Plan. As Uganda Airlines prepares to propel its wings into the turbulent skies, it will find the regional industry saddled with loss-making, high costs and protectionist policies. African airlines are expected to report a $300m net loss in 2019, according to the International Air Transport Association (IATA) as Ethiopian Airlines remains the only profitable airline. How does the revived airlines hope to break even in a sluggish industry with low passenger numbers, writes Frederic Musisi.
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According to the Civil Aviation Authority (CAA), passenger and aircraft traffic flowing through Entebbe International Airport grew by 10.2 per cent between 2017 and 2018; of these, 1.8 million were passengers, an addition of almost 200,000, from the 1.6 million recorded in 2016.
It is estimated that 60 per cent, or roughly 1,080,000, of the total passenger traffic through Entebbe airport are Ugandans. With the average price of an air ticket being roughly $450 (Shs1.6m) that totals up to $486m (Shs1.8 trillion).
“The math adds up; that number is significant,” revealed the Uganda National Airlines Company Limited technical director, Mr Cornwell Muleya, during an interview with this newspaper.
Mr Muleya was answering the questions of “what and where is the new Uganda Airlines’ comparative advantage in a notoriously fickle aviation industry?” not just closer home in the region but globally.
About five airlines have ceased operations since the year began, joining 15 others, which folded in 2018, as a result of stiff competition, and political and economic volatility.
In 2017, British Airways suspended flights to Uganda, ostensibly, owing to bad business, followed by Etihad in March last year, and South African Airways announced reduction of flight times to Entebbe by one. The driving factor was the volatile economic conditions.
Mr Muleya, however, opined that the decision was premised on the airlines’ strength in their home markets, as Uganda was merely a foreign route.
“Entebbe was one route for those airlines but Uganda Airlines will be sitting on a home market. Once you control the home market you are in good business,” he said.
He added: “Ours is a demand based plan; we have looked at where the people are going, and have chosen the routes carefully based on that. We do know where the traffic is going so we have chosen routes.”
Before its demise in 2001, Uganda Airlines had established a regional footprint.
According to data from air traffic analyser OAG, as of November last year, Ethiopian Airlines emerged as the largest operator at the Entebbe airport offering 140,000 outbound seats in the first quarter of 2018, followed by Kenya Airways with 127,000 seats and RwandAir with 90,000. The data showed that passengers going into other countries used Ethiopian Airlines’ business route between Entebbe and Addis Ababa.
“When you control the home market you control everything,” Mr Muleya argued.
The revived Uganda Airlines will fly two phases; phase one being the consolidation of the regional market, particularly focusing on East, Southern African, Central, and a little bit of North Africa, while phase two is the long-haul flights.
The regional market includes 18 destinations such as Nairobi, Kigali, Bujumbura, Goma, Kinshasa, Kisangani, Goma, Dar-es-Salaam, Mombasa, Kilmanjaro, Juba, Khartoum, Mogadishu, Hargeisa, Johannesburg, Addis Ababa, Lusaka, Harare, and Zanzibar.
Currently, there are three main competitors in this market: Kenya Airways, which has the most frequency to Entebbe airport: Rwanda Air: and Ethiopian Airlines.
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Phase two, for the long-haul flights, will commence between December 2020 and January 2021 when the two Airbus A330-800neos ordered from the French aeronautics manufacturer, Airbus, are expected to be delivered.
The government has so far made a down payment of Shs74 billion on the two Airbus A330-800neos.
The main competitors in the long-haul market are Ethiopian Airlines, Kenya Airways, South African Airways, Emirates Airlines, KLM, Egyptair, Turkish airlines, and others. Some of the destinations in the long-haul market include London, Dubai, Brussels, Doha, Mumbai, Lagos, and Johannesburg.
On April 23, 2019, the first two aircraft with registration numbers 5X-EQU and 5X-XOB, which cost Shs154 billion, touched down at Entebbe airport to commence the revival of the airline. The remaining two of the four CRJ-900 Bombardier aircraft government ordered from Canada’s Bombardier Aerospace are expected in the country between July and September this year.
The CRJ-900s, with a sitting capacity of 76 passengers each, were specifically recommended by the feasibility study undertaken by the National Planning Authority.
According to the study, after a comparative technical evaluation of the different types of aircraft based on among others market suitability, aircraft cost, efficiency, and reliability, the CRJ-900s, which fly up to six hours, were deemed the most appropriate for the airlines’ revival, specifically to ply the regional market.
In total, the government says it has 47 Bilateral Air Services Agreement with other countries around the world where the Uganda Airlines can fly to, and which can in turn designate airlines to fly to Uganda.
In the months leading to the collapse of the old Uganda Airlines in May 2001, it was revealed at the time that some of the country’s airline routes had been sold off. This however, Mr Muleya, denied.
“There were no routes sold, routes belong the country; they can only be allocated to different players based on permission. Those that were allocated are on reciprocal basis. If we allocated rights to Kenya it means, we can as well fly to Kenya,” he said.
The revived national carrier will trade as Uganda Airlines under the holding company, Uganda National Airlines Company Ltd, different from the old one established by President Amin, the Uganda Airlines Corporation, which was grossly mismanaged and eventually liquidated 18 years ago. According to the feasibility study, the national carrier will play a critical role in tourism development and promotion, export growth and investment in various priority sectors.
The study also highlighted that the national carrier will facilitate significant direct foreign exchange savings to the country through cheaper air transport for both passengers and cargo. The feasibility study detailed that Uganda loses about Shs2 trillion or $540 million annually in form of higher transport costs, including extra-charges, to passenger originating and terminating at Entebbe airport.
The presumption therefore is that, once both regional and international markets have been established, Uganda Airlines would create a direct net present value economic benefit of about Shs2.8 trillion or $580 million, after taking care of all the investment and operating costs, in a period of 15 years.
“The first years is to consolidate business: ensure that the internal processes are robust: build a solid brand: consolidate the relationship with the suppliers,” Mr Muleya said.
“We have set time; for the regional market the plan is to break even in five years, and for the international market seven years,” he added.
Speaking at the ceremony to receive of the first two Bombardier aircraft last month, President Museveni suggested a four-pronged business approach to make the business work, and specifically to cash-in on the Shs2 trillion Uganda supposedly loses to airlines of other countries.
“When I look at the figures; Ugandans spend $400m (Shs1.4trillion) on travels per year, why don’t you start by tapping into that,” the President said.
However, according to Ramathan Ggoobi, a policy analyst, the presumption of the Shs2 trillion may not be accurate.
“It’s a wild assumption. With the exception of government money and whose travel budget can be crowded in; when it comes to private travel, there are so many determinations. Those who travel on their own need practical incentives to be convinced to travel on Uganda Airlines,” he said.
Mr Ggoobi added: “I don’t think patriotism is enough to convince people to travel on Uganda Airlines. Even traders, how will you crowd them in unless you use good incentives?”
The airline feasibility study suggested that overall, this variation in ticket prices gives a passenger consumer surplus of Shs1.3 million or $360 with the existence of a national carrier. When this is applied to the 1.525 million passengers through Entebbe airport annually, it is an equivalent of Shs2 trillion or $549 million per annum.
This is the consumer surplus (transport cost savings) to passengers with the availability of a national carrier per annum.
Mr Ggoobi further suggested putting extensive focus on cargo haulage to tap into the country’s export and import business.
Airlines worldwide make money mainly through passengers and cargo operations.
According to the airlines revival study, performance of exports and imports is critical to the performance of the airline industry.
For example, between 2010 and 2010, exports generated a total income of Shs48 billion. The performance indicates an increasing trend compared to the period 2005 to 2009 with a total export income of Shs31 billion.
The key leading export products included coffee, flowers, tea, fish and its products, and tobacco among others. The direction of exports was primarily to the Common Market for Eastern and Southern Africa (COMESA) trading bloc, mainly to Kenya, Rwanda, Sudan and DR Congo, in Africa and elsewhere mainly to the United Arab Emirates, Netherlands, United Kingdom, and Belgium.
On the other hand, imports during the same period 2010 to 2014 amounted to Shs82 billion. The performance indicates an increasing trend compared to the period 2005 to 2009 with a total import income of Shs50 billion.
These improving export-import trends indicate optimistic prospects for airline cargo traffic over the coming years.
The flowery numbers aside, Mr Jackson Jurua, the former commercial manager of the old Uganda Airlines until 1995, said for the new business to prosper, management has to get it right from the start.
“We need to do it better. We need to know the needs of our customers. We need to package our product to make it appealing,” Mr Jurua noted.
Similarly, questions have been floated about the available plans to get back the lucrative ground handling business, which was schemed off from the old Uganda Airlines Corporation in the early 1990s. But there is no clarity on this sticky issue yet.
Mr Muleya said they have a plan in offing.
“Ground handing in all countries is structured in a concession agreement by airport authorities, and it has several aspects; passengers, cargo, technical, lounges and other aspects,” he said.
“Naturally we will develop our grand handling for ourselves. We are comfortable that our plan works. Passenger handling depends on the number of passenger,” he added.
The Works state minister, Mr Aggrey Bagiire, told journalists last month that ground handling is in the airlines’ plans.
But as the new carrier prepares to take off it should prepare to wage a new war both in the volatile skies and inside its cloistered boardrooms to earn the goodwill and reputation of its clientele.
What still needs to be done
With last month’s arrival of the first two CRJs, as a requirement by the regulatory authority — CAA, the airlines company management and other government offices concern with streamlining the processes are racing against time to launch the inaugural commercial flight.
But before that comes, there is a litany of processes that the new airline must satisfy leading to issuance of its Air Operator Certificate, a certificate authorising an airline operator to carry out specified commercial air transport operations.
These processes include, formal application, document evaluation, and demonstration and inspection for the Air Operator Certificate, which has already been undertaken: Proper operating premises, trained staff, maintenance providers, tools and equipment as well structures, processes and systems to enable the safe and secure operation of international commercial flights.
Other processes that have to be concluded by end of July include, purchase, implementation and testing of airline systems: setting up of commercial offices and distribution network including airline association memberships: acquisition and transport of aircraft spares: airport services contracting at all destinations across the network: supplier contract negotiation for operational services, fuel, catering, technical handling, and establishment of an online system design and booking systems and payment gateways.
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