African turf fight

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Fanie Brand is a juggler. Not of clubs, swords or firetorches, but of airline concepts. At present the senior marketing manager of Uganda-based Alliance Air has no fewer than four concepts on his drawing board, with two due to launch in March. All are part of a complex matrix which, should they succeed, could place Alliance Air firmly on the map as a pan-East African carrier.

In order to challenge the dominance in the region of Kenya Airways and its partner and shareholder KLM, Alliance Air is launching the Alliance Express concept to feed its base at Entebbe and establish it as a hub to rival Nairobi.

'Kenya Airways is our main competitor. Their agenda is to feed away from Uganda and Tanzania and into Nairobi,' says Brand. 'This region is growing at a rapid rate in terms of economics and tourism and we want to position ourselves as the airline for this region.'

A joint venture between South African Airways and the governments of Tanzania and Uganda, Alliance Air was born from the African Joint Air Services project and began life on paper on 12 December 1994, launching operations in July 1995. Since then the carrier has been operating a twice weekly flight on Dar-es-Salaam-Entebbe-London/ Heathrow with a wet-leased B747SP. In the year to end 31 March, 1998 the carrier expects to lose US$6 million on revenues of US$27 million. The route will break even during the following financial year, predicts Brand. Load factors on the route vary with the seasons, but are about 98 per cent between July and September, and 75 per cent in April and May. Last August the carrier launched its second route, a weekly Kilimanjaro-Entebbe-London/Heathrow service.

For the moment, Brand is not juggling with new intercontinental routes, but with ways of feeding these routes. The planned birth of Alliance Express in March 1998 is an alternative to the previously planned merger of Air Tanzania and Uganda Airlines into Alliance Air.

The merger, announced in February 1997 by the governments of Tanzania and Uganda, would have given Brand the cooperation and feed from the national airlines which had not really materialised in the first years of operation. Despite the intentions of the governments, there were others with a different agenda.

'There was a fear within the staff at those two companies that they could lose their jobs,' says Brand simply. This fear was probably not entirely unfounded - at Air Tanzania alone there are approximately 750 staff for the two B737s the carrier operates. In comparison Alliance Air has 100 staff for its one B747SP.

Its best efforts failed to produce a result, so Alliance Air decided to go it alone. Alliance Express allows Brand a clean sheet to expand its reach out of Tanzania and Uganda, initially to Rwanda and Kenya.

'This replaces the merger and gives us the opportunity to start it in the manner we want. It is easier to start a company than take an existing company and mould it,' observes Brand.

Last November the Rwandan Government agreed to allow Alliance Express to take over the operations of Air Rwanda, which will be liquidated. In its place, Alliance Express Rwanda will begin operating out of Kigali from 1 March. Alliance Air will hold the management contract for its associate airline.

START UP COSTS

The Rwandan government will assume 51 per cent of the US$1.7 million startup costs, and Alliance Air the remaining 49 per cent. Alliance Air's funding will come primarily through its 40 per cent shareholder South African Airways, which itself is wholly owned by state holding company Transnet. Alliance Air is financed through Transnet by loans from financial institutions.

The governments of Tanzania and Uganda each hold 5 per cent of Alliance Air, while Air Tanzania and Uganda Airlines hold 10 per cent each. The remaining 30 per cent is divided evenly between Tanzania and Uganda and held in trust for private investors. At present there are no plans to modify the shareholder structure of Alliance Air, despite the failure of the merger. Both Air Tanzania and Uganda Airlines plan to continue with their separate operations and privatisation plans.

The bulk of Alliance Air's share of its Rwanda affiliate's startup costs will go towards paying Air Rwanda $900,000 for its ground handling service business, which Alliance Express will then operate, along with the fuelling operation at Kigali. This alone will make a positive contribution to the Alliance Express operation from year one, says Brand.

The operation will use a wet-leased B737-200 with the intention of introducing Rwandan co-pilots within six months. Air Rwanda staff will be given first choice to work for Alliance Express, says Brand, but 'they must meet our standards'. Alliance Express will carry out the revenue accounting, marketing and staff training.

'The bottom line is this is a commercial venture. Within Africa one has to be careful that the politicians do not start managing an airline,' says Brand.

At first glance, the Rwandan market would appear to be small fry, but the tiny nation also serves as a gateway for the inhabitants of eastern Zaire, now called the Democratic Republic of the Congo.'Traffic between Kinshasa [in western Zaire] and East Zaire is non-existant. People move from Eastern Zaire into Rwanda [to travel elsewhere], so we would like to tap into that market,' explains Brand.

Alliance Express will operate Kigali-Entebbe, feeding Alliance Air's intercontinental flights; Kigali-Nairobi; and Kigali-Lubumbashi-Johannesburg.

But these routes alone are not enough to recoup the cost of wetleasing a B737-200, so the aircraft will be shared with Alliance Express Uganda, which is also to be launched in March.

In Uganda the startup costs are considerably lower, as Alliance Air already has its main base at Entebbe and trained Ugandan cabin crew. Brand estimates as little as US$400,000 will be needed for costs and cashflow. The carrier will be owned 60 per cent by Ugandan citizens and 40 per cent by Alliance Air. The business plan for the operation, which will operate daily between Entebbe and Nairobi, is being shown to financial institutions and private investors in Uganda.

The Alliance Express operations will have separate management boards but will benefit from of Alliance Air's marketing skills and inclusion in the global distribution systems under Alliance Air's flight code.

The wet-leased B737-200, currently being negotiated from one of four leasing companies, will be leased by Alliance Air and subleased to the Express companies. The choice of aircraft, Brand believes is the correct one. All too often the latest, most modern models are purchased by airlines in Africa for prestige's sake, not practicality, he says.

'This is an old aircraft but I think it has proved itself as a work horse. Spare parts are readily available and we have to think of commonality further down the line.'

The next moves are not far down the line. Alliance Air has approached Precision Air, a Tanzanian feeder carrier which operates on internal routes out of Zanzibar and Arusha, to be a franchisee of Alliance.

Alliance Express Zambia could be the next concept to launch, with more than 60 per cent held by Zambian investors and the remainder by Alliance Air under a management contract.

IT MUST ADD VALUE

Further off, Brand has his eyes on the Democratic Republic of the Congo. 'Routes like Kinshasa-Lumumbashi and Kinshasa-Kisangani are at least two and a half hours flying time - they need an aircraft with a range like the 737,' he suggests.

Despite this apparently dizzying array of plans, Brand insists: 'We do not want to run too fast and we are trying not to do pie-in-the-sky stuff. Whatever we do must be realistic and economically viable. It must add value to that country and to the company.'

In targeting Nairobi with its Express carriers, Alliance Air is taking a stab at the heart of its rival, Kenya Airways, in which KLM holds a 26 per cent stake. While Brand pays tribute to the success of Nairobi as a hub, he makes no secret of his desire to siphon traffic away from Nairobi. 'KLM wants Nairobi to be a big hub and it will be difficult to counter. We want to make Entebbe the East African hub,' says Brand. However he does fret that, a major player - perhaps even KLM - could inherit a stake in Alliance Air by buying into a privatised Air Tanzania or Uganda Airlines.

At present the Tanzanian market is experiencing the biggest growth in passengers, with an annual increase in tourists of over 20 per cent. Sixty per cent of tourists enter Tanzania via Kenya, hence Brand's desire to target the Nairobi hub.

'The Kenyans have done a good job of marketing - most people believe Mount Kilimanjaro and the Serengeti are in Kenya! We believe the northern and southern circuits of private game reserves and national parks in Tanzania have much to offer the tourist. Eco-tourism has become the buzz word,' says Brand.

Ecotourists are the target market for Alliance Air's new Kilimanjaro route. Brand acknowledges load factors are 20 percentage points less than predicted, but says the airline minimised its risk by adding Entebbe to the route. Traffic to Kilimanjaro will be primarily tour operator influenced, so Brand is allowing time for inclusion in their brochures.

In addition to Alliance Express, there are medium term development plans for Alliance Air itself. Dubai has been on the cards for some time and Brand would like to link the city with its Dar-es-Salaam-Entebbe-London/Heathrow route. The aircraft type will depend on what is available but Brand would like a B767-200ER.

Alliance Express' planned move into Zambia could be complemented by Alliance Air itself offering an intercontinental service, which Zambia currently lacks. Brand would like to operate a second weekly service to Kilimanjaro, this time connected with Lusaka, while Alliance is negotiating with AeroZambia for its route rights to the UK.

There is a similar story with the Democratic Republic of the Congo, where Brand believes a service to Europe, in this case a Kinshasa-Brussels B767 operation, would also be a possibility.

But for now Brand's juggling act is Alliance Express and he will not be distracted by his medium term plans. 'You do not want to concentrate too much on that stuff, or you take your eye off what is happening now,' he smiles. With so many airlines in the air, he will need to keep his eyes firmly ahead.