Aviation’s Davids Must Get Their Due




The almost two-decade-long Yamoussoukro decision has realised, and the African skies have been liberalised, at least between the 23 countries that are on board with the Single African Air Transport Market (SAATM).

Despite some naysayers who believed doing as such will give way to big airlines squeezing the smaller ones, the decision has had a largely positive reception. And indeed, such a move is the correct path that should be taken towards realising greater regional integration between African nations, especially economically.

If the North American Free Trade Agreement (NAFTA) and the European Union are any indications, trade is most optimum between nations that are closer together as transportation cost will be reduced and profits optimised.

The near-future prospects do not hurt either. Raphael Kuuchi, vice-president of the International Air Transport Association (IATA), a major supporter of the agreement, mentioned that even with just 12 (key) African countries that liberalise their skies, 155,000 jobs would be created.

Such a far-sighted decision by the government to enter such a deal, which can improve the services of the Ethiopian Airlines through stronger competition, though, is not complemented by how private players in the aviation industry are allowed to fare. For a government that conflates the success of Ethiopian with that of the aviation industry, there has been no mention of how such a decision can affect local private players operating in a restrictive market, or if whether there is a way these companies could benefit from it.

Liberalised skies mean very little for local private operators for reaping its benefits is too ambitious and unlikely a goal given their capacity and scope. This is not a consequence of an inferiority complex, which they could suffer from given the weightiness of their prime competitor, but a result of operating in a market that is heavily sloped against their favour.

This is not to say that there is a government regulation that actually prohibits them from engaging in international flights, or just scheduled flights for that matter. It is only that they are financially under-resourced to reach such heights. For all the publicity towards liberal skies, a part of the aviation industry that should have been a key concern for the government remains unaddressed.

It must not have been easy to survive in a market locked horns with an enterprise that is often described as the “pride of Africa” to begin with.

Ethiopian has been around since the 1940s, has substantial capital and profit, immense assets, a comfortable record of safety and much human power. New operators that even dream of competing with such a giant should have been lauded for the conviction of their courage – for they are the David to aviation’s Goliath.

And had they succeeded in their endeavour and been able to take that critical step from merely engaging in charter services to making scheduled flights, they could have greatly stimulated the aviation industry. Although some did attempt to make that jump, it remains without any tangible results – the sort that could have competed with Ethiopian for the carrier to reduce costs, innovate more and streamline its services.

Despite the state enterprise’s status as one of Africa’s best, there is always room to improve. It is Tewolde Gebremariam, CEO of Ethiopian Airlines Group, himself that has pointed out that non-African carriers dominate the air traffic between the continent and non-African countries.

And as Ethiopian eyes a far bigger market, that of over a billion people, from under a tenth of that amount, the government should consider allowing other operators a better playing ground if it is the efficiency of the aviation industry that is of primary concern.

The question of a healthy industry usually devolves into one where Ethiopian is made to be weakened, which is not the case. All that needs to happen is for the government to extend some of the free market mentality that has applied to areas of the economy such as the financial sector to the aviation industry.

This should happen by correcting a rule that has for long been pointed out as a bottleneck, namely the question of the number of seats a single private aircraft is allowed to have. Notwithstanding initial investment of having to acquire the aircrafts, recurrent costs are hard to balance with profit if the number of passengers along a certain route is limited.

Such requirements can be softened without having to compromise on either safety or quality. What the airlines would then need is to acquire the ability to mobilise financial resources to meet the type of capital an airline – a notoriously huge capital-intensive business (the lowest priced Boeing 777 costs no less than a quarter of a billion dollars) – requires.

It would then be a while before the Ethiopian government’s decision to liberalise the African skies will be of any benefit to these businesses, but they ought to get there gradually. If they do not, they would have one less handicap to blame.

And in such a decision, Ethiopian needs to be supportive. There is no reason to think of it as David severing the head of Goliath, according to the biblical version, but Goliath getting stronger as a result of increased competition. It is a win-win situation in that private players of the industry can thrive, Ethiopian can become more innovative, and travellers could reap the benefits of lower costs as a result of competitive pricing.

By Christian Tesfaye

 

 



By Christian Tesfaye (christian.tesfaye@addisfortune.net)
He is Fortune's Op-Ed Editor whose interests run amok in both directions of print and audiovisual storytelling.

Published on Feb 10,2018 [ Vol 18 ,No 928]


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