financial muscles

‘African airlines no match for Emirates, Qatar Airways’

By Nelly Fualdes

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Posted on June 28, 2023 09:14

 © Eduardo Fairen, CEO de TAAG Angola
Eduardo Fairen, CEO de TAAG Angola

Eduardo Fairen, the managing director of TAAG Angola, is up in arms about the competitive advantages available to his Gulf rivals, and is worried about the consequences of African Open Sky.

The Angolan company TAAG made headlines with its announcements at the 54th edition of the Paris Air Show, which took place from 19 to 25 June. It has ordered a total of nine aircraft, all Airbus A220s, from three leasers – ACG, Azorra, and NAC.

This order is added to the six A220s already ordered at the Farnborough International Airshow in 2022 from ALC. From July 2024, these aircraft will complement TAAG’s current fleet of 12 operational planes (out of about 20), with additional occasional rentals. The company, which is also expecting to lease Boeing 737s, had previously announced its intention to double its fleet by 2027.

A few days before this air show, during the Aviadev Africa conference in Nairobi, we had the opportunity to meet Fairen, who took over the reins of the company in October 2021. Born in Belgium, this engineer graduated from the Spanish military school Academia General del Aire (AGA) and the Complutense University of Madrid. He led the Peruvian low-cost airline Viva Air Peru from 2017 to 2019 and was also involved in the creation of Vueling Airlines in 2004.

During a panel discussion titled ‘Profits Before the Planet? Investing in environmental solutions in a financially challenging context’, Fairen strongly criticised the European requirement to include a portion of Sustainable Aviation Fuels (SAF) in aircraft jet fuel in planes departing from European airports starting in 2025. He deemed the challenge insurmountable for African airlines in their current state.

Is your main task to streamline the company and prepare it for privatisation?

Yes, preparing the company for a potential privatisation is one of my objectives. In 2019, we launched a recapitalisation process, which was interrupted by Covid-19. The crisis brought our operations to a complete standstill for six months, and that clearly had a terrible economic impact.

We have just completed the renegotiation of our arrears with our main suppliers, and our shareholder Igape [state assets and shareholdings agency] injected $87.5m into the company in 2022. We also need to talk to our clients, in particular, state institutions, about the flights we operated during this period, in particular, to transport vaccines. We will then have to relaunch the recapitalisation process before we can proceed with privatisation.

Has a date already been set?

This is a decision that will be taken by the ministry, but 2024 or 2025 seems a credible date.

TAAG must withdraw from everything that is not strictly necessary to its operations.

How has TAAG evolved since Covid-19?

In terms of passengers, in 2022 we were at 64% of 2019 levels, and the percentage is the same for the operational fleet. On the other hand, our revenues have returned to 2019 levels, thanks to a higher load factor and prices in line with the reality of demand. We have also reviewed the contracts linking TAAG to other airlines, particularly in terms of maintenance, as well as our assets. It’s a vast undertaking, and it’s not over yet.

We have already had to close the company’s former head office and divest ourselves of some of our non-airline activities, such as the delegations in countries where we don’t operate. We have also changed our delegation structure and opted for an external GSA [Generally Sales Agent] system, which is more flexible than internal management.

We also need to review our holdings in airport management, handling and catering companies. This made sense at the time the investment was made, because we needed to give impetus to these essential services. However, today, the situation has changed, the market has changed, and TAAG must withdraw from anything that is not strictly necessary to its operations.

How has the map of destinations evolved?

Some destinations have recovered well, and are at 80% of their 2019 level, or even 90% for the Portuguese market. For others, it’s more difficult. In concrete terms, things are much better in Southern Africa than in Central Africa, and South America has rebounded well, even if here too we have not returned to 2019 levels.

Some destinations are not reaching the minimum level that would allow us to continue. Accra is a case in point: we operated there for three months and then gave up because the demand wasn’t picking up. That doesn’t mean it won’t come back. In Lagos, we also had very weak figures last year, but they are better this year.

To improve our productivity, we need to fly more.

For Kinshasa, we were able to maintain our frequency despite figures 50% lower than 2019, but to do so we had to move to a smaller aircraft, replacing our Boeing 737 with a Dash-8, while we see how the market develops.

How do you reconcile these conflicting issues: the need to put the company’s accounts on a sounder footing and your ambitious order book for new aircraft?

We need to explore, to look for routes that work, but we don’t have enough aircraft available for these operations. Modernising the fleet will also enable us to streamline our operational management. This is all the more crucial given that African airlines share one characteristic: their aircraft don’t fly much. This partly explains their high fares.

To improve our productivity, we need to fly more, and for that to happen, logistics and infrastructure have to keep pace.

Will the new Dr Agostinho Neto airport, some 40 kilometres from Luanda, help?

The infrastructure will be completed on 10 November, and we hope to start operations in the first half of 2024. We are moving from an airport that can handle 5 million to 6 million passengers a year to one with an annual capacity of 25 million passengers. Many of the restrictions linked to available space will disappear and our operations will be facilitated by the presence of two parallel runways. We’ll be able to improve our level of connectivity.

What is the current proportion of onward passengers in Luanda?

It’s between 30% and 40%, but this figure is set to increase, as we are the only airline in Southern Africa to offer direct services to South America. Thanks to our code-share agreement with GOL Linhas Aéreas Inteligentes, we can offer over 100 destinations throughout the sub-continent from the same terminal in São Paulo. We have just announced our sixth weekly frequency on this route – starting 2 August – and we hope to increase this to a daily frequency before the end of the year.

In Southern Africa, have you seen a rebound linked to the collapse of South African Airways?

That did enable us to recover some of our figures, but while the region has lost no fewer than three airlines, all of which have closed or significantly downsized, we still haven’t returned to 2019 levels, which means that the market has significantly contracted.

Nor should we underestimate the role of new players such as Emirates, which is becoming a clear threat to any African airline on routes to Europe and Asia, not least because of the price distortions on fuel, which are a reality.

Yet Angola is a major oil producer on the continent…

Unfortunately, this does not prevent us from having one of the highest jet fuel prices on the continent, despite the proximity of local refineries.

Europe’s position is all very well, but it’s not realistic

Which destinations will you be serving as a priority with your new aircraft?

On the regional level, we want to have 25 African destinations [compared with 9 at present], which we will identify on the basis of the data we have at that time. At the intercontinental level, we have four destinations: São Paulo, Havana, Lisbon and Madrid. We would like to have 10 by 2027.

You seem very hostile to the European obligation to include 2% sustainable aviation fuels in all flights departing from Europe.

This is a political measure that Europe has taken on its own, without listening to Africa, or the industry for that matter. We don’t have SAF here. It reminds me of the first noise abatement restrictions in 1995, which took years to implement.

The European position is all very well and we clearly need to move in that direction, but in terms of the timetable, it’s not realistic. Africa doesn’t have the resources to implement such a measure and the continent must defend itself.

What is your position on African Open Sky and the use of the fifth freedom (the fact that a company serves a route where neither the place of departure nor the destination is in its home country)?

Angola has begun the process of signing the Yamoussoukro agreement, which has already been approved by Parliament, and should join SAATM [Single African Air Transport Market] from 2025. However, which authority will assess the competitive situation? I ask because some current commercial practices can be qualified as unfair, as dumping.

This is what all African airlines are experiencing with Turkish Airlines, Qatar Airways and Emirates, which are charging fares to Europe that defy all competition. Another example: Turkish is offering a Luanda-Istanbul-Havana route at a price a third lower than what we can offer for our direct flights. This is not acceptable and we’re not the only ones to have noticed this: Air France and Lufthansa have the same problem. If we open up traffic rights without taking precautions, no African airline, with the possible exception of Ethiopian, will be able to survive.

For now, Open Sky issues are only being debated at continental level…

Yes, but what will happen if African airlines are taken over by Middle Eastern operators, like RwandAir by Qatar Airways? Won’t they be used as a Trojan horse to take advantage of Open Sky?

The aim of the Yamoussoukro agreement is to strengthen African civil aviation. It’s a fine project, and we mustn’t let it go astray. Nor should we forget the social dimension that aviation must also have in our countries.

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