SAA and Kenya can only watch as African air travel takes off
● Although demand for air travel in Africa is growing, the boom provides cold comfort for embattled SAA and Kenya Airways, the continent’s secondand third-largest carriers respectively.
With both operators in a precarious financial position, “turnaround” is the new buzzword as the two airlines pull out all the stops to end years of bleeding and turn to profitability.
The International Air Transport Association this week said African airlines had recorded a 5.1% traffic increase in April. Africa contributes 2.2% of the global aviation market.
“The upward demand trend remains strong, helped by continuing signs of improvement in the region’s largest economies: Nigeria and South Africa. This is only the fourth time in the past 41 months that both economies have been on an upward trajectory at the same time,” IATA said.
Despite this upswing, the future of SAA and Kenya Airways remains uncertain.
Both airlines are in the financial doldrums amid reports of a possible collaboration between them.
Sebastian Mikosz, CEO of Kenya Airways, was reportedly keen “to see what we can do together” after a conversation with Peter Davies, the restructuring expert recruited by SAA last year, according to Bloomberg.
“One of the key components of our growth is partnership. It’s a small market, so you’re better off talking to people rather than just fighting them,” said Mikosz.
SAA CEO Vuyani Jarana recently told Business Times that the national carrier saw “a possibility of stronger partnerships within the African continent, where smaller airlines will work with us in order to deliver a much wider network in the continent”.
He added: “These are things in our corporate plan and strategy, but it’s going to take a bit of time to get there.”
However, aviation industry experts this week raised concerns over the possibility of collaboration between SAA and Kenya Airways — which, if it were to go ahead, would likely be a codeshare agreement — on the grounds that both airlines have a troubled history.
An agreement on codesharing is an aviation business arrangement in which two or more airlines share the same flight.
John Grant, an aviation analyst at OAG, a UK-based aviation firm, this week said that where there was consolidation among airlines, there was likely to be an improvement in an airline’s financials.
Overall, such arrangements were a good development for the long-term health of the aviation industry.
“Experience suggests that such consolidation works best when at least one of the partners has a firm footing and stable position from which to apply their management practices.
“My fear in this particular instance is that both SAA and Kenya Airways are bringing a legacy of poor results and productivity with them that could affect the collective appetite for rapid change, which may be a key requirement,” Grant said.
Not only are the two airlines led by relatively new chief executives — Jarana was appointed in November and Mikosz has been in the job for less than a year — but, more significantly, both are in loss-making positions and afflicted by legacy debts.
SAA continued its loss-making streak with a R5.6-billion loss posted in its latest financial year and is now in need of billions of rand to remain a going concern until 2021.
Patience among South African taxpayers is running thin over the perpetual drain that SAA is to the national purse as it begs the National Treasury for more bailout funds.
Kenya Airways, on the other hand, is still reeling from a loss of about $251-million in 2016, which resulted in the government taking direct control of the airline in November last year. As part of its turnaround efforts, the airline has cut routes and retired some planes.
James Geldenhuys, head of aircraft finance at Nedbank Corporate and Investment Banking, this week said collaboration between SAA and Kenya Airways presented many complexities, which made it unclear how the arrangement, if any, would work.
“First, SAA and Kenya Airways are currently in two different international alliances. SAA is a Star Alliance airline, while Kenya Airways is a SkyTeam Alliance airline. Ethiopian Airlines, on the other hand, is also a Star Alliance airline,” he said.
“But I do believe that African airlines exploring synergies can be beneficial to the industry on the continent.”
‘Exploring synergies can be beneficial to the industry in Africa’