Kenya: Why the Next Two Years Are Crucial for the Aviation Sector

opinion

Airlines are set to take to the international skies this Saturday, many aware of the turbulent times ahead, and are banking on passenger goodwill to stabilise operations once they get airborne.

Industry stakeholders have warned that it will not be until 2023 when carriers are expected to reach the traffic that was there pre-Covid-19 and return to profitability.

The next two years will be very crucial for survival of airlines as they will need to recover the money they have lost during a four-month grounding resulting from the scourge.

"Passenger airlines need to adopt a resilient strategy over the next two years and operate [fewer] aircraft, which can meet the travellers and network demand," said Mr Sanjeev Gadhia, an aviation expert and chief executive officer of Astral Aviation.

Mr Gadhia said carriers need to focus on cargo too as an additional revenue source and convert some of their older fleet to carry freight as demand will be there after the pandemic.

"By cutting cost and adapting a resilient strategy, airlines will be able to weather the storm," he said in an interview with Smart Company.

MAKING ADJUSTMENTS

Kenya Airways has announced that it will be making some adjustments on some of its routes by either stopping, cutting on frequencies or suspending flights altogether.

The airline has cut down on the routes it plies by 50 per cent and it will service 27 destinations when it resumes flights next month.

The major routes where resumptions have been delayed include US and China, where flights are expected to resume in October, according to the carrier.

Experts have warned that the number of passengers will remain subdued as flights the world over resume operations.

Major airlines including Ethiopia, Qatar, Emirates and RwandAir, have announced their imminent resumption of flights.

Passenger services stopped in April after countries closed their airspace for passenger aircraft to curb the spread of Covid-19 that has so far affected more than 16,000 people in Kenya.

Uganda is the only East African Community (EAC) country that is yet to open its airspace.

According the UN civil aviation agency, International Civil Aviation Organisation (ICAO), international air passenger traffic in the first three quarters of 2020 could drop by as many as 1.2 billion traveller -- two-thirds.

AVIATION SECTOR

Travellers will be key for revival of the aviation sector as they contribute significantly to the revenue of airlines. However, fears are rife that a lot of people might be scared of flying because of the risk of catching the virus.

US-based Texas Medical Association has listed use of planes as a moderate high risk of contracting the virus, with a likelihood of seven on a scale of 10.

Carriers have already got a reprieve on the rule that would have seen them freeze the middle seat to create physical distance to minimise spread of infection in the cabin.

"We had discussion as International Air Transport Association (IATA) at board level and conducted studies to determine the risk of transmission and it was concluded that air circulation system reduces risk of contamination because of the hyper-filters," said KQ chief executive officer Allan Kilavuka recently.

IATA, which is a trade group representing airlines around the world, came out strongly against blocking middle seats on planes, while recommending both passengers and crew wear face masks on board instead.

"Evidence suggests that the risk of transmission on board aircraft is low. Mask wearing by passengers and crew will reduce the already low risk, while avoiding the dramatic cost increases to air travel that on-board social distancing measures would bring," IATA said in a statement.

Kenya Airways had said it would delay resumption of flights once travel restrictions are lifted should the government have insisted on physical distance protocols.

The carrier resumed local flight mid this month and has received good response from customers, judging by the load cabin factor recorded by the two flights that the airline operates to Kisumu and Mombasa.

CORONAVIRUS CRISIS

The coronavirus crisis has hit the global aviation industry hard, with African carriers expected to lose $6 billion in revenue this year.

Since March, IATA has been warning of dire consequences for the sector if respective governments fail to support their flag carriers through financial bailouts.

"The airline industry faces its gravest crisis. Within a matter of a few weeks, our previous worst case scenario is looking better than our latest estimates. But without immediate government relief measures, there will not be an industry left standing.

"Airlines need $200 billion in liquidity support simply to make it through. Some governments have already stepped forward, but many more need to follow suit," said IATA Director-General and CEO Alexandre de Juniac.

Treasury said last month that the national carrier was seeking over Sh7 billion in bailout in order to survive these severe times.

The airline chairman, Mr Michael Joseph, said KQ had requested for Sh9 billion as a bailout package and that they had received Sh5 billion in January with the balance expected in July. "We asked government for some support in January for maintenance of our Embraer engines to keep us flying as they were due for overall maintenance. We were loaned Sh5 billion and we're still waiting for the balance," he said during an investor briefing recently.

Kenya Association of Air Operators (KAAO), a commercial airlines group, said they are in a deep financial challenge and need a loan from the government for training of their pilots, servicing of aircraft and buying spares.

"We need a soft loan from the government with a friendly interest rate to jump start our activities. Without that, it might be difficult for us to get back to business once the restrictions are lifted," said Col (Rtd) Eutychus Waithaka, KAAO executive secretary.

KQ reported a Sh12.9 billion loss for the financial year ended December 2019, up from Sh7.7 billion in 2018, with losses attributed to increased cost of operations.

PARKING FEES

Kenya Airports Authority (KAA) issued a waiver on parking fees for domestic airlines that operate at Kenya's airports, coming as a relief to carriers who have been grappling with serious financial challenges following grounding of their services.

The authority said last month it had received approval from the government for waiver of parking fees for the period April-June 2020 to aid recovery efforts.

The agency has also deferred 75 per cent of rent for the same period to be repaid in nine monthly equal instalments from July.

Grounding of airlines has affected KAA, which relies on flights to generate income. KAA charges about $10 everyday as parking fee for smaller aircraft with the charges rising to as high as over $100 for larger ones.

KAA said in June that it will seek government financial support in the next six months if normal operations would not have resumed at JKIA as the authority projects to have run out of cash if there would be no meaningful recovery in business operations at the facility.

"Seeking support from the government still remains part of our financial strategy. We are working out where we are at the moment in terms of financial projections that we had made and see how far we can go," said KAA.

At the Jomo Kenyatta International Airport, the passenger sector has been severely hit, losing up to 80 per cent of traffic at the facility between March and May this year.

Data from KAA) indicate that the number of passengers plummeted from 55,000 in March to 14,300 in April after domestic carriers were grounded following restrictions on movement in and out of Nairobi.

MINIMAL DECLINE

On the other hand, cargo services was not affected much after the government allowed freighters to continue with their operations at the JKIA. Data from KAA indicates that cargo has been down by 18 per cent between March and May this year.

The industry figure shows that on yearly comparison, goods handled in 2019 was 90,000 tonnes compared with 74,000 tonnes that were evacuated through JKIA between January and May.

The minimal decline in cargo is attributed to an increase in number of freighters to ferry the consignment following high demand for their services amid low aircraft capacity.

Foreign carriers who had suspended their flights to Kenya started flying back as European countries eased lockdowns, pushing up demand for freight as about 12 carriers are now plying the Nairobi route.

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