• Wed. Oct 5th, 2022

Everything you need to know about the airline industry

ByKimberly A. Brochu

Aug 23, 2022

COMMENT | DEREK NSEKO | The era of the standard bearer seemed challenged and even under scrutiny over the past decade. Do we still need it? Can they be viable on the African continent?

The crisis caused by the Corona pandemic has cooled this somewhat. Airlines around the world, private and public, looked to their governments for monetary relief at the height of the pandemic. Airlines in the United States have been given a $54 billion lifeline to ease payroll issues for 18 months. In Europe, companies like Lufthansa and KLM received record bailouts.

In Africa, a range of airlines have opted for different forms of bankruptcy protection. In Southern Africa alone, SAA, Air Zimbabwe, Air Seychelles, Air Mauritius had to rethink and implement turnaround strategies. while 75-year-old Air Namibia succumbed and sank. In East Africa, Kenya Airways recorded the biggest loss in the history of Kenyan companies, while Uganda Airlines, Air Tanzania and Rwandair all recorded very large negative figures. For a startup like Uganda Airlines, the journey into positive territory really begins now, as the industry recovers. The next 5 years will be crucial.

Standard bearers have always been considered instruments of pride and national identity, almost emblematic. But a national carrier means so much more. Beyond the trophy status, it can position itself as a focal point of the country’s economy, a vector of growth. Gulf states such as the United Arab Emirates and Qatar have managed to give their airlines the status of key economic engine and today their airlines are almost synonymous with the brand of the country.

There is an entire economy built around the ecosystem of aviation and related sectors such as tourism which ultimately contributes significantly to job creation and GDP. Once measured against the effect on GDP, this is when the true judgment on a thriving aviation sector and the importance of national airlines can be measured.

The cost structure

Image: Airline operating costs. Source: Airlines for America

About 75% of airline costs are fixed. Labor and fuel are two of the biggest cost items for an airline. This explains why airlines are extremely sensitive to rising oil prices and economic shocks. Additionally, in times of economic turbulence, labor tends to be the target of cost-cutting measures. Layoffs, for example, have been a major part of the airline industry’s response to the covid pandemic and its economic effects.

Beyond labor and fuel, airlines spend a lot on aircraft and maintenance. Most airlines with large fleets typically have a mix of owned and leased aircraft, while African airline maintenance costs are higher than the global average, contributing to Africa’s high cost base and ultimately affecting the potential to earn profits.

Professional services and infrastructure fees as well as taxes and levies push the overall costs even further.

FILE PHOTO: Entebbe airport is seeing a surge in travel which is presenting Uganda Airlines with new opportunities.

Freedoms of the air and traffic rights

Air access and the freedom to fly over and land in a specific country as part of a commercial air transport operation is governed by a set of rules that were formulated at the Chicago Convention in 1944. Today, airlines must respect multilateral and bilateral air service. agreements to access new markets. The African continent remains very restricted with a low level of liberalisation, so airlines and States must conclude Bilateral Air Services Agreements (BASA), often through long and difficult negotiations and always ultimately restrictive. For example, a BASA will dictate how many frequencies a designated airline can fly to a country and to where specifically. Because these bilateral negotiations for the granting of traffic rights take place at the government-to-government level, airlines must work hand in hand with their political establishment. Governments therefore play an important role in creating an enabling environment for the development of air transport. According to the Uganda Airlines Business Plan, Uganda has a total of 46 valid bilateral air services agreements with different countries in the region and the world.

Landing slots

Airports around the world are becoming busier than they can handle, leading to capacity constraints. The arrival and departure of aircraft must be managed in a well-coordinated and equitable manner through the allocation of slots. Ultimately, congested airports need to increase capacity, but slot allocation is an excellent relief measure.

Heathrow Airport is known to have one of the highest slot demands in the world. And as you can imagine, some slots are “more equal” than others. For example, the early morning arrival slot at Heathrow is seen as a valuable asset for businesses. In 2016, Oman Air paid Kenya Airways $75 million to buy its morning slot at London’s Heathrow.

Interestingly, Uganda Airlines has acquired a highly sought-after morning slot at Heathrow for its long-haul service to London. It is expected to attract business travelers who can arrive early and take care of business for the day.

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The writer, Derek Nseko is an aviation expert, qualified commercial pilot and Managing Director at iFly Global. He is the founder of Airspace Africa, an online publication dedicated to African aviation.
[email protected] Twitter: @av8r_derek