Rhetoric on the need for cooperation between airlines in Africa has never been in short supply, but action had been less forthcoming. In the current aviation landscape, filled by the emergence of new markets, two of Africa’s biggest airlines, Kenya Airways and South African Airways are looking to re-double their efforts to remain competitive. On November 23, the two carriers inked a strategic partnership framework that would lead to co-starting a pan African airline group by 2023. Kenya Airways and SAA tie bonds with strategic partnership.
The signing could tailor towards a merger like that of Air France-KLM in 2004. Both Air France and KLM are members of the same SkyTeam airline alliance and rely on two major hubs, Paris–Charles de Gaulle Airport and Amsterdam Airport Schiphol respectively.
The partnership framework between Kenya and SAA follows the Memorandum of Cooperation (MoC) that the two airlines signed on September 28 to exchange knowledge, expertise, innovation, digital technologies, and best practice between the two airlines. The signing of the Strategic Partnership Framework on Wednesday will see both airlines work together to increase passenger traffic, cargo opportunities, and general trade by taking advantage of strengths in South Africa, Kenya, and Africa.
It is expected that the partnership will also improve the financial viability of the two airlines. Customers will also benefit from more competitive price offerings for both passenger and cargo segments.
Kenyatta, Ramaphosa oversee deal
The signing of the agreement was witnessed by President Uhuru Kenyatta and his South African host, President Cyril Ramaphosa on the second day of President Kenyatta’s three-day State visit to South Africa. The Strategic Partnership Framework was signed by Kenya Airlines’ Chairman Michael Joseph and SAA Chairman John Lamola in Johannesburg.
The framework aligns well with the aspirations of the Africa Continental Free Trade Area Agreement (AfCFTA) of providing a single market for goods and services, facilitated by the movement of persons and goods to deepen the economic integration and prosperity of the African continent. It also includes demand recovery and other cost containment strategies which will aid the recovery of both carriers in an increasingly competitive African airline environment.
Speaking at the signing ceremony, Michael Joseph said: “This cooperation aligns with Kenya Airways’ core purpose of ‘Contributing to the sustainable development of Africa’ and is based on mutual benefits. It will increase connectivity through passenger traffic, cargo opportunities, while enhancing the implementation of the Africa Continental Free Trade Area Agreement (AfCFTA). The geolocation of the two countries will make the Pan-African Airline Group attractive by creating the most formidable Airline Group that is expected to take advantage of strengths in South Africa, Kenya, and Africa.”
Financial turnaround strategy
Both airlines remain committed to their financial turnaround strategy. One of the pillars to achieve this is coming together and combining assets to provide a more robust and ultimately competitive aviation ecosystem to pursue the commercial viability of both carriers.
On his part, SAA Chairman Lamola said: “The Strategic Partnership Framework will improve the financial viability of both airlines by creating the most formidable air transport connection in Africa by benefiting from at least two attractive hubs of Johannesburg and Nairobi. It will ignite the Kenya and South Africa tourism circuits, which account for significant portions of the respective country’s GDP.”
In a context of intense rivalry, the two legacy carriers faced multiple challenges that include but are not limited to high fleet renewal and maintenance costs, the advent of new business models, and regulatory changes. Since internal growth or competitors’ takeover may be hard, choosing to cooperate with each other makes sense. This form of partnership has indeed attracted many airlines in recent years and now covers a major part of global air traffic.
Indeed the Trans-Atlantic joint venture of Air France-KLM alone accounted for more than 20 percent of the overall Trans-Atlantic capacity in 2017 with 250 trans-Atlantic flights per day.
Africa’s market offers potentials
The African market offers strong growth potentials for airlines. According to the International Air Transport Association (IATA), provided that governments do not impose barriers to entry but embrace open skies, the continent is set to become one of the fastest-growing regions for aviation in the next 20 years with an annual expansion of nearly five percent. Airlines in and outside Africa are optimistic about the growing opportunities and huge potentials in the continent’s aviation industry.
In 2018, Africa’s largest airline by revenue and profit, Ethiopian Airlines signed a deal to acquire a 45 percent stake in Zambia Air, resurrecting the Zambian flag carrier more than two decades after its shutdown. Moreover, another sign that Africa’s aviation industry is witnessing an upturn is that low-cost airlines are beginning to serve second-tier cities on the continent; a trend that industry experts said would continue.