The call seems to have been heard, and even responded to beyond Joseph’s initial target. “Three West African companies have shown interest, but we have also been approached by the company of a Southern African state,” Martin Gitonga, director of network and alliances at Kenya Airways, told us, albeit expressing his surprise at such a move. It is, according to him, proof of the interest in the project that was unveiled in November 2021 with the signing of a strategic partnership framework between the two national carriers, both of them weakened and undergoing restructuring.
Although Kenya Airways is currently privately owned and 51% of SAA’s shares are about to be bought by the Takatso consortium, the process of rapprochement is conducted primarily at the state level. The November 2021 agreement was signed in the presence of Presidents Cyril Ramaphosa and Uhuru Kenyatta, who had paid an official visit to South Africa.
Consolidating without compromising identity
“Our companies are national by definition, even if their capital is held by other structures. They carry the name of the country, and there is a lot of emotional attachment around them,” says Gitonga. Kenya Airways, which is 48.90% owned by the national treasury, 38% by banks and 7.76% by KLM of the Netherlands, is expected to undergo a process of re-nationalisation after the 9 August elections.
We are not reinventing hot water, we are adopting an approach that is common elsewhere.
It was political affinity that led to the merger of the two flag carriers, despite their respective ‘health’ conditions, according to Simon Newton-Smith, the acting commercial director of SAA since August 2021. Interviewed on the sidelines of the Aviadev Africa conference in Cape Town in early July, Newton-Smith said “When the discussions started, the best chemistry happened between the governments of these two countries.”
“We are not reinventing hot water, we are adopting an approach that is common elsewhere in the world, and we are adapting it to the African market,” says the South African executive, who cites as examples the European groups IAG (British Airways, Iberia, Vueling, etc.) and Lufthansa (Brussels Airlines, Swiss, Eurowings, etc.). “We would thus have the benefits of a grouping, without compromising the national identities of the member companies.”
Integration schedule
The grouping began slowly, via an interline agreement and SAA selling Kenya Airways’ cargo capacity. On 19 July, a milestone was reached with the signing of a code-share agreement, and a cargo agreement should follow by the end of the year before a joint venture planned for June 2023. In the meantime, says Newton-Smith, the integration timetable will have been fully finalised. A step that must be taken “before the end of the year”, 2024 being the deadline set for building the group’s capital structure.
Kenya Airways (#KQ) and South African Airways (#SAA) have signed a #codeshare agreement to expand their #destination networks, building on their #venture to form a Pan-African #airline by 2023. https://t.co/JfImJFhleG
— AeroTime News (@AviationNews) July 20, 2022
“We have a working committee made up of 50/50 of both companies and have teams of engineers working together to see how we can cooperate and combine our experience in information technology. By improving efficiency, you lower costs, reduce fares and stimulate demand,” says the SAA manager.
Francophone rather than Nigerian
It is only when the legal structure has been defined that the founding companies will embark on expanding the group. This will be preferably with a company based in a French-speaking West African country, says Gitonga, who assures us that “that’s where the value lies”, despite the Nigerian dynamism.
“Nigeria is big, but it is a difficult market, very closed, and Lagos is not a preferred transit point, even for Nigerians,” says the Kenya Airways executive, who also recalls that “getting money out of the country is a huge challenge; although English-speaking Ghana could also be an option, as it is “easier to access and has a better regulatory environment [than Nigeria]“.
However, Ghana’s main airline – Africa World Airlines – is privately owned, so Gitonga argues that “it is the support at the highest level that will make the pan-African airline successful”. “It’s not about governments controlling the capital, but they must not be absent because without them it is very difficult to access the various markets,” he says.
Although network synergies are gradually being established, SAA and Kenya Airways are likely to find it difficult to coordinate their pilot training, at least initially. “Kenya Airways works with Boeing and Embraer, and we work with Airbus, our simulators are exclusively Airbus,” says Newton-Smith.
Skyteam or Star Alliance?
The companies also have to clarify their positions with regard to their respective alliances: Skyteam for Kenya Airways and Star Alliance for SAA, a duality that does not worry Newton-Smith. “Both alliances have been very encouraging. They see the benefit of what we are trying to achieve, which is to connect Africa,” says the commercial director, who says that African aviation must “do something profoundly different to be able to capture future opportunities”.
After Covid-19, rebuilding financial performance is a higher priority than blind loyalty to one alliance or another
Gitonga also recognises the support of alliances, but concedes that in the longer term, this dual membership is “a cause for concern” as he believes that “after Covid-19, rebuilding financial performance is a higher priority than blind loyalty to one alliance or another”.
He cites as examples Air Canada (Star alliance) working with Qatar Airways (One World), and the code-share agreement between his airline and One World member British Airways. However, he concludes: “We [the two airlines] are trying to see whether it is better to join one of these two alliances, and which one, or to be neutral” adding that it is a move “which does not have to be decided right away”, as all options are on the table. “We are studying them and we will go for the one that will bring us the best assets.”
Doubts
Even so, it remains difficult to convince specialists in the African airline sector about this pan-African group project. “It is not by bringing together two companies that are not doing well that we will make a company that is doing well,” says a sector expert based in Cape Town.
For his part, Cameroonian Eric Tchouamou Njoya, a lecturer in air transport economics at the University of Huddersfield in Great Britain, notes that although the Nairobi-Johannesburg route was liberalised in the early 2000s, leading to a steep rise in traffic (+69% in a few months, according to the International Air Transport Association), the African market remains very closed.
“This is not going to help in deploying a pan-African strategy. Rights will have to be negotiated, it will be very slow and very political,” says the researcher, who also highlights the issue of visas, which hinder intra-continental travel.
Tchouamou Njoya also highlights the dependence of the two companies on their respective governments. “The slightest change of priority within either government can reshuffle the cards,” he says.
Newton-Smith’s resignation, which was announced on 14 July and will take effect on 1 August, does nothing to reassure them, despite a statement in his press release, which says he has laid the foundations for “the next chapter in the reconstruction of SAA”.
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