Thursday, 3 November 2016

UGANDA: Restarting Uganda Airlines Will Not All Be Plane Sailing

Government is pushing ahead with plans to revamp the defunct national carrier, Uganda Airlines.

Speaking to ministers recently President Museveni said: “Ugandan travellers are suffering because of, apparently, not having a national airline.

I thought that our brothers in Ethiopia, Kenya and South Africa would serve all of us. That, however, is apparently not the case.”

Mr Museveni is right about the problem – air travel in and out of Uganda is inconvenient and expensive, with negative knock-on effects on tourism and trade – but he is wrong about the solution.

Discussions about national carriers tend to be emotional rather than rational. Set up around the time of independence, national airlines in Africa have tended to invoke political pride that far exaggerates their economic return. It might be a lousy airline, the passengers say, but it is our airline.

Yet having a national carrier will not necessarily end the suffering of Ugandan travellers. In fact, those who remember Uganda Airlines in its final days or who have ventured a trip on one of those hapless West African national carriers will tell you that the suffering caused by cancelled flights, dodgy safety standards, high prices and poor customer care is real.

In order to address the problem – the suffering of Ugandan travellers – we must explore several alternatives rather than let ourselves be blinded by patriotic fervour, like lemmings, into the enthusiasm of mass financial suicide.

Airlines are a cash-rich, low-margin business. Generally speaking, the airline industry has destroyed value for decades; 2015 was the first year in a long time that returns matched the average weighed cost of capital.

While some airlines do turn a profit, their real value is as economic catalysts, with the International Air Transport Association claiming a multiplier of eight.

Take Kenya, for instance. Eighty per cent of tourists arrive into the country by air but they are drawn in by the variety of activities, the quality of service and infrastructure, including at least 230 airfields and airstrips across the country.

Given a choice of going from plane to park in two hours (Nairobi, Kigali) and having to bear the brunt of eight hours on dangerous roads to Kidepo or Queen Elizabeth, few will choose the latter.

Similarly, having a cargo airline will only make economic sense if you have the supply- and value-chain infrastructure from farm to warehouse to plane that ensures quality and quantity consistently.

Here are some low-risk, high-return options we can explore before we take the billion-dollar leap. First, we can make airfares cheaper overnight by reducing or removing the tax that currently makes up a large chunk of the ticket price.

Then we can liberalise the skies across East Africa to create a regional airspace where for instance, Rwanda Air can take off Kigali, pick up passengers along the way in Uganda and fly to Mombasa – the buses already do it.

This is bound to create grumbling so the next logical step is to merge our airline ambitions into one regional carrier. Rwanda Air is losing money. Kenya Airways in losing money.

South African Airways is losing money. There is no way Uganda Airlines or Air Tanzania will make money in such a fragmented and high-cost market.

Yet a regional carrier would enjoy economies of scale and cancel out any pain of loss with the regional gain of making East Africa a competitive hub.

East African Community member states are already cooperating on the software issues of open-borders, single visas, free movement of labour and capital, as well as the hardware of regional railway lines, electricity interconnection lines and oil pipelines.
It would be foolish to cooperate on the ground then resort to kamikaze competition in the skies.

Ugandan travellers are suffering but setting up an airline to shave $50 off the airfare to Nairobi is the proverbial case of the medicine being worse than the disease.

Kenya Airways is flying on a wing and a prayer and we must not waste this crisis to consolidate the East African airline industry.

If its pride stands in the way let’s speak to the Ethiopians or the Emiratis – anything to stop us from throwing good money after bad.

Article By Mr Daniel Kalinaki

Mr Daniel Kalinaki is a Ugandan journalist based in Nairobi.