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East Africa

It is survival of the fittest in aviation

Wolfgang H. Thome, eTN  Mar 10, 2011

(eTN) - The aviation industry, just recovering from the sharp recession during and after the global financial and economic crisis, is facing another serious threat to the industry’s ability to make up for the record losses International Air Transport Association (IATA) airlines suffered in past years. Rising fuel costs are causing crisis meetings among management and only those fortunate enough to have favorable fuel-hedging contracts with their suppliers are presently exempted from these worries, that is until those contracts come up for renewal again.

Most airlines, however, especially those in Eastern Africa presently engaged in a do or die fare war on Kenya’s domestic routes, are contemplating fuel supplements, or where already in place those to rise even higher, a financially sound decision finance directors have been advocating for, but also a potential factor to drive customers back to overland busses, at least those marginal market segments the current low fares have attracted on the routes to Mombasa and Kisumu from Nairobi.

There is growing speculation in Nairobi‚Äôs aviation circles over an upcoming market consolidation, and while tourism to Kenya in particular continues to boom, for now, rising air fares ‚Äď already hit this year by eco taxes in parts of Europe and other related regulatory cost increases ‚Äď may well hit and depress demand for air travel, too. Home heating bills in the key consumer markets in Europe are already leaving potential long-haul travelers with a sizeable hole in their pockets, and industry observers presently at ITB in Berlin are behind the scenes speaking of storm clouds on the horizon of vacation businesses and air travel, in spite of the entire industry hyping confidence, in public that is, to keep up appearances.

Should, in fact, the East African aviation market have to consolidate, it could span from the scheduled airlines operating jet services from Jomo Kenyatta International Airport (JKIA) to safari air operations at Wilson Airport. Inflationary data just obtained also shows that the falling value of the regional currencies is pushing price rises up faster and further than expected, and such developments for sure also affect business travel plans as companies, afraid of another bust cycle, are tightening their belts again to save costs as and where they can before it may be too late.

Hence, it seems that the recent demand boom for airlines in Eastern Africa may well be an endangered species, at least while inflation is running way ahead of forecasts and aviation fuel prices, too, have now reached a level beyond the pain threshold.

It is survival of the fittest in aviation
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