Re-launching national airline a gamble Zambia can’t afford – CTPD

The Centre for Trade Policy and Development (CTPD) has insisted that government’s position to re-launch the Zambia Airways is a gamble which the country will not afford.

CTPD Researcher Bright Chizonde recently conducted a study focusing on Zambia’s plans to relaunch the National Airline and unveiled a number of lessons that Zambia could draw from countries like South Africa, Malawi and Ethiopia on the potential risks and success prospects of running a national airline.

Chizonde noted that even though the Ministry of Transport and Communication had already established a Board of Directors and appointed a Chief Executive Officer for Zambia Airways, it was important to consider how other African countries had fared in the aviation industry.

“South African Airways (SAA) is one of the Largest Airlines in Africa with about 50 aircrafts, including the Airbus A319, A320, A340 and Boeing 737 airplanes. SAA was established in 1934 and in terms of operations the airline has been making losses since 2011, with losses amounting to US$127million in 2016 and US$475million in 2017. Consequently, SAA has been bailed out by its government to the tune of US$1.2 billion in 2018 alone and it has been estimated that the airline will need a further US$1.8 billion to remain operational till 2021 when it is expected to breakeven. Would this be a path Zambia would want to take?” Chizonde wondered.

Chizonde highlighted some of the reasons why SAA was not performing well and some of the lessons that Zambia could learn from them.

“South African Airways operates in the southern African hub, this makes South African Airlines lack strategic location when it comes to long haul flights. Therefore, SAA’s hub in South Africa is distant from most international business, trade and tourism destinations. This notwithstanding, South Africa has a huge population size of about 56.7 million people and large economy with GDP of about US$349 billion translating into a large middle class which demands for air travel. Zambia, in contrast, has a relatively small middle class since the population is smaller, about 16 million people) and the GDP is less than US$ 30 billion. In terms of regional location, Zambia is also disadvantaged when it comes to intercontinental air travel,” Chizonde stated.

“Then SAA operates in a highly competitive regional and domestic industry, which squeezes profits. It competes with British Airways, operated by Comair regionally, as well as other 5 international airlines: Ethiopian Airlines, Emirates, Kenya Airways, TAAG Angola and Air Namibia. In the domestic market, SAA has sister carriers; Airlink and South African Express which compete with Fastjet, FlySafair and Kulula.com-which is a division of British Airways. Like most National airlines SAA has been financed through government investment and bailouts. This places a huge burden on government tax revenue which would otherwise be used for service delivery. In setting-up a national airline, Zambia exposes the already constrained fiscal position to additional risks and funding needs.”

Chizonde also listed government interference and poor management as one sure reason why SAA had failed, which was expected to be the case with Zambia Airways as well.

“South Africa does not only bailout its national airline but also exerts considerable interference in its operations. In 2012, the entire Board of Directors resigned in protest to interference from government. It is imperative that the Zambian government takes this to heart and avoids interfering in the operations of Zambia Airways in order to increase prospects for success. SAA has also been cited for poor management, the 2007 Auditor general’s report revealed that SAA had failed to properly record financial information and the value of its assets. It was also said to have employed too many workers and had a pay scale for top management which was way above industry norms,” Chizonde stated.

“Questions that beg for answers in the Zambian case also speaks to revelations contained in the auditor general’s reports and Financial Trends Report, to what extent is there accountability? What measures have we put in place that assures that there will be prudent use of resources that are channeled towards the airline, what is informing our conviction on the perceived returns and benefits?… let’s not forget that Zambia Airways previously went under due to some of these reasons shared above, particularly a lack of regional demand and financial mismanagement, and one wonders whether we have really learnt from the past.”

Chizonde insisted that Zambia’s current fiscal position could not allow for a massive experiment in the risky aviation industry at the expense of tax payers.

“Zambia is grappling with rapidly increasing debt, now about US$16billion, and is currently implementing austerity measures. Furthermore, it is extremely difficult to make profits in the aviation sector with African airlines expected to make a combined loss of about US$ 100 million in 2018, and slow economic growth in Southern Africa limiting passenger demand increases to 2-3% per year, below the 5% threshold needed to support a new entrant such as Zambian Airways. CTPD therefore considers the move towards re-launching Zambia Airways at this present time a gamble that the country can ill afford. South Africa is a classic example of the tax-revenue demands of running a national airline and the pitfalls to avoid. Zambia needs to consider whether it wants to end up increasing its current stock of public debt all in the name of national pride and whether the so-called economic benefits of re-launching the airline would outweigh these likely costs,” stated Chizonde.

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