The battle for supremacy over East Africa's skies

By Johan Burger

Ethiopian Airlines has long been the dominant and only profitable airline in sub-Saharan Africa. However, two of the other prominent players - South African Airlines (SAA) and Kenya Airways have picked up serious challenges. SAA has been under business rescue administration for more than a year and is now struggling to survive - a shadow of its former glory. Kenya Airways (KQ) is struggling with a financial crisis received a government bailout with suggestions of nationalisation as a cure for its money woes.

However, the civil war situation in Ethiopia is placing strain on the operations of Ethiopian Airlines (ET). Should the war reach Addis Ababa the airline would suffer severe losses. As it is, Prime Minister Abiy Ahmed's government is reportedly pushing for austerity in the airline and the financial outlook looks grim.

ET will likely suffer losses as international travellers will probably abandon it on the routes to Addis Ababa. The negative signals triggered by the foreign diplomats and business expatriates exiting Addis Ababa will have a domino effect on the fortunes of ET. Industrial parks in Ethiopia exported products worth US$122m during the first nine months of 2020. Mekelle, the capital of the Tigray region, has several industrial parks serving as drivers of economic growth in Ethiopia. The all-out war will constrain Mekelle's economy and Ethiopia in general.

This is the context facing other East African regional airlines, providing opportunities to grow and develop their business in the airline industry. Air Tanzania, RwandAir, and Uganda Airlines all intend to grab a piece of the pie for themselves. They have all transformed their business models to expand routes and capital equipment, in the process developing their own hubs.

Both Uganda Airlines and Air Tanzania signed aircraft and spare parts supply deals at the just-concluded 2021 Dubai Air Show with Airbus and Boeing in preparation for their competition with ET and KQ. In addition, RwandAir signed an agreement with Qatar Airways (QR) to use QR's huge network to compete with ET and KQ.

To compete against KQ's nine Boeing 787-8 Dreamliners and ET's more than 20, the Tanzanian government ordered four Boeing freighters and passenger jets to boost Air Tanzania's capacity at the cost of US$726m. The airline reportedly intends to use the new aircraft to access markets across Africa, Asia, and Europe, to compete against Ethiopian and Kenya Airways, which serve those routes.

Uganda Airlines signed a flight hour services agreement with Airbus under which the latter will swap defective non-engine spare parts with new ones and the airline will only pay for the time the parts are used at an agreed rate. This agreement will help the airline avoid spending critical financial resources on spare parts inventory. Uganda also signed co-operation agreements with Pakistan International Airlines (PIA) and Sri Lanka Airways. It also launched a direct flight service between Entebbe and Dubai on 4 October 2021. The UAE is the first intercontinental destination for Uganda Airlines. In addition, it intends to add Guangzhou, London, and Mumbai to its network as it regards these routes as the most important to its international trade and inward investment.

The London route seems to hold promise as the British Prime Minister's Trade envoy to Uganda, Lord Dolar Popat, stated his government was interested in buying Ugandan barley, coffee, maize, sugar, and wheat. He said, "We want Uganda Airlines to ferry at least 10 tons of goods on every trip it makes to London." As a landlock country Uganda is dependent on its national flag-carrier Uganda Airlines is the apparent mode of delivery.

However, airlines in East Africa, in addition to competitors in the Middle East, are watching the developments in Ethiopia with a keen eye. The civil war is forecast to hit ET's bottom line and flight frequencies. However, Ethiopia's national airline is far from down. In addition to reportedly being one of only three airlines in the world to make a profit in 2020, it has made considerable investments in many African airlines in West, Central, and Southern Africa, creating mini hubs across these regions. No African airline can match its connectivity. ET also has strategic partnerships with Chad's Tchadia Airlines, Malawian Airlines, and Togo's ASKY, in addition to a management contract with Ceiba Intercontinental of Equatorial Guinea.

Ethiopian plans to re-launch Air Congo in in the Democratic Republic of the Congo (DRC). It is starting a new airline in Zambia, which will reportedly commence operations in December 2021. Ethiopia will hold a 49% share in the new airline, with Zambia owning the remainder. Plans are underfoot to restart operations of a Mozambique carrier after terminating the services in May 2021 due to Covid-19 challenges that impacted the airline sector.  It is also interested in setting up an airline in Nigeria. ET is continuously looking for new ways to drive operational efficiency and reduce costs.

Kenya Airlines is doing its best to reposition itself as a credible choice. After the declaration of the state of emergency in Ethiopia on 2 November it increased flight to routes once dominated by ET. It also increased weekly scheduled flights to other East African countries such as Dar es Salaam in Tanzania, Entebbe in Uganda, and Kinshasa in the DRC. In addition, it plans to increase its flights to London to exploit the increasing demand of the holiday season. KQ also signed a codeshare agreement with British Airways, which will enable BA customers to connect seamlessly on KQ flights within Africa, and vice versa for KQ customers in Europe. Its destinations include Addis Ababa, Douala, Dar es Salaam, Entebbe, Lusaka, Livingstone, Mauritius, Mombasa, Mumbai, Seychelles, and Zanzibar. In addition to passengers, KQ also entered the cargo sub-sector due to the surge in demand for air cargo and converted two of its 787 Dreamliners into cargo carriers.

Air Tanzania has announced four new regional routes from Dar es Salaam to Bujumbura (Burundi), Lubumbashi (DRC), Nairobi (Kenya), and Ndola (Zambia). In addition, in October 2021, Tanzania signed an agreement with Belgium that allows for reciprocal flights between Brussels and Dar es Salaam, Arusha, and Zanzibar. Air Tanzania already has regional flights to Entebbe (Uganda), Harare (Zimbabwe), Lusaka (Zambia), and Hahaya (Comoros), plus weekly cargo flights to Guangzhou. The growth in the routes of Air Tanzania is reportedly a source of concern to Kenya Airways. It reviews the Tanzanian airline as a direct competitor on its routes to Dar es Salaam (four daily flights), Entebbe (five daily flights), Lusaka (four daily flights), and Livingstone (Zambia) (at least one daily flight).

RwandAir launched direct flights between Kigali and Doha on 1 December, allowing it to compete favourably against regional competition. RwandAir passengers can now connect to Doha and London and access Qatar Airways' global network, enabling RwandAir to attract regional passengers who would generally have used KQ or ET for long-haul flights. Qatar Airways will also acquire a stake in RwandAir, eventually owning 49% of the airline. The Qatari airline had already undertaken in December 2019 to take a 60% shareholding in Rwanda's proposed new Kigali airport.

RwandAir recently expanded its footprint in the DRC by opening two new routes to Lubumbashi and Goma, respectively. It intends to diversify its revenue stream by moving into cargo, a strategy that ET embraced as soon as the Covid-19 pandemic struck. RwandAir has existing routes that are now resuming, i.e., Cape Town, Dubai, Guangzhou, Harare, Johannesburg, Kampala, Lagos, Lusaka, and Mumbai.

The growth of choice is undoubtedly good for African and foreign travellers, with the potential to boost the tourism industry on the continent. However, the "new" players should heed the challenges that have faced the "old" players of Ethiopia, Kenya, and South Africa. SAA has, for all practical purposes, disappeared from the scene. Kenyan Airways has not been profitable for ages. While Ethiopian Airlines is facing an uphill battle not of its own making, it still needs to deal with the challenges brought about by its internal security situation. Therefore, all should focus on a balanced portfolio of passengers and cargo, developing a basket of profitable routes, and driving lean operations to minimise costs. And they should remember that Emirates Airline and Qatar Airline have deep pockets and are genuine competitors.

 

Additional readings:

Ashimwe, E. 2021. Why RwandAir route to Doha is a big deal. The New Times. 9 December 2021. Available at https://www.newtimes.co.rw/news/why-rwandair-route-doha-big-deal.  Accessed 10 December 2021.

Donald, D. 2021. Uganda Airlines makes Dubai debut. AINonline. 13 November 2021. Available at https://www.ainonline.com/aviation-news/air-transport/2021-11-13/uganda-airlines-makes-dubai-debut.  Accessed 10 December 2021.

Harper, L. 2021. RwandAir and Qatar Airways deepen partnership with interline agreement. Flight Global. 2 August 2021. Available at https://www.flightglobal.com/networks/rwandair-and-qatar-airways-deepen-partnership-with-interline-agreement/144884.article.  Accessed 10 December 2021.

Karashani, B., Kitimo, A., Gahigi, M.K., Wakabi, M. and Olingo, A. 2021. Sky wars: Uganda, Tanzania, Rwanda carriers expand as Ethiopian, KQ falter. The East African. 21 November 2021. Available at https://www.theeastafrican.co.ke/tea/news/east-africa/uganda-tanzania-rwanda-carriers-expand-as-ethiopian-kq-falter-3625402.  Accessed 10 December 2021.

Mansoor, Z. 2021. Uganda Airlines chooses Dubai as first destination outside Africa. Gulf Business. 6 October 2021. Available at https://gulfbusiness.com/uganda-airlines-chooses-dubai-as-first-destination-outside-africa/.  Accessed 10 December 2021.

Mugisha, C. 2021. Uganda: UK wants Uganda Airlines to ferry 10 tons of goods on each trip to London. allAfrica. 18 November 2021. Available at https://allafrica.com/stories/202111190109.html.  Accessed 10 December 2021.

Otieno, B. 2021. Air Tanzania's Nairobi entry to make skies bumpier for KQ. The East African. 23 November 2021. Available at https://www.theeastafrican.co.ke/tea/business/air-tanzania-s-nairobi-entry-to-make-skies-bumpier-for-kq-3628204.  Accessed 10 December 2021.

Otieno, B. 2021. KQ resumes Mumbai flights after 4 months. Business Daily Africa. 14 September 2021. Available at https://www.businessdailyafrica.com/bd/corporate/companies/kq-resumes-mumbai-flights-after-4-months-3549138.  Accessed 10 December 2021.

Oyeleye, O. 2021. Horn of Africa's festering sore needs healing. Business A.M. 29 November 2021. Available at https://www.businessamlive.com/horn-of-africas-festering-sore-needs-healing/.  Accessed 10 December 2021.

10. Wood, R. 2021. Kenya Airways converted two 787 Dreamliners to carry cargo. Here's why. CNN Business. 14 September 2021. Available at https://edition.cnn.com/2021/09/14/business/kenya-airways-ceo-cargo-converted-787-dreamliner-spc-intl/index.html?utm_source=Africa.com&utm_campaign=ee1c6d372f-EMAIL_CAMPAIGN_2019_05_27_09_40_COPY_01&utm_medium=email&utm_term=0_12683c81a6-ee1c6d372f-29147709.  Accessed 10 December 2021.