African carriers risk losing about US$400M from China operations alone.
The airline business is becoming messier by the day as the COVID-19 coronavirus continues disrupting business in a way never seen before.
From manufacturing to travel, entertainment to medicine, all sectors of the economy have been jolted by the virus whose epicentre is Wuhan, China. The disease, “a pneumonia of unknown cause detected in Wuhan, China,” was first reported to the WHO Country Office in China on 31 December 2019. From then, it has been a rollercoaster.
The real magnitude of the virus is starting to manifest with deaths, infections and isolations becoming the order of the day worldwide. While the disease in itself is not a death sentence, the fear that people may contract it en masse burdening health infrastructure in several countries has led to people isolating themselves, and observation, in what has now become the norm – social distancing.
As it is with many disruptions to business, there are those that are critically affected and others which do not suffer as much. Travel and tourism fall under the most affected category making it a hard bargain on whether to call off operation or risk them to stay afloat.
Due to the challenges that come with grounding planes, Kenya Airways (KQ) has been on the receiving end for not stopping flights to their different destinations. Kenyans who fear importation of the virus accused the airline of putting profits before people and good health.
The airline business is, however, facing a myriad of challenges, especially now, making it a cutthroat enterprise where no minute is wasted.
Globally, airlines are closing down and the COVID-19 coronavirus has accelerated some of these closures.
In Africa, there are only three airlines and only one of them has been profitable so far – Ethiopian Airlines.
The other two are KQ and South African Airlines (SAA) which are facing turbulent times as the business takes a beating from several quarters.
In the first month alone since the suspension of flights to China, KQ suffered losses to the tune of US$8M. This figure has definitely grown with the continuous suspensions to the airline’s key destinations.
In general, conservative estimates in mid-February 2020 by the International Air Transport Association (IATA) showed that African carriers risked losing about US$400M from China operations alone.
Ethiopian Airlines has over the years built its reputation beating Kenya Airways and South African Airlines to remain the only money-making national carrier on the continent.
Interestingly, when other airlines on the continent continue making losses surviving on government bailouts, Ethiopia Airlines is not managed by the government.
With the coronavirus on the rampage, the future of the two other airlines – KQ and SAA – remains bleak. These airlines have no option but to innovate with the virus in mind and with a similar disruption in the future with the fortunes nosediving with no sight to the end of the COVID-19 turmoil.
Last year was a difficult year for airlines which saw many take the plunge. IATA had predicted that 2019 would be another consecutive year of losses for African airlines due to the low load factor and the high cost of operations. The cost of fuel was the biggest culprit.
Projections for 2020 could even be dimmer going by the recession occasioned by the virus whose domino effect has reverberated across the globe.
IATA projections showed that demand would grow at a slower pace of 4.3 per cent down from 6.1 per cent in 2018. This could even go lower as the COVID-19 race across the world continues unabated.
African airlines would grow at an even slower rate of 3.7 per cent this year in comparison to the 4.3 per cent recorded in 2018.
Globally, 2019 was the worst year since 2014.
On Tuesday, March 17, 2020, KQ subsidiary, Jambojet, suspended flights to Kigali, Rwanda and Entebbe in Uganda.
“Over the past few weeks, there has been a global spread of the COVID-19 which has resulted in a decrease of airline passengers, especially on the international routes. As a result, Jambojet has decided to suspend its services with immediate effect,” read a statement from the airline.
The airline said that booked passengers would be accommodated on alternative flights.
Source: The Exchange