Air Namibia needs strategic alliances
Air Namibia should heed the International Airline Ticketing Association (IATA)’s advice to set strategic alliances with other international airlines to stay afloat.
The national airline now has plans to downsize operations to make it more profitable.
A research done by IATA shows that international air passenger traffic has grown rapidly in recent years and most airlines that need to survive the hyped-up competition could tap into strategic partnerships.
Unlike outright privatisation, which would see the airline charging exorbitant fares on non-profitable routes, code partnerships (as they are referred to in the aviation industry) would allow it to save on such routes while spreading its wings wider to the rest of the world.
Air Namibia has not been able to produce a sound balance sheet for the past five years. As a result, it has been labelled a perennial loss-making public entity either because of the unsustainable routes or an ever-increasing expenditure with insufficient revenue inflows.
The airline’s borrowing from Government has since exceeded N$500m yet the company still battles to sustain its wage bill as well as cut down on its recurrent expenses.
Just two weeks ago, the managing director of the State-owned air carrier, Theo Namases, told The Villager that the strategic plan, created two years ago, needs a thorough relook.
“In future, we should start considering downsizing the company’s operations and making the airline small and viable because we continue to service some routes that are not profitable,” Namases revealed.
With such a background, Air Namibia is proving to be a difficult company to turn around just like every other State-owned airline on the African continent including the South African Airways, which has bled N$5b in the last three years; Malawian Airways, which almost hit rock bottom in terms of operations and Zimbabwean Airways, which has been grounded because of a US$140m (approximately N$832m) debt.
In its research on the viability of partnerships in the world airline industry, IATA states, “While economies of scale and scope are inducing global consolidation of the international airline industry, it is the ongoing reform of the imperfectly competitive, regulatory environment and the fledgling international strategic alliances recently negotiated by various carriers that will ultimately determine the fate of the globalisation process.
“The most competitive air carriers will emerge in countries that most successfully manage the transition from the restrictive bilateral system to ‘open skies’ multi-lateralism and partnerships.”
Partnerships, the African experience
A benchmark example is Kenyan Airways, which enjoys (arguably) the largest airspace in the continent because of its partnership with recognised private entities.
Kenyan Airways has ‘code-sharing agreements’ with private and other international airlines where the airline shares international routes with its partners thereby guaranteeing passengers proper service deliveries while cutting down on expenses when flights are not full.
The airline has partnerships with the KLM Royal Dutch Airlines (for its North American and European routes), the Tanzania (Dar es Salaam)-based Precision Air (for its regional routes), Air Mauritius, India’s Jet Airways for its Asian and Indian routes and TAAG Angola Airlines for its southern African routes.
The same can also be said for Ethiopian Airways, which generally offers relatively inexpensive fares to 79 international and 17 domestic destinations, including the Americas, Europe, the Middle East and Asia.
Ethiopian Airways is one of the world’s fastest growing airlines headquartered in Addis Ababa, Ethiopia and has a frequent flyer programme it administers in partnership with the German airline; Lufthansa’s Miles&More loyalty programme.
It also has a number of strategic partnerships with other airlines including Air China, Turkish Airlines, Lufthansa and Gulf Air.
On average, Ethiopian Airways covers about 45% of its expenses incurred from its direct flights through its code partnerships with both private and public airlines.
A recent research by SAA that has seen its fair share of financial troubles reveals that Government bailouts are not the way forward for an airline.
The SAA concluded, instead of going to Government to get economic support like the last time it got N$5b (US$563m) Government guarantee in October this year to be able to borrow, conjuring up partnerships with other international airlines could be the way forward.
SAA, like Air Namibia, has repeatedly asked Government for assistance over the last several years as multiple restructuring attempts have failed. The requests are controversial as they distort the playing field with rival - Comair - being the most vocal critic.
SAA reported N$1.3b (USD146.2m) worth of operating loss on increased revenues of N$23.8b (USD2.68b) for the year ending March 2012, up from N$22.6b (USD2.54b) a year earlier.
Operating costs increased by R3.6b (USD401.6m) to R25.2b (USD2.83b). Over the last 10 years, the airline has made cumulative losses of R14.7b (USD1.65b).
The SAA management has since opted for other avenues including borrowing from the international market code partnerships to be able to stay afloat; something the rather small Air Namibia, which, in its ambitious plan of being the region’s preferred airline, could learn from.
Partnerships, the global view
The international aviation industry remains a cut-throat space where small airlines battle to survive bigger ones including the likes of the United Arab Emirates-based Fly Emirates, which also survives through code partnerships.
Fly Emirates, to date, is one of the airlines that is privately-owned with a large spectrum of airspace covering all corners of the world because it has strategically partnered with many struggling African airlines.