Analysis: MALINDI CHATORA
AFTER 24 years of absence, the national airline is scheduled to return to the skies in the third quarter of 2019, at an initial cost of US$30 million.
The re-launch of the national airline, which was scheduled to coincide with Zambia’s 2018 Independence Day commemorations, has been postponed twice and is now expected in the third-quarter of 2019.
Unlike its predecessor, which was wholly-owned by Government, Zambia Airways (2014) Limited will be operationalised through a joint venture between Government and Ethiopian Airlines Limited (EAL), sub-Saharan Africa’s (SSA) only profitable airline.
Government will control 55 percent stake through the Industrial Development Corporation (IDC), while EAL will control the rest.
Government has valid reasons for championing the re-launch of the national airline. If successfully operated, the Zambia Airways could create at least 500 direct and indirect jobs, with prospects for additional employment as the airline expands. In addition, Government envisages that the airline will contribute to increased air traffic flows within and around the country that will in turn increase tourist arrivals, hotel and restaurant revenues, conference fees and overall business activity for tour operators.
By creating direct and indirect linkages to other economic sectors, Government expects that the national airline will contribute to overall economic growth. Further, the country’s strategic centrality in the region where it is surrounded by eight countries will provide the airline strategic connectivity to the region and the world at large.
Notwithstanding these Government-anticipated ‘wins’, the re-instating of the national airline has been received with scepticism. Stakeholders have questioned the value of owning a national airline other than national pride, when most airlines in SSA including suthern Africa’s largest airline – South African Airways (SAA) – are struggling and rely on government bailouts.
For example, the South African government has spent close to US$2 billion on SAA in the last five years.
Despite this support, SAA has continued to make losses and declared bankruptcy in September 2018. Political interference has been cited as one of the major impediments to SAA’s strategic direction, as the government remains the company’s largest shareholder.
Similarly, Malawi Airlines, which has also partnered with EAL, is yet to break-even after four years of operations.
This is at odds with projections in the business model floated during the tender process, which indicated the airline would break even by the second year.
Zambia Airways will do well to carefully examine the experiences of Malawi Airlines to identify the reasons behind the airline’s delay in breaking even.
While Zambia Airways will require an initial investment of US$30 million, the Ministry of Transport and Communication’s Permanent Secretary revealed that close to US$48 million will be required for operations in the first year.
So far, EAL has committed US$13.5 million towards aircraft leasing and Government US$11.5 million to cover operating costs for four months. This leaves a deficit of nearly US$23 million, which the airline envisages will be covered by revenue from ticket sales.
However, with growth projected to be slower in the domestic (four percent) and global (3.5 percent) economy, demand for air travel may not be sufficient to generate substantial revenue. Therefore any shortfall will most likely have to be covered by IDC.
While the general poor performance of airlines in SSA is concerning, many stakeholders are more anxious about the ability of Zambia Airways to run the airline as an autonomous business. Government interference and politically motivated appointments reportedly put a serious drag on the performance of the pre- 1994 Zambia Airways and contributed to its downfall.
The SAA experience is another recent example of the pitfalls of government interference in the running of a national airline.
Since Government has already committed to re-establishing Zambia Airways, the airline should look to its strategic partner for some inspiration.
Although established through a joint venture with Trans World Airlines, EAL is now wholly owned by the Ethiopian government.
The airline owes much of its success to its business and management model which ensures that it operates completely autonomous from government influence.
The airline operates like a private company and strictly ties personnel emoluments to company performance and profits.
Zambia Airways, if successfully operated, has potential to transform many sectors of the economy including tourism and contribute to employment creation. However, these benefits can only accrue if Government fervently holds on to its promise to allow the airline to run as a commercially viable business.
The author is a researcher at the Zambia Institute for Policy Analysis and Research.
Analysis: MALINDI CHATORA