BY EKELEM AIRHIHEN
Ekelem Airhihen, a chartered accountant, is an airport customer experience specialist; and can be reached on ekyair@yahoo.com and +2348023125396 (text only)
“This AGA is the perfect occasion to address the future of African Aviation and enhance stakeholders’ commitment to enable the multitude of benefits to be experienced across all sectors of our economies. Failure is not an option, together we will succeed,” Ricardo de Abreu, Transport Minister of the Republic of Angola said, in his opening speech at the 53rd Annual General Assembly of the African Airlines Association.(www.afraa.org).
With an eye on recovery from the pandemic, Abderahmane Berthe, AFRAA’s general secretary, drew attention to the ingredients for successful restart as: safe travel measures, removal of travel restrictions, financial support to airlines, technology to shape the ‘new normal’, reinvention and redefinition of airline business models, cooperation among African airlines and passenger confidence.
Airline partnerships and mutual cooperation in Africa is expected to lead to a stronger and better connected African market that can compete internationally. Recently, there has been fleet expansion, modernization and adaptation in a bid to expand connectivity across the continent. This is expected to result in increase in operational capabilities as well as economies of scale.
The partnership between South African Airways (SAA) and Kenya Airlines (KQ) will lead to a pan African airline that will give both airlines the benefits of increased finances and operational expertise ( www.aerotimes.aero). Recall that in 2020, KQ lost $333 million while SAA lost $341 million. In a restructuring plan for the airlines, it is reported that the Kenyan government will withdraw its interest in nationalising KQ with a $750 million guarantee to pay off its debt. For SAA, the South African government is committed to provide $729 million in state aid to help pay off its debt.
Indeed, Rui Carriera is quoted as saying at the 53rd AGA that: “Cooperation and collaboration among African airlines through initiatives such as network coordination, and joint cost containment are among the initiatives that will enable airlines [to] rapidly overcome the impacts of the pandemic.”
Experts suggest that sustaining the gains of aviation will require strategies beyond route expansion. There will be need to look at strategies which point towards improving service quality, securing brand loyalty as well as strategies that result in cost control. Delta Airlines is reported as the first ever purchase of a refinery by an airline. This has allowed it to cut $300 million annually from jet fuel costs (per Reuters). Indeed McKinsey suggests, in their article, ‘A Better Approach to Airline Costs,’ that winning companies must have a granular understanding of cost drivers to keep them low and constantly falling. This cost drivers based approach helps with tracking, measuring and benchmarking costs and becomes most useful when it inspires action.
In gaining a competitive edge through pricing, McKinsey, a strategy firm, believes that there is a fundamental industry change that airlines must now take into consideration. There is an increasing percentage of revenue coming from ancillary items, such as checked baggage, onboard food, premium seat selection and extra legroom. So, airlines must adopt a bundled model of revenue management that considers, not only ticket prices but also, the probability that passengers will purchase other goods and services from the airline before, during and after their journey. So, focus should go beyond core ticket pricing.
Finally, McKinsey suggests in an article, ‘Between ROIC and a Hard Place: The Puzzle of Airline Economics’, that when airlines deliberately focus on improvements in privileged sources of revenue, cost position versus peers, brand strength and organisational health, they sure have a winning direction to follow.
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