Friday March 30 2012

Why Uganda should not start a national airline

By Shashank Nigam

Recently, Qatar Airways launched their non-stop daily service from Doha to Kampala. And at the press conference, the CEO promised to add services to neighbouring Kigali in Rwanda, Mombasa in Kenya and Zanzibar in Tanzania.

And Qatar Airways is not the only airline expanding into Africa. Gulf Air is adding flights, so are Turkish Airlines and regional giants Ethiopian and Kenya Airways. Which begs the question, if a nation like Uganda, which doesn’t yet have a national airline, starts one to boost tourism, or get other airlines to fly more often into its airports? I’d say starting a national airline would be self-defeating today.

While the growth in the number of air travellers continues to surge ahead in the developing world, due to fast growing middle-class, that doesn’t necessarily co-relate to airlines making profits too.

The last decade-- 2001-2010-- was a horrible one for airlines. As a group, airlines in the US lost $54.6 billion, and made money in only three of those years (2006, 2007 and 2010). The Air Transport Association has numbers going back to 1947. In the 64 years from 1947 through 2010, the industry has been profitable in 45 of those years. However, the profits in those 45 years, $63 billion, is more than offset by the losses in the other 19 years, $97 billion). That means the industry since 1947 has cumulatively lost about $34 billion.

This trend accentuates further when we look at national airlines, which are bottomless pits for taxpayers’ money. While some of the private budget carriers somehow make a profit through innovative marketing and product offerings, majority-government owned airlines are almost always complete basket-cases. Look at Air-India. It loses so much money that it’s enough to feed 400m Indians for a year. If we analyse Alitalia, it’s no mystery the airline is still flying only because of multiple bailouts by the government. Air Canada is not only loss-making, but the Canadian government is too scared of allowing competition in, as jobs are at stake. Or at least that’s the thinking.

So why is having a national airline still in fashion in government corridors? Because it is, as Devesh Agarwal from Bangalore Aviation puts it in reference to Air India, “the mother of all cash-cows— milked by the political and bureaucratic class she is now being forced to give their life blood since she has already been sucked dry”.

And that’s possibly the only reason why unprofitable national airlines still fly – to serve as private jets for the political class and their cronies. Which is why I was shocked when I read an article in the Daily Monitor advocating that a national airline should start to boost tourism.

But does Uganda need a national airline? Nope. Uganda is known as the “Pearl of Africa” for its scenic beauty, temperate climate and flora and fauna- certainly a tourist attraction. But that doesn’t justify setting up an airline. The article, written by a former employee of the now defunct East African Airways, advocates that a national airline is needed to boost tourism.
Unfortunately, that was the case in the 60s, not today. Ryanair carries more passengers to and from Britain than British Airways. AirAsia has more planes on order than Malaysia Airlines and Singapore Airlines combined. Even in Africa, non-national airlines like Mango and Kulula carry more passengers than the likes of South African Airways. Moreover, the capacity added by other airlines from the Gulf and Europe cannot be ignored.

So in order to boost tourism, a conducive environment for airlines should be created. In fact, Uganda is well located in the centre of Africa, to act as a natural hub for airlines flying small regional aircraft across the country. Perhaps, the money should be spent upgrading the airport, which is decades old. And airlines already flying to the country should be empowered to spread the word about the tourism potential, as if they were the national carriers.
Warren Buffett, who put some money into US Airways back in the 1990s, wrote in his 2008 letter to Berkshire Hathaway shareholders: “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favour by shooting Orville down.”

A national airline can only promise to provide direct employment, but in no time has the likelihood of turning into a government stooge, and burn up taxpayers’ money.
Hence, if a country doesn’t have a national airline, like Uganda, precious resources should be spent in boosting tourism by bringing other airlines to the country, not plundering money into a new source of national pride.

Mr Nigam is a consultant, speaker and thought leader on airline marketing and travel customer engagement strategy. He is CEO of SimpliFlying, currently residing in Uganda