airline in a public-private partnership (PPP) proposal designed to allow for professional management and avoid previous mistakes.
The Nigerian government estimates that initial capital for the airline will range between $150million (£115million) and $300million in the first few years of operation though the private sector partner has not been identified yet.
This will be a national carrier that is private sector-led and driven. It is a business, not a social service,” Nigerian Minister of State for Aviation Hadi Sirika said.
“Government will not be involved in running it or deciding who runs it. The investors will have full responsibility for this,” he had stated.

Cautious optimism
The original Nigerian Airways collapsed 15 years ago and a 2004 joint venture with billionaire Richard Branson named Virgin Nigeria shut down shortly after he pulled out five years later because of mismanagement.
Nigeria Air will take off with 15 leased aircraft in December but there are plans to own 30 planes within three to four years flying to 81 domestic, regional and international destinations.

The big question
The question is, does every country still need a national airline? The consensus is that as more countries adopt Open Skies agreements and open their borders with neighbours, each country no longer needs its own airline, particularly loss-making ones supported by governments.
An airline operator who craved anonymity, said,“If the choice was whether I wanted to have a national airline and pay a shitload of taxpayer money just to maintain the flag on airplanes, compared to having someone else come and fill the void, I’d choose someone else,” he said. “If nations want their flags to be carried, they can do it in many other ways.”
Of course, not everyone agrees. Many governments see national airlines as “embassies with wings” and key tools for global trade. Others view their national airline as a public utility, and fear that if it goes out of business, no other carrier will backfill the routes. Some like having a national airline merely for patriotism, national pride, and nostalgia.

Are national airlines still vital?
Many politicians fear their nations will be irrelevant if they lose their money-losing flag airlines. That’s probably a stretch. In most places, the market likely would fill the gap — provided the government got out of the way. But national pride is powerful, and few people want to see storied brands disappear.
If airlines suffer, governments may need to ask if there’s still value to having a national carrier other than patriotism or pride. And they may wonder whether it still make sense to prop up airlines as more countries open their skies to new entrants and foreign carriers.
The most powerful national brands should be fine. Airlines like Lufthansa and British Airways long ago separated from governments, and their home markets have robust demand. But elsewhere, from South Africa to India to Nigeria, politicians may need to ask whether it’s good public policy to pump taxpayer cash into airlines, directly or indirectly.
Most governments don’t want to let go. But some free-market proponents, like Antonis Simigdalas, who founded Aegean Airlines in Greece two decades ago, effectively putting the decades-old national airline out of business, say it’s an exercise in futility.

Flag carriers’ origin
The idea of a flag carrier came about in 1944 at what is now called the Chicago Convention, which featured representatives from 54 countries, said Samuel Engel, head of the aviation practice at the consulting firm ICF, and an occasional consultant to national airlines. At the time, he said, the convention defined a flag airline as “substantially owned and effectively controlled by citizens and nationals of the country.”
Most countries had one. Some had two. The idea was simple: These airlines carried the flags of their countries abroad, and often received government support, as well as monopolies or near-monopolies on key routes. They didn’t need to make money, because as another consultant recalled, a nation could not be considered legitimate until it had collectible stamps and a flag carrier.

At-risk national airlines
Many of these national carriers have rich histories, but without major restructuring all likely will continue to suffer. If they want to keep flying many will require taxpayers’ largesse.

South African Airways
The airline was founded in 1934 and owned 100 per cent by the South African government. A new Chief Executive Officer is trying to restructure the airline, which lost nearly $300 million in most recent fiscal year.

Kenya Airways
It was founded in 1977. Government owes majority stake. Kenya Airways is in the midst of potentially promising restructuring but lost $61 million in final nine months of 2017.

Air India
Air India was founded in 1952. The government owes majority shares. The carrier lost $422 million in most recent fiscal year. Government wants to sell a controlling piece but so far, there are no takers.

Alitalia
Alitalia was founded in 1947 under special administration by the Italian government. The airline filed for bankruptcy in 2017 after Etihad Airways gave up on its investments. In the first six months of this year, the airline lost $359 million according to reports.

Malaysia Airlines
This airline was founded in 1947 with the government owing majority shares. The airline said it is on line to be profitable next year but it has struggled in recent years after losing two aircraft in unusual circumstances.

Aerolineas Argentina
The carrier was founded in 1950. Government owes majority shares. It lost roughly $63 million in 2017 and struggles to compete against more nimble competitors.

Ethiopian Airways as pace setter
An airline that must be profitable on its own can be more nimble than the average state-owned or supported carrier. One success is Ethiopian, a government-owned enterprise that by most accounts is the only true global airline in Africa, with a network stretching from Beijing to Los Angeles to Sao Paulo. It has been so successful that other African countries are asking it to manage their airlines.
In some cases, these airlines are fully government-owned, while in others a government owns shares. Some national carriers are independent, but may benefit from infrastructure spending or lower taxes on passenger tickets or fuel.
While some national carriers thrive, many more have become bloated and inefficient. They’re often less likely than market-driven carriers to cut loss-making routes, and they usually don’t innovate as much as newer airlines. In many cases, they’re slower to adapt to changing trends, whether on product, such as seats or lounges, or with digital tools.

Last line
Still, many politicians fear they live in countries where no other airlines, foreign or home-grown, would fill gaps left by a national carrier.

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