MICHAEL WAKABI / KAMPALA AND MAX KINGSLEY-JONES / LONDON
Last year's terrorist attacks in Mombasa have yet to make themselves felt on East African airlines, which instead hope to reap the fruits of liberalisation
East African commercial aviation is facing uncertain, but potentially dynamic times. The region - which covers Kenya, Tanzania and Uganda and was once presided over by one of Africa's most successful carriers, East African Airways (EAAC) - is facing up to the possibility that the Kenyan terrorist attacks last November could have a dramatic effect on the tourist industry. However, new airlines are taking advantage of deregulation, providing long-established Kenya Airways with competition, and South African Airways (SAA) is poised to play a major role in the region following its acquisition last year of a stake in Air Tanzania.
The airlines are adopting a "wait and see" attitude in the wake of the 28 November 2002 double terrorist attacks in Mombasa, Kenya. So far there have been no cancellations or noticeable drops in bookings, but it is still relatively early days since the incidents - a failed missile attack on an Arkia Boeing 757-300 as it took off from Mombasa, and a car bomb which exploded at a hotel, killing 15 people.
Local airline managers say the impact on the tourist industry will depend on what governments and their international partners do to address security. There is a feeling that the region may yet escape negative fall-out, because terrorism is now being widely accepted by the public as an international threat that could erupt anywhere.
Leisure demand
Locals are taking solace in the fact that although Asia's airlines saw traffic to Bali decline drastically in the immediate aftermath of last October's bombing, there seems to have been little effect on demand for flights to leisure destinations elsewhere in the region.
The Kenya Tourism Development Authority is stepping up its campaign to assure tourists that the region is safe. Some believe the impact on local airlines will be minimal because the USA contributes little to the East Africa-bound passenger mix and tourists from Europe and Israel mainly arrive on charters.
Kenya Airways, which is the region's prime long-haul operator, says traffic trends in the aftermath of the attacks have not "revealed anything to cause concern". The airline says it has addressed issues of onboard security by introducing more rigorous passenger and baggage screening.
According to some estimates, the worst that long-haul carriers serving the region could suffer is a 30% drop in traffic on the trunk routes to Europe, while a strong intra-African network and uninterrupted business to the Middle East and Indian subcontinent will give Kenya Airways sufficient buffer against any shocks.
Kenya Airways may be more concerned about developments in its neighbouring countries. In October, Tanzania accepted South African Airways' (SAA) bid for a 49% stake in national carrier Air Tanzania, which looks set to revitalise the airline. Meanwhile, in neighbouring Uganda two new private airlines - Africa One and East African Airlines (EAA) - have been launched in the past 12 months, taking advantage of recently introduced deregulation and filling the void left by the collapse of Uganda Airlines and SA Alliance Air.
SAA has kept its cards close to its chest with its involvement in Air Tanzania. It offered $10 million for the shareholding and has committed to inject another $10 million into a capital and training account to fund a restructuring plan it has proposed for the airline. SAA is promising to develop Tanzania's capital Dar es Salaam into its East African hub as part of what it describes as a "Golden Triangle" between southern, eastern and western Africa. The move is part of a major effort by the South African carrier to expand into the region, as it also bids for a shareholding in Air Tanzania's southern neighbour Air Malawi.
SAA expertise
SAA will bring technical, commercial and managerial expertise to Air Tanzania by providing training and transfer of skills. The airline's fleet of one Boeing 737-200 and one -300 will be expanded and renewed with additional 737-200s and newer 737-800s transferred from SAA for regional services, as well as widebody 767-300ERs. This will underwrite the expansion of the airline's network to cover Entebbe, Kinshasa, Lusaka and Harare.
Kenya Airways had a codeshare agreement with Air Tanzania and had discussed a financial link before withdrawing its bid last year when the Tanzanian government rejected its proposal to merge the airlines.
SAA's involvement in East Africa through Air Tanzania is likely to upset the regional balance of power that Kenya Airways is currently enjoying, and last month it responded to SAA's move by purchasing a 49% share of Tanzanian private airline Precisionair. This will give the airline access to the same routes as SAA. Arusha-based Precisionair operates two ATR 42s and four Let L-410 turboprops primarily on domestic routes from bases in Arusha, Bukoba and Dar es Salaam. It also flies to Mombasa and Nairobi.
"SAA has a poor track record [with ventures in the region]," says Kenya Airways chief executive Brian Presbury, pointing to the failures of other SAA ventures such as now defunct SA Alliance Air. He remains convinced that, for East African airlines to prosper in the long term, consolidation is needed. Presbury's long-term vision for the region is a regional joint venture, led by Kenya Airways and serving Kenya, Tanzania, Uganda, and possibly Burundi and Rwanda. The concept of a return to an EAAC-type airline structure for the region has been aired since 1995 but has so far failed to be taken forward because of an enduring sense of bitterness that Kenya benefited most from the collapse of EAAC 25 years ago.
Locally, Kenya Airways' main rival is the country's privately owned Regional Air and its domestic arm AirKenya. Regional Air, a British Airways franchise carrier, operates four 737-200s on a network of services around the area. It competes with Kenya Airways on flights between Nairobi and Johannesburg, and also serves the South African city from Mombasa.
Fleet renewal
Kenya Airways is midway through a fleet renewal programme and is reorganising its scheduling to feed its international network. The airline, which carried 1.5 million passengers during the financial year to March 2002, operates one Airbus A310, two Boeing 737-200s, four -300s, two -700s and five 767-300ERs, and has three 777-200ERs due for delivery next year.
"Over the next five years, we are likely to be operating seven widebody aircraft, and eight to 10 narrowbody aircraft," says Kenya Airways director of corporate strategy and industry affairs Dr Jason Kap-kirwork.
New long-haul routes to Asia are planned. Kenya Airways has specific plans for flights between East Africa and Hong Kong. In the mid-term, the carrier plans to augment its intra-African network as a buffer against declining yields on routes to Europe. Capacity will be increased on routes to west and central Africa while opportunities in Angola are being explored.
Presbury is optimistic that the stop-start reorganisation of the country's civil aviation authority will eventually be completed to the satisfaction of the USA allowing it to approve full relations between the two countries. The airline is prevented from codesharing with Northwest Airlines, the US partner of Kenya Airways' minority stake holder KLM, because of Kenya's non-compliant Category 2 status under the US Federal Aviation Administration's International Aviation Safety Assessment programme. Presbury says reorganisation will be completed "within six to 12 months."
Kenya Airways' regional arm Flamingo Airlines operates two Saab 340s on domestic services. It competes with AirKenya, which operates a mixed fleet of eight turboprops, and privately owned Eagle Aviation which flies two Fokker F28s.
Uganda's mini airline revolution last year restored the country's international civil aviation market following the collapse of Air Uganda. In the 27 months between its collapse and revival, Kenya Airways emerged as the de facto Ugandan operator. With 28 flights a week from Entebbe, the airline is the dominant operator from Uganda, and the relative cost of travel in and out of the country had almost doubled.
Ethiopian Airlines has also become a player in the market after recently launching daily services between Nairobi and Entebbe and the market is neatly parcelled out between various major international carriers such as British Airways, Emirates, SAA and SN Brussels Airlines.
The Ugandan start-ups say their business cases were based on simple considerations: the cost of a return ticket for the 1h sector to Nairobi had reached nearly $400, which is seen as unsustainable from the point of view of the 400,000-strong market of air travellers leaving Uganda.
Owned by Ugandan cargo airline DAS Air and Tanzania's Infra Investments, Africa One started operations last April using three McDonnell Douglas DC-9-50s. It is flying daily services between Entebbe and Nairobi. It also serves Dar es Salaam and Dubai.
It has a McDonnell Douglas DC-10-30 for planned long-haul services to Europe, but the trijet has been parked since late last year following the collapse of Gambia-based Red Air, which had been leasing it for services between Lagos and Gatwick via Banjul, Gambia, and Freetown, Sierra Leone.
EAA launched services from Entebbe on 2 December with an ex-United Airlines 737-200 on services to Bujumbura, Harare, Kigali, Johannesburg, Lusaka and Nairobi. It is seeking frequencies to Asmara, Cameroon; Djibouti; Douala, Eritrea; Kinshasa, Democratic Republic of Congo; and Lagos, Nigeria.
Liberalisation
The two start-ups' launches were assisted by a liberalised air transport regime, dubbed the Yamoussoukro treaty, which is being gradually implemented across Africa (see panel). The fall in aircraft values after the 11 September terrorist attacks has also helped the airlines secure aircraft.
"Uganda has a very liberal designation policy and we can fly to virtually anywhere we want, but our approach is to begin by creating a regional network that can grow into a long-haul network," says Africa One chief executive Fredrick Ochieng Obbo. "Once we are established in East Africa, neighbouring states and the Middle East, we will fly to the UK, probably by mid-2003," he adds.
Its five-year plan calls for Africa One- branded companies to be operating in eastern, western and southern Africa. The East African operation comprises Tanzania and Uganda, while the signing of a new bilateral between Uganda and Nigeria last October has cleared the way for Africa One Nigeria to launch services from a hub in Lagos, and will enable the airline to begin Entebbe-Lagos services. The launch of the Nigerian division has been put on hold until studies are completed on how it will fit into its current structure.
Africa One plans
Negotiations are under way to launch Africa One Sierra Leone with two DC-9s, while the setting up of Africa One Zambia for operations into southern Africa is also in the planning stage.
"We are creating Africa One-branded companies in all those areas we think similar niche opportunities exist such as in Uganda and Nigeria, where we have dominant carrier situations almost leading to abuse of the oligopoly," says Obbo. He adds that the pan-African hub structure will provide the springboard for a move into the long-haul business.
The airline plans to renew its fleet within two to three years, with the Boeing MD-82/83 due to replace the DC-9s on short-haul services and the Airbus A310/A330 and 767-300ER being evaluated for its long-haul operations.
EAA is focused on regional operations with the intention of feeding the major airlines flying into the region. The airline's chief executive Benedict Mutyaba says the absence of a flag carrier was a good enough reason to launch a new Ugandan airline, as national carriers tend to be more committed to local markets than foreign operators.
On services from Entebbe, EAA has a co-operative agreement with Africa One, while a codeshare agreement with Air Zimbabwe allows EAA to carry passengers between Lusaka, Zambia; Harare, Zimbabwe; and Johannesburg. It is also negotiating interline agreements with BA, Kenya Airways and SAA to tap into their global networks.
With overcapacity eating into yields on its Entebbe-Nairobi services, EAA sees a niche in focusing on underserved routes to southern African destinations. The carrier is the only operator flying directly from Entebbe to Bujumbura, Burundi; Harare and Lusaka. "While we have many airlines operating here, few of them offer regional point-to-point services and we think there is room for us there," says Mutyaba.
He also hopes that the major airlines will find it more cost-effective to wait for EAA to feed them from Entebbe rather than compete with it on regional routes. Nearly 80% of traffic originating from Entebbe is interlining, making northbound frequencies critical.
Entebbe hopes
Availability of these services at Nairobi has turned it into the region's primary hub, but Mutyaba thinks this can change if regional operators can raise Entebbe's traffic enough to justify additional long-haul frequencies by the major airlines. In the medium term, EAA is looking at launching services to the Indian subcontinent with flights to Mumbai, India, or Karachi, Pakistan.
Both start-ups warn, however, that the embryonic airline market in Uganda could be hurt by a knock-on effect from the Mombasa attacks as there could be a 10% fall in traffic. Obbo says interline traffic accounts for only 9-10% of Africa One's passenger volume, but this could still be critical. He says the absence of cancellations so far could be due to a delayed reaction by those who had already booked finding it difficult to make last-minute changes. "The impact is going to be regional and some sectors of the East African travel market could lose up to 75% business in 2003," he says.
EAA's Mutyaba warns that up to 30% of traffic could be lost if business travellers from Europe cancel. "Traffic from abroad is important to us because intra-African routes are very thin," he says.
Source: Flight International
