Crowded African skies get even busier with Uganda Air’s return

Uganda Airlines, the newly relaunched national carrier, will challenge Ethiopian Airlines for a slice of East Africa’s aviation profits. (Reuters)
Updated 30 August 2019

Crowded African skies get even busier with Uganda Air’s return

  • Continent lacks Dubai-style hub as Emirates and Turkish Airlines dominate routes

NAIROBI: Uganda Airlines has taken to the skies once more after almost two decades out of action, but flies into a crowded aviation market in Africa where carriers have the weakest finances and emptiest planes of any region in the world.
The state carrier launched commercial flights on Wednesday, its first since it was liquidated in 2001, aiming to take a slice of the East African aviation business that is dominated by Ethiopian Airlines, the continent's success story.
Uganda is the latest African government to pour money into national flag carriers; Tanzania and Senegal are also resurrecting their airlines, while the likes of Rwanda, Ivory Coast and Togo are expanding theirs.
But such efforts have been hampered by high business costs as well as protectionism, which has impeded a continental open-skies agreement - something industry experts say is vital for the success of African carriers in a tough market.
The African market is forecast to grow almost 5% a year over the next two decades in terms of passengers, faster than mature markets, according to the International Air Transport Association (IATA). However, this is from a low base and most state-owned flag carriers in the region are losing money.
While the global aviation industry is on track to make a profit of $28 billion, African airlines are projected to make combined losses of $100 million this year, IATA said in June.
Uganda Airlines, like some of its rivals, aims to attract more domestic travellers to help it buck the gloomy continental trend. Around 2 million passengers per year travel through Entebbe, Uganda's main airport. Around 70% are Ugandans, said the carrier's CEO Ephraim Bagenda.
"All those currently travel on foreign airlines," he told Reuters. "We want part of that cake."
Last year, it looked like Africa was making progress on an open-skies agreement - the Single African Air Transport Market - to let airlines decide how frequently they fly between cities and which aircraft they use.
A total of 28 countries have signed up, accounting for 75-80% of African air traffic. Uganda is considering signing, Works and Transport Minister Monica Azuba Ntege said.
However, so far only 10 signatories - including Cape Verde, Ghana, Togo, Ethiopia and Nigeria - have begun changing their own laws to implement the deal and open up their markets, said Raphael Kuuchi, Vice President for Africa at IATA.
The patchy efforts undermine the agreement and hobble direct connections within Africa, say analysts. Some airlines, including from countries that have signed up, oppose the open-skies deal because they fear bigger competitors.
"The most subsidised airlines and the biggest ones are going to take the biggest market share because they (are) able to afford it," Kenya Airways CEO Sebastian Mikosz told an investor briefing on Tuesday. "They are going to kill the smaller national airlines which are just starting because they will have no way to defend themselves."
Ethiopian Airlines, sub-Saharan Africa's only successful large state-owned airline, has bucked the regional trend and has been expanding fast, thanks in part to having secured key traffic rights in two ways.
First, it signed bilateral agreements with nearly all African countries in the 1970s, activating them as needed, said Kuuchi. The airline flew to parts of the continent served by few other carriers and leveraged that goodwill to open up markets.
"Governments were willing to give them additional rights, and travel rights, once you give them out, it's very difficult to retract," he added.
More recently, Ethiopian has been helping other countries launch their own carriers and taking a stake. That has created regional continental hubs in Togo, Malawi and Chad where it can pick up and feed traffic into its main hub in Addis Ababa, cementing its dominance and rivalling Gulf carriers.
Now governments are hoarding travel rights to protect their own airlines, so African carriers are struggling to set up hubs vital to winning international travellers, said Girma Wake, former CEO of Ethiopian Airlines.
"Instead of flying point-to-point everywhere, if they can collect traffic from the low-traffic areas and bring them to major hubs and carry them from those major hubs, you will be in a better position," he told Reuters.
African aviation accounted for only 2.1% of the global market in 2018, with 92 million passenger journeys flown, and non-African airlines including Emirates and Turkish Airlines account for around 80% of traffic in and out of the continent, IATA said.
African airlines are also struggling to improve load factors - percentage of seats filled - from the world's lowest regional level of 71% in 2018, compared with 81.2% globally, according to IATA.
Emirates builds traffic through its global Dubai hub, an advantage most African airlines don't have - except Ethiopian Airlines.
As well as protectionism, high fuel and taxation hurt African carriers.
In Europe, a passenger can travel 1.5 hours for less than $100 all-inclusive. In Africa, passenger taxes alone range from $40 to $150 per passenger, African Airlines Association Secretary General Abderahmane Berthe told Reuters.
"Many governments are levying taxes on aviation and not reinvesting these collected amounts in aviation," he said.
Governments often see air transport as a luxury that can sustain high taxes, said Air Tanzania managing director Ladislaus Matindi.
Fuel is also taxed heavily and must often be trucked in, an expensive operation. Fuel makes up about a quarter of operating costs globally but reaches 30-40% in Africa, Berthe said.
Uganda Airlines, founded by former dictator Idi Amin in 1976, was liquidated in 2001 after years of unprofitability during a push to privatise state firms.
Other African state carriers have been crippled by government interference, such as insisting on routes to unprofitable but politically important destinations.
Ghana Airways, which ceased operations in 2005, used to fly between Accra and Las Palmas, mainly because of the friendship between the leaders of the two countries, IATA's Kuuchi said.
Uganda Airlines CEO Bagenda insisted his company would be free from any political interference.
"Government policy in Uganda is eyes on, hands off," he said.


$8bn blow to Erdogan as investors flee Turkey

Updated 09 July 2020

$8bn blow to Erdogan as investors flee Turkey

  • Overseas holdings in Istanbul stock exchange are at lowest in 16 years

ANKARA: Foreign capital is flooding out of Turkey in a massive vote of no confidence in President Recep Tayyip Erdogan’s economic competence.
Overseas investors have withdrawn nearly $8 billion from Turkish stocks since January, according to Central Bank statistics, reducing foreign investment in the Istanbul stock exchange from $32.3 billion to $24.4 billion.
As recently as 2013, the figure was $82 billion, and foreign investors now own less than 50 percent of stocks for the first time in 16 years.
“Foreign investment has left Turkey for several reasons, both internal and external,” Win Thin, global head of currency strategy at Brown Brothers Harriman, told Arab News.
“Externally, investors fled riskier assets like emerging markets during the height of the coronavirus pandemic. Some of those flows are returning, but investors are being much more discerning and Turkey does not seem so attractive.”
In terms of internal factors, Thin said that Turkish policymakers had made it hard for foreign investors to transact in Turkey. “This includes real money clients, not just speculative.
“By implementing ad hoc measures to try and limit speculative activity, Turkey has made it hard for real money as well. Besides these problems, Turkey’s fundamentals remain poor compared to much of the emerging markets.”
Erdogan allies claim international players are manipulating the Istanbul stock exchange through automated trading, and have demanded action to make it difficult for them to trade in Turkish assets.
Goldman Sachs, JPMorgan, Merrill Lynch, Barclays and Credit Suisse were banned this month from short-selling stocks for up to three months, and this year local lenders were briefly banned by the banking regulator from trading in Turkish lira with Citigroup, BNP Paribas and UBS
JPMorgan was investigated by Turkish authorities last year after the bank published a report that advised its clients to short sell the Turkish lira.
MSCI, the provider of research-based indexes and analytics, warned last month that it may relegate Turkey from emerging market status to frontier-market status because of bans on short selling and stock lending.
With the market becoming less transparent, overseas fund managers, especially with short-term portfolios, are unenthusiastic about the Turkish market and are becoming more concerned about any forthcoming introduction of other liquidity restrictions.
The exodus of foreign capital is likely to undermine Turkey’s drive for economic growth, especially during the coronavirus pandemic when employment and investment levels have gone down, with the Turkish lira facing serious volatility.