By Prof. Balunywa
Air travel business is global business. It has no space for small operators who have neither a niche nor competitive advantage. It is this that I have been arguing against the revival of Uganda airlines and an inefficient Uganda airlines will simply be a burden to the Ugandan tax payer. As they say, the taste of the pudding is in the eating, Kenya airways made a loss of over USD250million in the last financial years yet Kenya airways is one of Africa’s top airlines that is clearly visible.
Many people have argued that Uganda needs an airline for various reasons prestige, carry exports, carry Ugandans, have a place where you can speak Luganda and all other arguments. At the end of the day, it zeros down on costs and revenues. Uganda co-owned the famous East African airways until the breakup of the East African community in 1977. The breakup was engineered reportedly by Charles Njoonjo in Kenya. That was during the Idi Amin period when the Ugandan economy was a real basket case. It only made case to part ways at that time. Since the operational headquarters of the East African airways were in Kenya, Kenya took all the planes and Uganda and Tanzania went out without much benefit from the community. It is not surprising that much later in the 1980s as the three countries restored their political relationships Kenya compensated Uganda and Tanzania for the loss of the assets that they jointly owned in the then East African community.
Idi Amin, who at that time was basking in money from exports bought new planes for Uganda airlines. Indeed people acclaimed him for this decision. At that time, there was a frost in Brazil for several years and Brazil’s coffee exports volume had gone down. This made Uganda cash in on the coffee export boom. Indeed even Kenya benefited as coffee was smuggled and shipped to markets in Europe at market prices. Buying the planes as Amin did, gave Uganda an airline but it did not create a business. The business had been taken over by Kenya airways.
Airline business is made up of routes and bi lateral agreements. Uganda airlines was able to fly with subsidies from government. The airline limped on in various ways until I personally recommended its closure sometime in the late 1990s. By the time we closed it, it was making a loss of approximately usd1million a month. The Kenya airways loss for the previous year is said to be USD250million. In the last 3 years the cumulative loss is USD422million dollars. In the region, Kenya airways looks invisible. After Ethiopian airlines, it is one airline that goes to all African capitals followed by South African airlines I guess. It has been around for a long time having taken over the East African airways with all its assets and routes and staffing. It is partly owned by the Kenyan government which owns about 30%, KLM the Dutch airline 27% and the rest of the shares by the private owners. You would expect Kenya airways to be making money but why the loss.
The biggest factor is competition. While Nairobi is a hub in the region it doesn’t dominate traffic into Nairobi. The government owned companies in the Middle East have all the money and have set up airlines with new equipment and have cut prices. Their location in the Middle East gives them an advantage over Kenya airways. Kenya airways therefore cannot compete favourably with Middle East airlines which tank fuel at a lesser cost than Kenya have more passengers than Kenya airlines. In the process, being lower cost operators than Kenya airways. KQ has also had a challenge of adding new expensive equipment to be able to match that of the rich Middle East airline. In the recent years, they have bought new planes including 878 Boeing Dreamliners. These have been bought on credit and they have to pay interest.
Location is another factor while Kenya is a powerhouse in the region and so is KQ, KQ is operating in a poor location. I am not sure how many Kenyans fly on KQ later on the Africans in the region where it flys. Compared to European airlines or Middle East airlines, KQ operates in regions with low incomes. I have mentioned fuel as one of the contributing factors to the loss and I guess there are many factors however KQ is a small airline in a bug business. Despite being owned partly by the Dutch KLM, I think KQ does not meet the criteria Mbire talks about.
In recent years, Uganda has been bashed for not having an airline yet Rwanda has one. Of course nobody talks about the investment Rwanda has made in the airline. Sometime back, I noted Rwanda had out over USD 200 million in the airline. These airlines make us proud as nationals but in the global competitive space, they can only make losses.
Uganda has no critical mass flyers yet who would create the need for an independent airline Uganda does not have the critical business yet to warrant it yet. We would be having our priorities wrong if among all our pressing needs, an airline was worth investing in at this time.
I was looking at the solution for Kenya airways. Kenya airways will get additional debt to enable it restructure its balance sheet unless government comes in with more equity, of course tax payers money, this balance sheet cannot be cleaned.
Uganda should pick the lesson from Kenya airways.
