Reports emerged this week about Emirates Airlines of Dubai mulling over a proposal to purchase Etihad Airlines of Abu Dhabi. The news was interesting, since both airlines are native to the United Arab Emirates, and the Gulf states and a merger between the two would mean that their major routes would be merged together. It has brought up discussions about Africa, and how having a consolidated airline on the continent could assist in its development and in intra-African trade.
A merger between both Gulf airlines would have a big impact on global aviation. Emirates has 268 airplanes and goes to 155 cities, while Etihad has 115 airplanes and presently serves 100 cities. Both airlines have airports not far from each other in the UAE, and many analysts have said this particular deal makes business sense and would give it an edge over other global airlines like Turkish and Qatar airlines.
The merger between those two airlines seems to highlight the advantages of having one consolidated airline, which, for a growing continent like Africa, will help to advance trade. The merger will make sure they have an array of airplanes for many destinations, and ensure that none of the individual airlines go under due to competition.
How a consolidated airline will work in Africa
Though Africa is not a country, the implementation of the African Continental Free Trade Area agreement that was signed earlier this year will make the continent look like a single entity. Hence, if the AfCFTA is going to be cohesive and allow for free movement of goods, services, and capital, it needs to have the good connectivity of air flights and easy access across borders.
The African Union unveiled the Single African Air Market (SAAM) initiative in January this year, few months before it unveiled the AfCFTA. The Single African Air Market initiative, along with ensuring connectivity on the continent, will also lead to the reduction in the price of flight tickets for intra-African trips. It will lead to more regular flights between countries, gradually ending the use of stopovers that characterize African flights.
The initiative will also create more jobs, improve the movement of people; Africans who want to go on vacation in other African countries but can’t due to the expensive flight tickets and sometimes tight visa restrictions, can do that now, thereby increasing revenue from tourism for many countries.
However, a problem is, many African countries don’t have a functioning or world-class airlines. Many of the continent’s airlines are nationalized, with the same complications that bedevil the various governments (administrative bottlenecks and corruption) also bedeviling them. Many already stable airlines in the continent are hoping to fill this gap.
Ethiopian Airlines can be the first consolidated airline
Last month, Ethiopian Airlines signed a shareholder agreement with Zambia’s Industrial Development agency to resurrect Zambia’s national air carrier, more than 20 years after it went down.
Though the agreement between both parties was signed in January 2018, the deal was made public in August. Ethiopia’s national air carrier will own 45 percent of the resurrected airline, while Zambia will operate the remaining 55 percent.
As part of the deal, Zambia’s national air carrier, Zambia Airways will also own 12 planes by 2028. Already, the airline, with the help of its new partner will begin flights to local and regional locations, while it also commences intercontinental flights in the near future.
Ethiopian Airlines invested $30 million as part of the deal and makes it the fifth airline Africa’s biggest airline is investing in. The company is currently in talks with four other national air carriers on the continent, and many analysts have said it is looking to make itself more pan-African. The airline has already bought a 49 percent stake in Guinea’s national airline that was resurrected 15 years after its demise. Ethiopian Airlines has also signed this type of deal with the national airlines of Chad, Mozambique, and Equatorial Guinea.
“Guinea Airlines is preparing to start flights to neighboring and regional countries soon, Chad Airlines will start work on October 1, Mozambique Airlines will start operations by the end of the year and at the request of Equatorial Guinea President Teodoro Obiang, ET has taken over complete management of the country’s national air carrier,” said Ethiopian Airlines CEO Tewolde Gebremariam said, while announcing the deal last month.
Ethiopian Airlines is Africa’s biggest air operator, having flown more than 10 million passengers in its Fiscal year that ended in July 2018. Its CEO Gebremariam said the airline is searching for closer ties with more air carriers on the continent, so as “to create a feeling that it is an “African airline”.
These agreements adhere closely to the endgame of the African Union’s Single African Air Transport Market Initiative (SAATM).
The company also has stakes in air carriers in Malawi and Togo and was also hopeful of purchasing shares in Nigeria’s Nigeria Air airline. However, the Nigeria government indefinitely postponed plans to open its own airline earlier this month.
Ethiopian Airlines has seemingly filled that gap and is going to make the implementation of the AfCFTA much easier now.
Problems a consolidated airline will solve
Collaborating with most of the airlines in the four corners of the continent will ensure the erasure of artificial borders and make trade agreements easier.
Imagine an entrepreneur from Ghana flying easily to and fro Zambia to set up a business and invest in the country. A consolidated airline will make the trip easier, faster and cheaper than having to board many connecting flights to Zambia.
A consolidated airline will achieve, for most of the national air carriers on the continent, a shift of operational processes from governments to the airlines.
A major reason why many of the national carriers failed was that Governments appointed CEOs with little or no experience in aviation to run them, while also interfering in the day-to-day running of the air carriers.
Although Ethiopian Airlines is a state company, its success can be attributed to the little or no influence the Ethiopian government has in how it is run. Recently, the Ethiopian government announced that it was planning to sell more of its shares in the airline to private companies.
There were also issues of African governments awarding aviation contracts to friends without adequate oversight on how money is spent. Issues like this will be resolved when these airlines are placed under the management of more experienced CEOs.
There has also been a problem of exchange rates; however, with a gradual adoption of the AfCFTA by many African countries, we might probably witness an adoption of a common currency mirroring other nation blocs like the European Union.