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A national airline, do we need it?

16 Apr

The rebirth of a national airline has yet again ignited discussion in Zambia. The most recent comes in the wake of President Sata’s appeal on his visit to China.

Setting up of a national flag carrier seems to be an unmistakeable motivation. The domestic and international airspace has not seen the Zambian eagle soar since the demise of Zambia Airways in 1995.

All fillers that have attempted to seal this gap have either flown their way into oblivion or headed to the hangars for other operational reasons.

With the current stated need for an airline, it leads us to a point where we assess this appeal. Do we need an airline? What are the cost implications or perhaps the overriding benefits?

To appreciate part of this need, we perhaps must be certain what running an airline involves. This should provide an insight into whether Zambia is on track to venture into this business in the first place.

Lessons from yesterday

Zambia Airways was the nation’s pride. It covered major routes including long haul flights to New York, London, Frankfurt, Rome and Amsterdam among other international destinations.

The acquisition of a DC-10 called Nkwazi represented the height of its identity in 1984. This was the birth of the widebody era in Zambia’s aviation industry.

However, 1992 dawned with its challenges culminating in the airline’s liquidation three years later. The new government then stipulated that the airline be responsible for its debt and sustain its operating expenses through its generated revenue.

With the harsh economic environment then, this measure only worked to speed up the airline’s flight into liquidation.

The suggested business model entailed that Government financed Zambia Airways to a very large extent. With the action for the flag carrier to fend for itself, it’s future could not be guaranteed without Treasury support.

An action too drastic?

The economic climate in the early 90’s was daunting and the new Government seemingly had little leeway to avert the rough tides.

This meant beneficiaries such as Zambia Airways were also dealt a stinging blow. The history from this point on is well documented.

However, what is of interest is what other options the Government then could have explored.

It is pointless to mourn what could have been but extremely useful for us to pick lessons from what was. Especially now when there is increased impetus for a national airline.

A successful business model

Kenya Airways offers a classic case study of an alternative option and operational model.

The airline was wholly owned by the Kenyan government until April 1995. The difference though when decision time beckoned was the route taken by the Government.

In 1996, Kenya Airways was privatised becoming the first African flag carrier to do so successfully. The airline is currently run under a Public Private Partnership.

The Kenyan government owns 29.8% while KLM has a 26.73% stake in the airline. The rest represents private owners’ shareholding.

In terms of success, this partnership undoubtedly salvaged the kenyan airline. The milestones scored attest to this fact.

As of January 2013, Kenya Airways was reported to be one of the leading continental airlines, ranking as the 4th in Africa based on seat capacity. The first three are South African Airways (SAA), Ethiopian Airlines and EgyptAir.

In addition, the airline’s shares are traded on the Nairobi Stock Exchange, the Dar-es-Salaam Stock Exchange and the Uganda Securities Exchange.

With a workforce in excess of 4,000, a fleet size of about 40 and flying to over 50 destinations across the world, the commercial success of the airline is hard to ignore. Needless to say, it has not been as easy to achieve as the milestones may suggest.

Considerations for Zambia’s case

There must be plausible reasons for Kenya to have settled for the business model above.

Regardless of the operational and financial challenges that may have been encountered over the years, this seems the best option for a national airline. More so in the context of the developing world.

The airline business is not inexpensive. The associated costs make it necessary to consider the full implications before embarking on any colossal investments of public resources.

One only needs to appreciate the costs that are incurred in running an airline. The cost of an aircraft alone runs into millions of dollars and to build a competitive fleet, inevitably billions need to be invested.

Coupled with this, fuel and maintenance costs, airport and regulatory fees all add to the cost line of the business. Of course not forgetting the recruitment and remuneration of qualified personnel such as pilots and a competent management team to steer the business to success.

To get the flag carrier airborne and sustain its operations, a Government financed airline should not at any point be an option for Zambia.

The drain on public resources and the resultant hit on the national treasury cannot be overstated.

Zambia ought to tread carefully on this path before delving into it based on the old model that may have been deemed appropriate in the 90s.

What about competition?

The aviation landscape has evolved substantially since the last Zambia Airways aircraft hit the skies.

One key area of this transformation is in terms of competition. Zambia today has a host of airlines that fly into and out of Zambia. Major airlines such as British Airways, Emirates, SAA, Ethiopian Airlines and Kenya Airways all cover the major routes out of Zambia.

The key question then becomes whether or how Zambia is positioned to face this competition and endure the long haul.

To attain viability and sustained profitability, huge investments and other fundamental adjustments ought to be made. This is in order to support a venture that has been largely comatose for decades.

The danger of plunging into this pool without thorough consideration of such factors lies in the actions Government may end up exploring.

It is a potent possibility that Government could introduce measures to protect the airline against such stiff competition. Or provide further incentives that would ultimately be subsidies and impact the country’s financial performance.

This too may be testing on the confidence of wooing investment if there is any hint of state intervention. Every country enjoys sovereignty and its paramount obligation is the welfare of its people’s interests.

However, it is cardinal as well that perception is well managed to ensure the right investment filters through into the local economy. It is this delicate balance that Zambia must pay attention to in order to avert any extremist actions in pursuit of a flag carrier.

What then should we be pursuing?

Undoubtedly, Zambia currently needs pragmatism over pride as far as this issue goes.

We are a developing nation. We still have hordes of our population living in poverty. We still have people that are dying without access to basic health facilities. Not to mention, armies of our people that need an education.

This being the case, our immediate areas of concern will be whether this investment is a priority especially if Government is to bankroll the revival of the airline. If this be the case, should we not be looking at delivery of social services, equipping our citizens with requisite skills and infrastructure development?

Coupled with this, as far as the airline goes, perhaps other avenues ought to be assessed. For instance, we have a beautiful country well endowed with resources. Should we not be engaging in strategic alliances that will transform our tourism sector?

We have major airlines coming into Zambia, how do we leverage these to promote our tourism? How do we invest in easy access to our tourist sites? How can we work to upgrade infrastructure and facilities such as airports to support such aspirations?

It remains a fact too that being landlocked can work for us. Can we aspire to be a logistical hub in the region, a rich and smooth transitory route? Can we turn our eye to agriculture to become the undisputed supplier of food within and outside the region?

There is a lot of work to be done and most of it appears more of a priority to me than pouring billions of dollars into setting up an airline.

The final piece

Zambia has a lot working for her currently. The help she needs from all of us is the will to drive change and progress. Political will is critical as is citizen awareness of any endeavours taken with long term implications.

Therefore, one of the first things we ought to be seeing is an integrated development roadmap. We have recently been informed of grand plans to transform the railway system in the country. This is progressive but expensive too.

It follows then that the full scale of setting up a national airline be analysed with the railway investment in totality among other things. This would offer a snapshot of how much public resources are to be invested in these colossal projects.

Furthermore, the fact that we are a relatively poor nation rising out of the poverty abyss entails that every penny that will affect the next generation be accounted for.

We need to know how much this airline plan will cost the nation. Is it to be financed out of debt and if so, how much, at what cost?

From this perspective, it is clear to me that if the airline is to be financed through state coffers, it is not a worthy pursuit at this stage of our development. The best option to explore may well be a venture riding on best practice from Kenya. Are we able to solicit adequate interest and investment through a Public Private Partnership?

Our energies and intentions must be directed toward such avenues if the nation is to derive value.

To achieve this, we must agree to objectively review what we are striving for.

And certainly, pragmatism must prevail over sentimental considerations disguised as national pride.

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1 Comment

Posted by on April 16, 2013 in Business, Economic, Opinion

 

One response to “A national airline, do we need it?

  1. chipo1988

    April 19, 2013 at 19:37

    “To get the flag carrier airborne and sustain its operations, a Government financed airline should not at any point be an option for Zambia. The drain on public resources and the resultant hit on the national treasury cannot be overstated.” – I think that settles it for me! I’m in wholehearted agreement with your piece. You suggest a nice set of alternatives too. Well written.

     

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