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If more airline capacity means cheaper fares, removing restrictions is key

The Citizen’s story on Ethiopian Airlines on Wednesday omits to mention the airline’s purpose and how the table is tilted in its favour.

Ethiopian Airlines exists primarily to provide a connector service between markets. It seeks to replicate Singapore Airlines and Emirates by taking advantage of its home city’s geographic location as a convenient place to build a hub and feed traffic through it with an expanding fleet of aircraft, destination network and flight schedule.

It’s all about generating high volumes of passengers and cargo to offset losses on very thin routes such as Addis Ababa-Bulawayo, with the high yields made on high-density routes to the US, China and Europe.

Ethiopia’s tourism industry

Developing Ethiopia’s tourism industry is low on the airline’s agenda. When did you last see an Ethiopian Airlines advert inviting you to take a holiday at an Ethiopian resort on the Nile, or to explore its mountains?

The airline’s investment in a new airport hotel in Addis Ababa is not about getting people to visit the city or to make excursions to other parts of Ethiopia; it is all about keeping them at the airport to minimise the inconvenience incurred by a small percentage of its customers who have sacrificed shorter journey times for price.

Crucially, Ethiopia does not permit any local competition with aircraft larger than a 30-seater. Also, the airline is cross-subsidised by the country’s airports and its air traffic management agency.

So every time an aircraft lands at one of its airports or flies through its airspace, a portion of the user fees go to Ethiopian Airlines. There are other regulatory imbalances too, including differential charges for foreign operators.

The article implies there is a comparison to be made between Ethiopian Airlines and SAA/Ethiopia and SA. They sound similar but are very different.

Deregulation of SA domestic market

SA’s domestic market was deregulated in 1991, to allow for competition. Until then, one had a choice of SAA, or SAA if flying between the country’s major cities and also to places like Kimberley, Upington and George.

It welcomes foreign carriers and allows them to establish limited services to Johannesburg, Cape Town and Durban.

Also, our International Air Services Council has shown it is willing to apply the International Air Services Act by suspending, withdrawing or allocating route licences, although SAA’s recent press release says it tells the council what routes it is willing to relinquish.

SA also corporatised the main airports (now Airports Company SA or Acsa) and the air navigation service (ATNS), carving them out of the former Directorate of Civil Aviation in the department of transport, so they would be stand-alone entities.

Cross-subsidisation, even within the airports is a contentious issue.

Acsa received a bloody nose from foreign carriers in the run-up to the 2010 World Cup, when it wanted to hike user charges for OR Tambo International to subsidise the construction of King Shaka International near Durban, and the refurbishment of other coastal airports.

The foreign carriers were having none of it, successfully arguing that, as they did not operate to East London, Port Elizabeth or Durban, why should they pay for those projects?

In this age where transparency is demanded and has to be demonstrated, it is easier to trace the money. Less so in an opaque set-up like Ethiopia.

This is not to take anything away from the quality of Ethiopian Airlines’ management: their focus on delivering on the mandate set for them by their shareholder (Ethiopia’s government) and their successes in future-proofing the airline through investments in its pilot, engineering and technical training centres and in establishing a state-of-the-art aircraft overhaul and freighter conversion centre. But they do so within a framework that makes it almost impossible for them to fail.

Certainly, SA’s state-owned airlines, airports and air navigation service should all be run to deliver top-quality service to its fee-paying users and a meaningful and beneficial return on taxpayers’ investment.

Government’s role

A more worthy discussion is one about regulatory reform, which frees government to focus on its core responsibilities, ie. efficient service delivery and essential infrastructure provision, instead of trying to be all things to all people, including an airline and airport operator.

Begin by interrogating SA’s international airlift policy and whatever limited economic or social stability value it offers.

It clings to the archaic instrument of bilateral air service agreements to circumscribe market access between countries. These dictate which airlines may serve what destinations, how frequently and, crucially, caps the capacity on those routes.

If the answer to cheaper fares and more affordable air transport is increased capacity, then surely removing the restrictions would solve the problem?

Birns is the managing director of Plane Talking consultancy

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