Aviation in Africa

Skies wide shut

Dec 10th 2012, 18:18 by C.S.

DELEGATES attending an aviation conference in Johannesburg last month were stunned when Titus Naikuni, the chief executive of Kenya Airways and a keynote speaker, mooted the possibility of a three-way merger between Ethiopian Airlines, South African Airways and his own carrier. Combined, the three companies would be Africa’s biggest airline, offering about 650,000 seats per week.
Mr Naikuni’s apparently off-the-cuff remarks betrayed concern that local carriers like Kenya Airways are too small to withstand growing competitive pressure from bigger international airlines like Qatar Airways, Turkish Airlines and Air France, which are encroaching on the African continent with big planes and low fares. In 2012 alone, Qatar added five African destinations to its network, while Air France created a new subsidiary airline in Côte d'Ivoire to cement its near-monopoly throughout Francophone Africa.
These global behemoths enjoy significant economies of scale: they are big enough to hedge effectively against escalating fuel costs, for instance, and can secure enormous discounts from aircraft manufacturers when bulk-buying new planes. Last January, nine African airlines responded by pooling their fuel purchasing in an effort to secure lower prices, but more dramatic initiatives are required if the likes of Kenya Airways—with just 39 planes—are to compete on equal terms with groups like Air France—which, together with partner KLM, operates 369.
Mr Naikuni’s merger strategy is unlikely to succeed in the near term, since Ethiopian and South African belong to Star Alliance, an air alliance that rivals Kenya Airways’ SkyTeam. In any case, his plan seems misguided. Although consolidation has worked in Europe, where Lufthansa Group, AirFrance-KLM and IAG (the holding company of British Airways and Iberia) dominate, this is only because there are also dozens of smaller airlines willing to undercut each other and drive down fares. In Africa, though, competition is scarce, and on many routes there is only one operator. Merging the continent’s three largest carriers will simply worsen the problem and lead to increases in fares which, on a per-kilometre basis, are already the highest in the world.
The best solution is in government hands. At a summit in Yamoussoukro, the capital of Côte d'Ivoire, in 1999 ministers from 44 African countries agreed to work towards a so-called “open sky”, under which an airline based in any African country would be allowed to operate to, from or between any combination of cities in any other African country. Thirteen years later, many governments—particularly those in eastern and southern Africa—are still dragging their heels, seeking to shield their own national carriers from competitors based in adjacent countries.
The delay has been calamitous. Dependent predominantly on local demand, which is limited, airlines in smaller African countries have either collapsed or consumed vast amounts of government cash that might have been better spent on more urgent projects. Many, like now-defunct Air Nigeria, rested on their laurels and allowed costs to spiral as fares soared. Sheltered from competition, they have had little incentive to invest in, for instance, modern aircraft, secure ticket distribution or brand development. Worse, protectionism has constrained the growth of their route networks and kept them artificially small. So when giant European and Gulf competitors move in—usually with frequent scheduling and brand new aircraft—even big African players like Mr Naikuni feel the heat.
Open skies would transform African aviation for the better. Start-up airlines would emerge to challenge complacent incumbents—indeed, last month’s launch of Fastjet, a Tanzanian low-cost carrier, has already prompted Kenya Airways to plan its own low-cost subsidiary, JamboJet. A proliferation of operators would kick-start a process of creative destruction from which only the fittest and most competitive airlines would emerge. It would be the survivors of this cut-throat process, not the three members of Mr Naikuni’s cosy monopoly, who could then take on the rest of the world.
But full liberalisation seems a long way off. Last week, a spokesman for the Kenya Civil Aviation Authority called on governments to carry on propping up weak operators—a policy already being implemented in Nigeria, where authorities hope to subsidise aircraft purchases as part of an ill-advised lending scheme. Perhaps most bizarrely, Zambia has refused all requests from foreign airlines to use Lusaka as a hub, despite the fact that the country has not had its own flag-carrier since 2009.
African governments tend to fear that a total free-for-all would leave indigenous carriers at the mercy of the European and Gulf giants. But as in Europe, where rules dictate that airlines must be majority-owned by Europeans, strict ownership controls in Africa would prevent foreign groups from establishing their own African subsidiaries and exporting all the profits. Even so, some airlines would fail. Good. Many African airlines don’t deserve to survive, and the ones that do will emerge as the dominant players on a continent that desperately needs better infrastructure to connect and support its booming economies.