AIR Namibia last week received its biggest government subsidy to date when Finance Minister Saara Kuugongelwa-Amadhila announced that the national airline would receive about N$1.1 billion from state coffers this year alone.
New Era business reporter Edgar Brandt had a one-on-one talk with the airline's manager for corporate communications, Paulus Nakawa, to find out what the national airline is doing to increase its revenue and to operate on a sustainable basis.
What are Air Namibia's most profitable routes?
"It is cumbersome if not tricky to say. Speaking from the perspective of Air Namibia with its old aircraft and the volatility of the industry in which we are operating with regard to fuel prices and hefty maintenance costs, it is hard to say. The past and current management of Air Namibia have had to manage the airline with inherent shortcomings since Namibia's independence in 1990, hence the new business plan was created, in which the project to phase out old aircraft is encapsulated. I am optimistic that, come one year and a half from today, I will tell you more on the routes that are contributing tangibly in terms of returns on investments. The tourism sector however, has benefited immensely through the provision of air transport by Air Namibia, which we are mandated to do. Although we do not have direct benefits in terms of profit towards our coffers, our contribution to the bigger picture in terms of GDP has been substantial and rewarding all over the years. That proves how essential an airline company is for any country. Do not look at it narrowly or in isolation."
What are Air Namibia's main areas of concern regarding the Frankfurt-Windhoek route, as well as domestic and regional routes?
"We are indebted to Air Namibia's stakeholders and passengers alike for their patience and understanding. The management of Air Namibia is being applauded for its strategic contingent plan of making sure that passengers reach their destinations albeit it through hassles and difficulties. The nature of the industry dictates certain decisions be taken when inconveniences arise. We used to have three frequencies both to Johannesburg and Cape Town and we have reduced them to two per day. Communication to the market was done earlier and should the market trends improve, we will inform the market accordingly, should there be need to implement new changes."
What are some of the positive developments that have transpired at the national airline?
"Our second brand new A319-100 aircraft is scheduled to arrive in Windhoek on Friday 08, March (today). Air Namibia is happy to report a number of positive achievements in the relatively short span of the implementation of the business plan, which began in the financial year 2011/12. Revenues on the new routes introduced are on the increase, and these routes are progressively moving towards attaining profitability levels in the near future, and their contribution to the entire Air Namibia route network has been positive, on both revenue and expenditure. Where we deemed it necessary, Air Namibia reduced capacity in order to match demand, and thus reduced costs and improved efficiency levels.
"Like any other business, Air Namibia needs to grow in order to be sustainable. Growth means increasing revenue-generating capacity, increased aircraft utilisation, and grabbing new opportunities. Air Namibia, through the business plan, is addressing one of the major problems it has been experiencing, which is stagnation for a very long time with the airline only offering flights to Cape Town, Johannesburg, Frankfurt and Luanda. If over the last 10 years the airline introduced at least two new routes per year, it would have grown to a size which would have met the required economies of scale by now. While there was natural traffic between Namibia and Ghana as an example, we needed to develop the market and the route. Today we have a lot of Ghanaians coming to Namibia for shopping and holiday, local businesses are now also benefiting. Given a chance this trend will continue to grow. The airline, and Namibia in general, needs to diversify its source markets for tourism and for trade - it cannot depend on tourism or trade from South Africa and Europe only."
What are the airline's new targets?
"The business plan's new network and schedules are rolled out in concert with improvements to operations and infrastructure. The target was to increase the number of destinations from 12 to 17 and city-pairs served from 20 to 100 by October 2012. The number of flights was to increase 18 percent with the average weekly total growing from 226 to 267. Achieving these targets relied on increasing productivity rather than by increasing the number of aircraft.
"Luanda is today our most performing route with positive yields. The years when Air Namibia started flying there, it was during the civil war and this resulted in the decision being heavily criticised. Today, businesses in Namibia are clamouring for business from Angola and this has also helped integrate the people of the two countries, enhancing cultural exchanges. Passengers are also looking for options and new places to go to and not only to be exposed to Johannesburg, Europe and the USA. Namibia has plenty to offer and these people are happy to find Namibia now easily accessible.
"Air Namibia's Ghana route is also providing an option for traffic to places beyond such as the USA, Europe and the, Middle East. Air Namibia's flight time of 5 hours from Windhoek to Accra, and 7 hours from Accra to New York on partner airlines is by far the shortest route between Windhoek and the USA. The same applies for travelling to many parts of Europe, such as London, Amsterdam and Frankfurt. The route presents a shorter travel time alternative to passengers and bypasses the Johannesburg connection with its notoriety and reputation for baggage pilferage.
"The Lusaka and Harare routes offer connections on Emirates and Kenya Airways for passengers not wanting to travel via Johannesburg for onward connections, especially to the Middle East and to Asia. These routes are relatively new and are still experiencing challenges. However, the passenger load factors on these routes are on the increase on a month by month basis, and Air Namibia believes in the near future they will be profitable, thus reducing the airline's dependence on government support in the form of grants."
Does the decision to purchase new aircraft make business sense?
"The decision to buy new aircraft for Air Namibia was aimed at recapitalisation. These aircraft now in Air Namibia's books show a strengthened balance sheet. The business plan identified that acquisition makes better financial management sense as opposed to renting aircraft. If the national airline is to continue renting aircraft, the total costs would equal the value of the aircraft leased. Acquisition saves such costs without having to pay anything apart from maintenance. Air Namibia will use them for about 25 to 30 years without paying a penny, which is a substantial relief on our cash flows.
"Air Namibia now has a fleet that is more modern, efficient, and flexible with lower operating costs, increased reliability, and an enhanced on-board product. Upon completion of the fleet upgrade in mid-2013, the Air Namibia fleet will consist of four Embraer 135-LRs, four Airbus A319s and two Airbus A330-200s. The acquisitions are in line with the business plan objectives to increase flights, aircraft utilisation, and passenger volumes, both direct and connecting. Successes of the business plan require a greater emphasis on running an on-time operation that smoothly manages passenger flows. This means that Air Namibia must make operations a core competitive strength. Initiatives are there and would continue to be launched in a wide range of operational areas. On-time performance, dispatch reliability, and turnaround times at both Windhoek and the outstations will be improved in order to achieve the necessary high levels of efficiency and reliability of service. Changes will be required to Air Namibia's processes, and closer monitoring of maintenance providers and ground handlers."
What is the status of Air Namibia's lease agreements with Airbus and when will the new Airbus aircraft be in service?
"Air Namibia managed to extend the current Airbus A340-300 lease agreements to go beyond mid-2013, to allow us to use these aircraft during the period between the initial contract termination date and date of entry of the two brand new A330-200 planes. The first of the A330-200 aircraft is expected to enter the fleet in October 2013 and the second one is expected to enter the fleet in November 2013. These aircraft will offer 30 business class seats with full flat beds and personalised video and audio in-flight entertainment, and 214 economy class seats also fitted with a personalised audio/video in-flight entertainment system."
What is Air Namibia doing to improve its revenue management?
"Every action and recommendation in the business plan is dependent on having the best team of people with appropriate skills, the optimal organisational structure, the right culture and the necessary tools to do the job. Successful execution of the business plan will require a shared sense of responsibility and action at every level of the organisation. Therefore the business plan includes initiatives to establish a clear mandate for leadership, fill skills gaps, and create an aligned organisation. On the back of this will be planned IT investments that will target returns related to revenue, cost efficiency, operational excellence and customer service.
"It is important to mention that the cost of operating an air service, especially on long haul flights such as WDH-FRA keep increasing, and as such we are improving our revenue management function to ensure that we optimise on the level of revenue that can potentially be earned, in order to ensure that we operate sustainably into the future as we continue to make a positive contribution to the Namibian economy."
Do you think the measures you have implemented will bring about the required stability?
"The improvement in operational integrity will be accompanied by a renewed emphasis on customer service. The goal will be not only to consistently get the basics done well, but to do them in a manner that demonstrates the warmth of Namibia. A training programme in the fundamental principles of customer service and problem solving will be provided to all customer contact staff and geared to their specific needs. Steps will be taken to reduce common sources of customer service problems such as poor on-time performance and the inept handling of flight disruptions. Finally, the product itself will be enhanced with the introduction of a new fleet.
"On the commercial side, the business plan will aim to turn Air Namibia's small size into a virtue by competing smartly and swiftly. This will involve a coordinated commercial strategy - bringing together local market intelligence, competitor analysis, pricing, revenue management and sales, and utilising a spread of distribution channels and fare levels. Initiatives will be launched to upgrade the pricing team's capabilities, improve tour operator terms, further build up e-commerce, and implement a new, more flexible host reservations system. Marketing resources will be prioritised to promote Air Namibia's new destinations and services and to further raise awareness of the brand."