Emirates expansion into Africa puts African governments on the spot
Following the announcement made by Kenya Airways that it will launch flights from Nairobi to Abuja for initially four times a week, Emirates’ Country Manager in Kenya announced that they too will fl
Following the announcement made by Kenya Airways that it will launch flights from Nairobi to Abuja for initially four times a week, Emirates’ Country Manager in Kenya announced that they too will fly to Abuja very soon, with Kano, Nigeria’s second most populous city, also added to its destination list from August.
This development, which primarily aims at the two leading African hub airlines, Kenya Airways and Ethiopian Airlines, raises a series of questions towards African governments in general and in particular the Kenyan government, for not creating much of an enabling environment for local airlines to do business in East Africa’s largest economy.
AFRAA, the African Airline Association, has repeatedly tried to engage with African governments and the African Union over excessive taxation, attempts to slap yet more charges on air tickets to finance AU operations, and the ease with which foreign airlines have been able to obtain route rights often at the expense of African airlines, which often encounter a hostile regulatory environment when applying to traffic rights. A good example are the totally-restrictive policies by Angola, where the request for more flights for instance by Kenya Airways are restricted to few a week into Luanda and yet there is strong demand.
AFRAA has made detailed representations on the effects the various tax regimes have on the growth of quality aviation on the continent, which instead of supporting a strategic asset seems to tax aviation out of business in favor of foreign legacy carriers from Europe or the United States and the emerging new aviation powerhouses from the Gulf.
In Kenya, to be specific, is the national airline facing a VAT tax bill of over 14 billion Kenya shillings, a cost which has to find its way into the ticket prices, fares and cargo charges, while not only neighbors Ethiopian Airlines are exempt of such taxes but more so the Gulf airlines where taxes on their national carriers are something unheard of.
“Like with tourism, which our government has messed up big time, they are now doing the same to the aviation sector. First is imported aviation fuel JetA1 subject to a 1.5 railway levy, which is grotesque that the aviation sector should have to pay for a competing transport sector. This must be a worldwide first in follies introduced by hapless legislators who have no clue what they are doing and what negative impact this will have for Kenya’s aviation industry. Secondly is the VAT charge on aircraft and spare parts ludicrous when the main competitors of Kenya Airways laugh out loud because they will have cheaper tickets to sell and will take a bigger market share at the expense of KQ. Kenya Airways ambitious plans under their strategic rollout of new aircraft and new destinations will be seriously impacted by such tax measures, they may have to scale Plan Mawingu back or slow it down in order to digest those taxes and re-calculate their load factors for passengers and cargo if they sell at higher tariffs than Ethiopian or Emirates, Qatar and Etihad. All those are aiming at the world’s most underdeveloped aviation market, Africa, to make a killing from the failure of our governments to agree promoting our own airlines first and foremost before letting other carriers take the spoils. AFRAA has to take the battle to the African Union to fully implement the Yamassoukro Agreement and the various protocols in place within COMESA and the EAC to boost what is one of the biggest strategic assets they have, their airlines,” said a regular Nairobi based aviation source a few days ago as the question was posed to several of them how they view the relentless onslaught of the big aviation league carriers. ‘African airlines only carry around 20 percent of the traffic in and out of Africa’ said a presenter during the recently concluded 3rd Aviation Convention for Suppliers and Stakeholders by AFRAA in Nairobi, and with tax measures like the ones of the Kenyan government this already detrimental distribution of traffic is bound to get worse still.
“These Gulf airlines offer totally good fares and their inflight service is excellent. They fly the latest planes and anyone who ever flew with them in business or first class will know what difference that is compared to our own home boys. That leaves KQ and ET to compete with what exactly in their favor? They are up against state of the art fleets, the best cabin layout in the skies where these Gulf airlines of late fall over each other to introduce new first and business class cabins or suites as they call it and a catering on board which is second to none. I give you an example, on the B777-300ER the business class configuration of Kenya Airways is 2x3x2 and on Qatar Airways for instance it is 2x2x2 – now that is a lot more space. Then, not to forget, KQ’s layout is the classic model, good flat bed seats but in straight lines whereas the big league offers the fishbone layout which simply looks a lot more attractive. Ethiopian is starting to fly 4 times a day to Nairobi and those Gulf airlines also fly several times a day into Nairobi.
“How is KQ supposed to compete when their fares from home for instance to Dubai are about 200 Dollars more expensive than Ethiopian? The same game applies across Africa where KQ makes over half of their revenues so far. If this 14 billion tax bill is not waived quickly, you can take an educated guess of what it will do to load factors and passenger numbers,” added another source equally pointing at the direct impact taxes will have on the future of African airlines, not only to compete among themselves but to compete, or be outcompeted, by foreign carriers not subject to such monster taxes.
Fact is that foreign legacy carriers and the Gulf giants have been getting traffic rights often literally thrown at them by African governments, allowing among others Turkish Airlines in recent years to aggressively roll out destination after destination with no end in sight, as did the main Gulf airlines like Emirates, Qatar and Etihad, while African airlines encounter obstacles, leaving the main traffic flows to route via Istanbul, Dubai, Doha and Abu Dhabi instead via Johannesburg, Nairobi, Addis Ababa or Cairo. Fodder for thought for sure and reactions from those named will probably follow swiftly, denying ill intent and claiming that competition is good for business and it is after all mainly about business. True enough if only the playing field were level.
Time will no doubt tell but then it might be too late to take effective corrective action after the damage has been done.