RWANDA: Aviation Industry Improved Greatly 2016

Rwanda aviation industry is set to end a well spent year with improvements in all sectors.

The company says capacity building for the national carrier in 2016 is commendable.

Africa’s fastest-growing airline acquired three top of the range equipment in the past three months to boost its capacity, bringing its fleet to 12 aircrafts.

With Rwanda looking to becoming a conference hub through the Meetings Incentives, Conferences and Exhibitions, the government invested a lot of money in aviation infrastructure, equipment, and processes to make the sector more efficient.

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.

RWANDA: RwandAir Choses Names For New Airbus A330 Aircraft

The #YiteNawe competition, launched by RwandAir some weeks ago to received broadbased proposals for the names of the airline’s first ever wide body aircraft due for delivery next year, has drawn to a close.

Yesterday did RwandAir publicly announce the winning nominations, being ‘Murage’ by Thierry Hakizimfura and ‘Ubumwe ‘ by Therese Ayinkamiye. Broadly translated will the first name signify ‘Inheritance’ while the second name chosen stands for ‘Unity’ – two key words with a huge significance to the new Rwanda which has emerged in recent years. The two brand new aircraft will join the RwandAir fleet in September and December 2016 respectively and then permit the airline to launch long haul flights from Kigali to China, India and Europe.

With two more new Boeing B737-800NG SkyInterior also joining Africa’s fastest growing airline with the youngest fleet on the continent, is speculation rife that aircraft already on the registry and the additional Boeings may also eventually be named and drawing names relevant to the country’s number one economic sector, tourism, would be the most likely source. Rwanda’s national parks, Akagera, Gishwati-Mukura, Nyungwe and Volcanoes would make splendid advertising for the attractions the Land of a Thousand Hills holds while others could be drawn from the country’s scenic attractions, like Lake Kivu or the names of the five volcanoes which make up the national park itself.

Regional Airlines Talk On Way Forward

The four partner states in the Northern Corridor Integration Projects (NCIP) – Uganda, Kenya, Rwanda, and South Sudan - have finally come to appreciate that the proliferation of airlines in the region will sooner or later bring about a waste of scarce resources unless cooperation supersedes national narrow-minded ego trips, mostly by people with their own agenda.

It was welcome news, therefore, when after the last meeting of the NCIP countries in Kenya, information began to emerge that in particular South Sudan – though not a member of the East African Community but nevertheless a part of the NCIP group – and perhaps more reluctantly Uganda, came on board and agreed to promote both RwandAir and Kenya Airways to provide for the air travel needs of their respective citizens.

Bureaucrats in the national aviation regulatory offices have been tasked to create a single airspace area for the four countries, effectively preparing the way for RwandAir and Kenya Airways – Uganda and South Sudan do not have national airlines – to operate without any restrictions across the region.

RwandAir is presently operating flights from Entebbe to/from Juba and from Entebbe to/from Nairobi under fifth freedom rights. The Rwandan national airline in particular, after announcing their order for four more brand-new aircraft due to be delivered next year, including two Airbus A330s, will offer Ugandans the option to travel across the region and the continent via Kigali while expanding destinations to China, India, and Europe next year.

Similar to operations by Brussels Airlines and KLM, both of which fly from their hubs via Kigali to Entebbe, RwandAir could route their wide-body flights via Entebbe, too, subject to sufficient passenger numbers boarding and de-boarding, or else provide more feeder flights out of Entebbe to Kigali.

The same principle applies to Kenya Airways’ flights in equal terms for Juba and for Entebbe, to connect passengers from these two points of origin into their regional, African, and intercontinental network.

It is understood that the opening of the airspaces might well be restricted to the respective national carriers leaving other airlines, in particular those privately owned in Kenya out of the equation who will have to compete as designated airlines for point-to-point traffic.

The ministerial working group will submit their findings and recommendations to the next NCIP Head of State Summit which was postponed due to East Africa’s presidents attending the UN General Assembly in New York, making a postponement of the Nairobi NCIP Summit necessary.

Mr. Barry Kashambo, formerly the head of CASSOA and now Regional Director for ICAO based in Nairobi, was quoted to have said that such a move was bound to bring airfares down and increase the number of frequencies connecting the region.

The new deal could become effective, provided that in particular the notorious Kenyan regulators are kept on a tight leash, as early as the first quarter of 2016 and then provide passengers out of Entebbe and Juba with additional flights operated by Kenya Airways and RwandAir.

Left out of this development are Burundi, the worst-connected country in the East African Community and also almost shunned due to recent political events, and Tanzania, which opted to stay out of the fast-track cooperation entered into by Rwanda, Uganda, South Sudan, and Kenya.

Subsequently Tanzania’s airlines will not benefit from these additional opportunities which are now beckoning on the horizon, leaving that country to ponder what new path to embark on after a new president comes into office following the upcoming elections.

Aviation industry organizations like IATA and of course AFRAA, the African Airline Association based in Nairobi, have for long promoted the concept of closer cooperation instead of constant fragmentation to see more viable airlines emerge which have the capacity to withstand the competitive pressures of not just the European legacy airlines but in particular the emerging mega airlines from the Gulf and from Turkey.

What is need in East Africa, in fact across Africa, is a sound mix between full-service airlines and low-cost airlines. The latter has, and I give you Jambojet in Kenya and Fastjet in Tanzania as an example, brought a whole new segment of travelers to go by air instead of using buses or trains.

However, the former will equally have a place because of connectivity through their hubs rather than point-to-point traffic. If existing and well-operating airlines like Kenya Airways and RwandAir can be given full access to the market in Uganda and South Sudan, it will benefit travelers as much as the airlines.

What the countries must, however, watch out for is that limits are set on fares to avoid exploitative ticket prices, because that would kill this concept instantly.

RWANDA: Kigali Serena Hotel And Rwandair Success Stories

In a candid interaction with participants at the launch of the Rwanda-Kenya Business Forum held at the Kigali Serena Hotel last weekend, President Paul Kagame revealed how he laboured to explain to economists the benefits of direct government investment in Serena Hotel and RwandAir.

Drawing up scenarios of guaranteed failures, the experts said such a move would not pay off.

However, the decision to choose logic over theory paved way for one of the keys for Rwanda's success and sheds some light on the kind of leadership style that has enabled Rwanda's progress in record time.

There are very few African countries receiving a substantial amount of aid in form of external budget support that could have dared to go against the advice from International Monetary Fund (IMF).

But, maybe, a little 'defiance' is what most post-independent Africa needs to make a difference.

That ability to know when to accept or reject advice even when it is the world's most revered institution or consultants providing it.

At the time of constructing Serena Hotel, Rwanda's economy was thirsty for growth catalysts; peace and stability had breathed life in tourism, but there were no hotels to accommodate visitors.

Experts wanted private investors to fill that gap. The Government put in place a number of incentives to attract private money. But the response was lukewarm.

"The private sector will put their money where they want to, not where the Government tells them to," said Kagame.

Owing to that reality, Kagame's administration seems to have decided on a strategy based on the principle of 'leading by example', where government acts as a model investor to encourage private players to follow suit.

Economists are right; governments are not that good at running businesses, but like the President said, Rwanda is not in business to do business, but to encourage businesses to do business.

Today, the private sector is fully in charge of the Kigali Serena Hotel, and, gradually, RwandAir will also find a suitable suitor.

Economists are certainly clever people on whose theories national economies are founded, but as the decisions of Rwanda have demonstrated, theories should not be allowed to supersede logic and context.


In 2011, the International Finance Corporation (IFC), a member of the World Bank Group commissioned a study to assess the economic impact of the then 148-room Kigali Serena Hotel.

The research found that the hotel had generated US$85 million of economic activity in its first few years of operation; with US$64 million related to the local Rwanda economy, primarily by way of payments to government, staff salaries and purchase of local goods.

At the time of the study, the hotel directly employed 350 permanent staff. With jobs created indirectly through suppliers, the number of employees was estimated to be over 1,100 people.

The study also found that Serena Hotel had paid the Government close to US$16 million in a period of five years, in concession fees, VAT, employee income tax, social security, corporate tax and district tax.

Although the hotel is managed by Kenyan investors, the study found that there was only a handful of expatriate staff and 89 per cent of the wages and salaries were paid to local Rwandans who spent 70 per cent of their take-home pay on food, housing and education.

The study also found that Serena Hotel had invested in cultivating local supplier networks with indigenous small and medium enterprises (SMEs), in the process promoting private sector development in Rwanda.

For instance, local sourcing of fresh fruit and vegetables alone by Kigali Serena Hotel, the study found, had created some 177 jobs.

The success of Kigali Serena Hotel has since inspired a number of investments from the private sector which has boosted the performance of Rwanda's service sector.

There are over 200 hotels and 4,500 hotel rooms in Rwanda, with investors enjoying an upper range average occupancy rate of 70 per cent, where foreigners account for 97 per cent of bed nights sold, according to information from Rwanda Development Board.

According to the National Institute of Statistics, Rwanda's gross domestic product (GDP) rose by 7.6 per cent in the first quarter of 2015, with the services sector where hotels are categorised contributing 48 per cent compared to agriculture's 31 per cent.

Then, there is the case of RwandAir. Despite experts predicting its failure and advising against investing in an airline, President Kagame chose to look beyond the airline's profit at least in the short term, instead prioritising the potential for benefits for the people of Rwanda and the region.

As President Kagame explained during the first Kenya-Rwanda Business Forum, the Government did not choose to invest in an airline for commercial purposes, but rather to facilitate local and regional businesses to make money.

Within five years of government-aided operations, RwandAir has close to 20 destinations in at least 12 countries; this has boosted tourism and widened market opportunities for the private sector.

"If you compare the so-called 'loss' and how much money local businesses have made, the benefits are significant, and I am yet to be proven wrong," Kagame said amidst applause from the audience.

The President's audience of over 200 people included a delegation of business executives who travelled from Nairobi; more than half of who flew with RwandAir, according to Kiprono Kittony, Chairman of the Kenya National Chamber of Commerce and Industry.

Like Serena Hotel, RwandAir too will be eventually handed over to a competent private firm, but the Government will have done its part - breaking the hard ground that may have been inaccessible to a private investor.

What if Rwanda had obeyed expert advice not to invest in the hotel or the airline? Clearly, a little defiance is necessary to make the right decisions, and both Serena Hotel and RwandAir are a good example.

Ethiopian Airlines Doing Well While Kenya And South African Airways Cry

KENYA Airways (KQ) last announced a loss of $257 million (Ksh25.7 billion), the biggest ever in the country’s corporate history.

Perhaps there is something unique in the airline business that makes it easier for a "clever" and developmental authoritarian regime to find success.

It’s a shocking tumble for Kenya’s national carrier; although this is the third year the company is running a loss, the magnitude of KQ’s hole – this year’s loss is 661% bigger than last year’s – was much deeper than anticipated.

It seemed like all factors in the world seemed to conspire perfectly to batter KQ’s fortunes – company CEO Mbuvi Ngunze blamed the losses on competition from Middle East airlines, western travel advisories against Kenya, runway closures, Ebola in West Africa, terrorism, high operating costs, and troubled relations with crew.

But there have also been credible reports of shady procurement and aircraft leasing scams within the company that have been haemorrhaging cash.

According to KQ’s consolidated income statement, although turnover increased by 4% in the past year, it just wasn’t enough to keep up with costs – operating losses were 500% higher than last year, net finance costs nearly three times higher, and ultimately, loss after tax was 661% higher than in the year before when the company posted a net loss of$33 million (Ksh3.3billion).

KQ is not alone

Still, KQ can find small comfort that another one of Africa’s big carriers has been in the red for years now, too – South African Airways (SAA) posted a net loss of $200 million (R2.5 billion) in the past financial year, up from $91 million (R1.1 billion) in 2013.

And in SAA’s case, the sustained currency decline of the rand against the US dollar has wiped out any advantage of lower oil prices in the global markets.

In the company’s most recent annual report, despite the 3% decrease in the average price of Brent crude oil in the financial year 2013-14, the total fuel costs actually increased 16% from the previous year as a result of the weaker rand.

Since 2011, the real rand cost of fuel to SAA has increased 77%, and the company also suffered a $15 million (R200million) loss from fuel hedging after oil prices went in the direction the company had not anticipated – down.

Meanwhile, another big flier in African skies, Ethiopian Airlines, is posting healthy profits in the region of $96 million and can now properly claim to be the king of East Africa’s skies, at least.

About five years ago, both Ethiopian Airlines and Kenya Airways embarked on ambitious, once-in-a-generation expansion strategies that would see them poised to claim dominance over the region’s airspace. Both plans involved replacing older aircraft with more fuel-efficient planes, principally the Boeing 787-8 Dreamliner.

The Dreamliner’s lightweight carbon-composite wings and fuselage makes it 20% more fuel-efficient than the Boeing 767, the chief industry workhorse. In a world where fuel typically accounts for around 30% of an airline’s total costs, such efficiency is extremely attractive. Ethiopian ordered ten planes (and was the first in Africa to receive a 787), while KQ ordered nine.

But that is where the fortunes of the two companies began to diverge.

By 2013, Kenya had received six 787-8 Dreamliners, but buying the planes outright (as opposed to leasing them), as well as high wage costs and thorny industrial relations with its crew and workers, had put severe a crunch on cash flow.

Both airlines have jostled for dominance in the African airspace, but Ethiopian has been more aggressive in pursuing key growth markets such as Asia and South America, which allows it to benefit from a more balanced route network compared to KQ, whose core operations are more concentrated in Africa.

In total, Ethiopian flies to 78 international destinations, compared to KQ’s 59; Ethiopian earned 37% of its revenue from Asia and the Middle East in FY2012, compared to Kenya Airways that earned just 20% of its revenue from that region in FY2013. Ethiopian’s reach is aided in no small part by having thirteen 787 Dreamliners as part of its fleet, compared to KQ’s six.

Since the 787 has a massive 14,200km range—roughly equivalent to a 20-hour non-stop flight—Ethiopian can operate more direct flights from its hub at Addis Ababa to almost any city on the planet.

Stunning African “super airline” idea

In 2012, delegates attending an aviation conference in Johannesburg were stunned when Titus Naikuni, then chief executive of Kenya Airways, suggested a three-way merger between KQ, Ethiopian Airlines and SAA, this article in The Economist reports.

Naikuni pitched the idea of an African “super-airline” as the only way to survive competition from Middle Eastern carriers like Emirates, Qatar Airways and Turkish Airlines, that were “stealing” African passengers with cheaper fares, bigger and better planes.

But that is most likely to remain a dream. Apart from the fact that it would be logistically difficult to implement – Ethiopian and South African belong to Star Alliance, an air alliance that rivals Kenya Airways’ SkyTeam – African governments are notoriously, sometimes illogically, protective of their national carriers, shielding them from competition and often endlessly throwing good money after bad.

In the 60s and 70s, when Africa was still basking in that warm, post-independence glow, a national airline was one of the three visible symbols that encapsulated sovereignty and self-determination: along with a national flag and national anthem (and, some would include, a national beer).

A national airline is a particularly grand gesture that asserts a country’s status on the table, as it gives it clear visibility on the global arena.

But many were just not able to compete. According to the African Development Bank, 17 countries in sub-Saharan Africa continue to operate weak state-owned carriers in very small, protected markets, that only survive thanks to substantial government subsidies and often represent a considerable drain on public finances.

An additional 25 countries have scrapped their flag carriers in favour of private operators – including Uganda, Nigeria, Ghana, Cameroon, Senegal Tanzania, Democratic Republic of Congo, Zambia and Malawi.

The big three in sub-Sahara Africa that have survived – Ethiopian Airlines, South African Airways and Kenya Airways – have fallen on very different fortunes. As SAA and KQ are running into deep losses, Ethiopian seems to be growing from strength to strength.

The most obvious difference between these countries is that South Africa and Kenya are democracies (flawed ones, but still), while Ethiopia is a quasi-authoritarian regime that has little tolerance for freewheeling politics or economics, but is pursuing an aggressively state-led growth model.

Perhaps there is something unique in the airline business that makes it suitable for a “clever” hybrid democratic-authoritarian regime (emphasis on “clever”) to find success. First, there is probably no other business that a developing country can run that is so embedded in the global economy, and that is so exposed to exogenous risk.

Needs a firm hand

KQ CEO Ngunze has pointed the finger on a clutch of external factors, including terrorism, a slump in the European economy, the Ebola outbreak, travel advisories against Kenya and oil price volatility as contributing to the company’s losses in 2014.

But it is such inherent vulnerability that requires strict control to run efficiently, at least in the African context where institutions and corporate governance is often weak.

Case in point – by 2013, KQ’s wage bill had more than doubled to $161 million in seven years, and staff numbers were at 4,000. According to the Centre for Aviation, the average annual wage at the airline was $32,333, about double what Ethiopian was paying its 6,300 workforce.

While Ethiopian managed to persuade its workforce to accept a pay cut in 2012, Kenya Airways fought the unions in the courts over the dismissal of 447 workers in 2012 as part of cost reduction measures; the case took two years to conclude, though it was eventually ruled in KQ’s favour.

But the other thing is clear visibility that an airline gives a country, and autocratic and hybrid countries are always keen to prove to the world that their model works. It means that the political currency – both locally, and internationally – you can gain in running a successful airline is miles ahead of anything else you might put your hand to.

This might partly explain why Ethiopian Airlines has managed its national carrier so carefully, when there was a time the demise of yet another African airline came as regularly as Christmas.

Rwanda is another hybrid regime, that saw the political and economic mileage that a national carrier would give it.

Last week, at the launch of the Rwanda-Kenya Business Forum held at the Kigali Serena Hotel, President Paul Kagame revealed how he “laboured to explain to economists the benefits of direct government investment in Serena Hotel and RwandAir”.

As the country posted roaring economic growth figures in the past decade, a hotel room shortage began to bite as investors and expatriates trooped into Africa’s newest success story.

International experts from the IMF wanted private business to fill the gap, but the response was lukewarm.

Kigali takes matters in own hands

So Kagame decided that the government would take matters into its own hands and do so itself, against the advise of the IMF experts who typically don’t like government being so overtly involved in a commercial enterprise; they predicted such a venture would be foolhardy at best.

Kagame says his intention was to “break the hard ground” and demonstrate a proof of concept through Serena Hotel and RwandAir, and so stimulate private investment and spill over effects into the wider economy.

Within five years of government-aided operations, RwandAir has close to 20 destinations in at least 12 countries; this has boosted tourism and widened market opportunities for the private sector. Though it is not profitable, it is not bleeding at alarming rates - and Rwanda has a decent national airline where all its neighbours have long buried theirs.

Indeed, Kagame said; “If you compare the so-called ‘loss’ and how much money local businesses have made, the benefits are significant, and I am yet to be proven wrong.”

The hotel and the airline will “eventually be handed over to a suitable private investor”, the New Times reports.

But when you consider all the things that could go wrong in the airline business, it’s not so surprising that tightly controlled, precisely choreographed regimes would find success where freer, more democratic ones haven’t. For starters, in South Africa and Kenya, officials who run down airlines can, if they are arrested, can expect to win their cases and get off scot free.

In Ethiopia and other countries with a high “developmental” premium, if you “ate” the national airline, a court is unlikely to give you an easy pass.