Aviation: South Africa urged to adopt ‘Open Skies’ policy, mute new airline carrier idea

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As South Africa mulls the idea floating a new national airline for the country, a business and economic strategist, Michael Power, has said the nation is better off with the ‘Open Skies policy’.

According to him, the country should mute the idea of setting a new airline, noting that, one serious option that “we should adopt an ‘Open Skies’ policy welcoming any IATA-compliant international airline that wishes to fly to and from the main air gateways of South Africa.

Michael Power aired his opinion in article published on dailymaverick.co.za.

The article reads:

Open Skies is not a new policy: Singapore practises it whilst Uzbekistan and Kazakhstan are rolling it out. It can take various forms: the form I would recommend for South Africa is that if an airline can book a landing slot in one of our principal international airports, it should be welcome to do business in our country.

The world’s seas are substantially open, so why not our skies?
There are deeper reasons for this recommendation, reasons born of the complex world we live in.
Until there is a vaccine for Covid-19, there is unlikely to be a return to 2019’s volumes of international air travel.

Even the optimists do not see this happening much before 2022. This in itself is reason enough for South Africa not to rush into investing in an airline to replace South African Airways: during the critical launch period of that new airline over the next two years, it would be very constrained in what flight routes it could operate, let alone operate profitably.

Rather than rapidly relaunching a new South African carrier, the next 18 months should be devoted to a thorough rethink as to exactly what South Africa’s strategy should adopt towards rebuilding air links to and from our country, both from within Africa and beyond.

There are very good commercial and competitive reasons for following an Open Skies policy. South Africa is broadly located in the same time zone as the world’s four largely state-owned “superconnector” airlines: the Arabian Gulf trio of Dubai-based Emirates, Doha-based Qatar and Abu Dhabi-based Etihad plus Istanbul-based Turkish.

As any serious airline executive in Asia, Australia, Europe, Africa and even the Americas knows, unless one can entice one of these four into your alliance – as Qatar is with OneWorld and Turkish is with Star – it is a mug’s game even trying to compete with these “flying category killers” and hope to make a commercial go of it.

A second-tier airline either has to team up with the giants via code-sharing – which, even for the smaller team members of an alliance, is not very lucrative even then – or face being trampled upon.
It is important to understand just how difficult it is for any airline not from the Arabian Gulf to compete with the three super-connectors based there.

Aside from the accident of geography, which puts the Gulf region at the crossroads of the Asian-African-European-Australian air traffic zone, the Gulf trio have two unique and defensible competitive advantages that go to the heart of what determines the profitability of an airline: cheaper fuel and lower wages.

First, it goes without saying that the Gulf three likely have access to the cheapest Avgas in the world. Secondly, because of negligible income tax in their host countries, the airlines can pay their staff less than most non-Gulf-based airlines and yet their workforce’s take-home pay would still be higher.

Attention must also be drawn to a critical development that took place in the Africa region just before the Covid-19 lockdown: Qatar Airways purchased a 60% stake in Rwanda’s new Bugesera International Airport at Kigali and bought a 49% stake in Rwandair.

Qatar’s vision is to turn Kigali into its African hub, something that would put enormous pressure on any airline operating from say OR Tambo and may even challenge Addis Ababa-based Ethiopian Airlines in its claim to be Africa’s “hub” airline.

As uncomfortable as it is to admit, Johannesburg’s claim to being Africa’s transit hub is now seriously qualified: Kigali, Addis Ababa or even Nairobi are all far more centrally located to fulfil this role.

This time last year one might have recommended another approach to “Open Skies”: the LATAM model. Chile-headquartered LATAM set up subsidiaries in nearly all the main countries of South America, creating a web of interconnected hubs that catered for both domestic and international travellers.

A year ago, perhaps we could have invited one of the Gulf super-connectors to create a Comair II in South Africa?
However, in the wake of Covid-19, LATAM has now filed for Chapter 11 bankruptcy protection. And the tale that has followed this event is worth telling to underline just how cut-throat the global airline industry has become.

The relevant background is that Qatar became a 10% shareholder in LATAM in 2016, second to American’s 20%. Last September, American surprised everyone by selling their stake in LATAM to Delta for $1.1-billion.

Previously Qatar, American and LATAM were all members of the OneWorld Alliance; LATAM then announced it would be leaving OneWorld to join the same grouping as Delta: Skyteam.
Though it is hard to see a clear way forward, rebuilding South Africa’s tourism footprint over the next two years should be the government’s top priority. Tourism is a far more important – far more job-rich – sector than aviation.

Then came Covid-19. By March 2020, LATAM had entered bankruptcy protection: Delta’s stake is likely worthless. In June, LATAM’s principal shareholders granted it a loan of $900-million; only Delta declined to participate. $600-million of the loan came from Qatar, which in February 2020 expressed a desire to increase its shareholding to 20%.

The question arises: Is Qatar angling to replace Delta as LATAM’s lead partner and shareholder if Delta’s own Covid-19-related travails continue?
Meanwhile, Qatar is manoeuvring itself with regards to increasing its holdings in key airlines around the world: In February 2020, it increased its stake in IAG, owner of British Airways and Iberia, to 25%.

Qatar has also offered to backstop financially-strained Cathay Pacific where it had a 9.9% stake: it was not necessary after the Hong Kong Government underwrote a $5-billion (R82-billion) bail-out. Even after this, Qatar has said “call us if you need us”.

Meanwhile, Qatar also has a 5% stake in China Southern, arguably China’s best airline.
So, back to the dilemma facing South Africa. Though it is hard to see a clear way forward, rebuilding South Africa’s tourism footprint over the next two years should be the government’s top priority.

Tourism is a far more important – far more job-rich – sector than aviation.
The simple fact is that the only way a new state-backed South African carrier could have any chance of success would be if ticket prices to and from South Africa were high… but then that would restrict tourist arrival numbers.

Let a Qatar or a Turkish deal with that ticket pricing algorithm: the surest way to get air-ticket prices down and boost tourist arrivals would be to promote intense competition amongst the airlines that would be willing to fly to and from South Africa as part of our “Open Skies” policy.

And if the promotion of employment of South African aircrew was a sub-objective, it might be possible to set a quota for any crew of an aircraft flying to and from South Africa to be made up of South African citizens. Emirates and Qatar probably meet such a requirement already!
In short, it is a jungle out there, a jungle into which a new state-backed South African airline would be venturing. Let me leave you with this salutary thought: a Springbok stepping into a cave of starving lions.

Source: dailymaverick.co.za

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