A dominant theme in African commercial aviation this year has been the widening gap between Ethiopian Airlines fortunes and the misfortunes of its rivals in the region.
The Ethiopian flag carrier, which describes itself as “the largest airline in Africa”, has further cemented its position on the continent in 2016, opening new routes, reporting increased profitability and eyeing new airline acquisition targets.
The carrier revealed in March that its operating profit had risen 27% to Birr4.3 billion ($200 million) for the financial year ended 30 June 2015 – a result achieved without benefiting from low oil prices.
Ethiopian took delivery of its first Airbus A350 this year, becoming the launch carrier for the type in Africa, and added Tokyo, Manila and Yaounde to its network. It will start services to Chengdu, Oslo and Victoria Falls next year and is considering services to Australia.
Having already acquired stakes in Malawi Airlines and Togo-based ASKY as part of its continental hub-and-spoke system, the carrier has now set its sights on a stake in Congo Airways, in order to gain access to the central African market. It has also revealed that it is working with a number of African states to resurrect their national carriers.
Chief executive Tewolde Gebremariam says the flag carrier has shrugged off the effects of unrest in Ethiopia, which broke out in October and led to the government imposing a state of emergency. Gebremariam tells FlightGlobal that the carrier recorded traffic growth of 20% in September and has “not felt any reduction in bookings”.
“If I speak for my airline, we are doing very well, we have been very well, and we will continue to do very well,” he says.
Having “already reached most of the targets that we planned” as part of its Vision 2025 strategic roadmap, Gebremariam says the state-owned airline is now working on new targets as part of a Vision 2030 plan. These include expanding Ethiopian’s network to 120 destinations with a fleet of 150 aircraft.
But for many of sub-Saharan Africa’s carriers, 2016 has been a year of retrenchment and restructuring.
Kenya Airways, once a poster child for privatisation in the African sector, has continued efforts to restore profitability after a series of challenges. Restructuring efforts over the past two years have been led by chief executive Mbuvi Ngunze, who has had to make some tough decisions to turn around a business that suffered losses in 2013, 2014 and 2015.
These have included selling its slot at Heathrow, leasing out two of its Boeing 787s to Oman Air, selling or sub-leasing its 777s, cutting loss-making routes and axing hundreds of jobs.
These restructuring efforts have led to smouldering disputes with both pilots and technical staff. An indefinite walkout planned by the Kenya Airline Pilots Association (KALPA) in October was averted pending further talks brokered by the Kenyan government. The union had been calling for the departure of Ngunze and Kenya Airways chairman Dennis Awori.
Awori left in October and now Ngunze has announced plans to step aside in early 2017. He leaves having moved the airline into profit at the first half stage; whether he has done enough to bring long-term stability to Kenya Airways will be clearer once the carrier delivers its full-year results.
But there has been even more turmoil in South Africa, where the low-cost start-up Skywise has collapsed, regional operator Fly Blue Crane has been forced to enter creditor protection – although it continues to operate – and state-owned carriers South African Airways and Mango have revealed large financial losses.
SAA has been in the mire for some time. Beset by boardroom battles and management turmoil, it has not been profitable since 2011.
The airline delayed publication of its financial results for 2014-15, though annual accounts for the period submitted to parliament indicate that SAA made a loss of R4.67 billion ($328 million). In September Bloomberg, quoting figures provided to parliament by finance minister Pravin Gordhan, reported that the state airline’s loss for the year ending March 2016 was estimated to be R1.8 billion.
Financial results disclosed to parliament by SAA’s low-cost arm Mango show a R93 million operating loss for the 12 months ending 31 March.
Regional operation SA Express has yet to reveal its financial results because it “has yet to satisfactorily demonstrate” its ability to continue operating as a going concern, South Africa's public enterprise minister Lynne Brown said in September.
The South African government has reacted to these losses with plans to either sell or merge the three state-owned carriers, in a bid to make them more efficient. Gordhan said SAA had its application for a "going-concern guarantee" from the state approved on condition that it explores both a possible merger with SA Express, including the "introduction of a strategic equity partner".Media reports of interest from Gulf carriers in SAA have so far failed translate into reality.
Both SAA and Mango are led by acting chief executives – SAA by Musa Zwana, and Mango by Nic Vlok – after the departure of founding chief executive Nico Bezuidenhout in the summer.
Speaking to FlightGlobal, Mango’s Nic Vlok blamed overcapacity in the South African market for the low-cost carrier’s financial results. But he says it is now taking “remedial action” and that the low-cost model the carrier pursues is the right one for the market.
“The operating model is sustainable and it is a stable model,” he says, adding that the utilisation of the carrier’s 10 Boeing 737-800s “is as good as it is anywhere else in the world”.
Bezuidenhout can hardly be accused of leaving Mango for an easier job, after taking the reins at faltering pan-African budget operation FastJet. Both chief executive Ed Winter and chairman Colin Child have departed the airline, under pressure from EasyGroup shareholder Stelios Haji-Ioannou.
Bezuidenhout joined Fastjet in June after its operating loss rose to $31 million from $12.8 million in the first half last year – a period he describes as a “very difficult and challenging time”.
He has now initiated a turnaround programme under which the budget carrier is jettisoning unprofitable routes, moving its headquarters from London to Johannesburg and – recognising the low load factors it was achieving – swapping its fleet of A319s for smaller Embraer 190s.
It remains to be seen how successful this effort will be, but with Fastjet planning another capital-raising effort from the markets in 2017, Bezuidenhout’s priority will be restoring confidence in the carrier’s business model.
In Tanzania, the state-owned flag carrier Air Tanzania is undergoing a possible renaissance. The state has provided two Bombardier Q400s, allowing the carrier to restart operations to several markets. Tanzania has also placed firm orders with Bombardier for two CS300s and an additional Q400.
Asked why African carriers continue to struggle, Ethiopian’s Gebramariam points to competitive pressure from non-African rivals.
“Thirty years ago when I joined Ethiopian Airlines, Africa used to have big airlines and the market share of African carriers was around 60%,” he says. “Today, 30 years fast forward, that 60% market share has come down to 20%, so the continent is dominated by non-African carriers.
“So this shows that the African indigenous airlines are shrinking. Most of them are not in a good financial situation so we want to see a better African aviation industry,” he adds.
Mango’s Vlok is a little more optimistic about the prospects for African aviation, arguing that if liberalisation gathers pace it will open up the continent’s markets to low-cost competition and new growth.
“If you take South Africa as a role model, all of the growth over the last 15 years has been in the low-cost market. I cannot see how it would be any different in the rest of Africa,” he says.
By the same token he sees the lack of liberalisation so far as “probably the biggest problem” facing the industry, along with the challenges of poor infrastructure.
“Fees are very high in Africa, for the simple reason that operating costs are very high due to the high prices of fuel and maintenance costs. If those can be brought down, the market will grow,” he says.
Source: Cirium Dashboard