Uganda Airlines took to the skies again after almost two decades out of action into a crowded African aviation market where carriers have the weakest finances and emptiest aircraft of any region worldwide.
The state carrier launched commercial flights on Wednesday, its first since liquidation in 2001, aiming for a slice of the East African aviation business is dominated by Ethiopian Airlines.
Uganda is the latest African government to pour money into national flag carriers; Tanzania and Senegal are resurrecting their airlines, while Rwanda, Ivory Coast and Togo are expanding theirs.
These efforts are hampered by high business costs as well as protectionism, impeding a continental open-skies agreement – which industry experts say is vital for the success of African carriers in a tough market.
The African market is forecast to grow almost five percent a year over the next two decades in terms of passengers, faster than mature markets, according to the International Air Transport Association (IATA). This is from a low base and most state-owned flag carriers continentally are losing money.
While the global aviation industry is on track to make a profit of $28 billion, African airlines are projected to make combined losses of $100 million this year, IATA said in June.
Uganda Airlines aims to attract more domestic travellers to help it buck the continental trend. Around two million passengers a year travel through Entebbe, Uganda’s main airport. Around 70% are Ugandans, said the carrier’s CEO Ephraim Bagenda.
“All those currently travel on foreign airlines,” he told Reuters. “We want part of that cake.”
Last year, it appeared Africa was progressing on an open-skies agreement – the Single African Air Transport Market – to let airlines decide how frequently they fly between cities and which aircraft they use.
Twenty-eight countries signed up, accounting for 75-80% of African air traffic. Uganda is considering signing, Works and Transport Minister Monica Azuba Ntege said.
To date only 10 signatories – including Cape Verde, Ghana, Togo, Ethiopia and Nigeria – have begun changing laws to implement the deal and open up markets, said Raphael Kuuchi, Vice President for Africa at IATA.
The patchy efforts undermine the agreement and hobble direct connections within Africa, say analysts. Some airlines, including from countries signed up, oppose the open-skies deal fearing bigger competitors.
“Most subsidised airlines and the bigger ones are going to take the biggest market share because they can afford it,” Kenya Airways CEO Sebastian Mikosz told an investor briefing. “They are going to kill smaller national airlines which just starting because they will have no way to defend themselves.”
Ethiopian Airlines, sub-Saharan Africa’s only successful large state-owned airline, has bucked the regional trend and has been expanding fast, thanks in part to having secured key traffic rights.
First, it signed bilateral agreements with nearly all African countries in the 1970s, activating them as needed, said Kuuchi. The airline flew to parts of the continent served by few other carriers and leveraged goodwill to open up markets.
“Governments were willing to give additional rights and travel rights. Once you give them out it’s difficult to retract,” he added.
Recently, Ethiopian helped other countries launch carriers and taking a stake. That created regional continental hubs in Togo, Malawi and Chad to pick up and feed traffic into its main hub in Addis Ababa, cementing its dominance and rivalling Gulf carriers.
Now governments hoard travel rights to protect their own airlines, so African carriers struggle to set up hubs vital to winning international travellers, said Girma Wake, former CEO of Ethiopian Airlines.
“Instead of flying point-to-point, if they collect from the low-traffic areas and bring them to major hubs and carry them from those, you will be in a better position,” he told Reuters.
HIGH FUEL COSTS, TAXES
African aviation accounted for only 2.1% of the global market in 2018, with 92 million passenger journeys flown. Non-African airlines including Emirates and Turkish Airlines account for around 80% of traffic in and out of the continent, IATA said.
African airlines also struggle to improve load factors – percentage of seats filled – from the world’s lowest regional level of 71% in 2018, compared with 81.2% globally, according to IATA.
Emirates builds traffic through its global Dubai hub, an advantage African airlines don’t have – except Ethiopian Airlines.
As well as protectionism, high fuel and taxation hurt African carriers.
In Europe, a passenger can travel 1.5 hours for less than $100 all-inclusive. In Africa, passenger taxes alone range from $40 to $150 per passenger, African Airlines Association Secretary General Abderahmane Berthe told Reuters.
“Many governments levy taxes on aviation and do not reinvest collected amounts in aviation,” he said.
Governments often see air transport as a luxury that can sustain high taxes, said Air Tanzania managing director Ladislaus Matindi.
Fuel is also taxed heavily and must often be trucked in, an expensive operation. Fuel makes up about a quarter of operating costs globally but reaches 30-40% in Africa, Berthe said.
Uganda Airlines, founded by former dictator Idi Amin in 1976, was liquidated in 2001 after years of unprofitability during a push to privatise state firms.
Other African state carriers are crippled by government interference, such as insisting on routes to unprofitable but politically important destinations.
Ghana Airways, which ceased operations in 2005, used to fly between Accra and Las Palmas, because of the friendship between the leaders of the two countries, IATA’s Kuuchi said.
Uganda Airlines CEO Bagenda insisted his company was free from political interference.
“Government policy in Uganda is eyes on, hands off,” he said.