Kenya Airways carried more than 5 million passengers in 2019, but lost more than $300 million in 2020, as COVID-19 curtailed travel. It wasn’t the first time Kenya Airways, like many larger carriers, needed a government bailout. Air travel is a crucial service, but in Africa, it might be more sustainable to have a few regional airlines than many small national carriers. Dawna L. Rhoades reports.
Jomo Kenyatta International Airport in Nairobi, Kenya, offers flights to over 56 destinations in 39 countries. This should be a remarkable feat after the COVID-19 global pandemic’s impact on travel. Standing out among the brightly colored aircraft on the field is a plane whose tail is the black, red, and green tail of the Kenyan flag. This aircraft livery belongs to Kenya Airways, the national flag carrier of Kenya. The airline, which proclaims itself “The Pride of Africa,” was founded in 1977 following the breakup of the East Africa Community and the dissolution of East African Airways, a joint venture among Kenya, Tanzania, and Uganda.
In 2019, Kenya Airways carried over 5.1 million passengers, while its low-cost subsidiary, Jambojet, transported an additional 726,000. These were milestones celebrated by the airline and the country. But these cheery figures have not changed the airline’s long-term fortunes.
Kenya Airways’ losses tripled in 2020, to $333 million, as COVID-19 containment measures cut passenger levels to their lowest level since 1999.
Kenya’s national airline isn’t alone in its struggles. Over the last two decades that I have been studying the sector, national carriers have gone to the wall in ever greater numbers. And Delta Air Lines, one of the world’s largest carriers, posted a loss of $12.4 billion in 2020.
While it is helpful to keep both Kenya Airways and Delta in mind when it comes to the impact of the COVID-19 crisis on international airlines, it does not answer the larger question of why airlines seem to go from one crisis to another. To understand that, it is necessary to look at the nature of the airline industry, the factors that shape it, and the challenges it faces to achieve profitability.
Tale of two airlines
In recent years, Kenya Airways has received a series of government bailouts. It is reported to be seeking further government support due to losses linked to COVID-19. It even sought to raise funds by requesting permission to run the profitable Kenyatta Airport. This request was blocked by Parliament, which cited the possible loss of jobs and public revenue.
Previously, the Kenya government’s 1995 decision to bring a strategic investor on board paid off with short-lived profitability before the airline plunged back to losses.
Meanwhile, U.S. airlines received $15 billion in aid after the September 11, 2001 terrorist attacks and $25 billion in a COVID-19 package. The three largest, American, Delta, and United, all filed for bankruptcy between 2002 and 2011.
In short, the history of airline bailouts across the world is long and costly.
The COVID-19 pandemic is simply the latest major setback for the industry. The International Air Transport Association, the international trade lobby group for airlines, has described the pandemic as the worst shock to air travel and the aviation industry since World War II. In its Annual Review 2020, it reported that global revenue per passenger kilometer declined 66%, and airline operating revenue went down 60%, for a post-tax industry loss exceeding $118 billion.
Without airlines around the world receiving more than $173 billion of government aid, many would have failed.
Vulnerabilities
National airlines hold a special place in the hearts of people because they often carry the name and the flag of the countries they represent. But this emotional attachment isn’t enough to ensure their financial sustainability. Kenya Airways, South African Airways, and Ethiopian Airlines have survived against the odds, but the cost has been high.
When the Wright brothers first flew in 1903, it was not clear that commercial air travel would one day become common. In fact, most governments had to intervene, directly or indirectly, with financial support to foster the development of their national airlines. Many governments owned these carriers outright, while others used various subsidies to support their operations.
But in 1978, major changes were triggered by the U.S. Airline Deregulation Act. This law liberalized the commercial airline industry, ending the U.S. government’s role in setting fares, awarding routes, and controlling new entries to the market. Internationally, the U.S. began to push for changes as well.
As a result, governments around the world began to withdraw from ownership and support roles. The market was now expected to determine the fate of airlines. It has often not been kind to the industry.
Major economic recessions in the early 1980s and 1990s were followed by the attacks of September 11, 2001, and the global financial crisis of 2008. In each case, the airline industry posted record losses. Airlines went bankrupt or merged with other carriers to survive.
Apart from big shock events, airlines are vulnerable for a number of additional reasons.
The first is that the industry is very sensitive to economic cycles. When economic activity slows down, the airline industry is one of the first to feel the impact.
Also, airlines need very expensive assets like airplanes, and highly trained personnel, including pilots, flight attendants, and mechanics, to carry out safe and high- quality operations.
Third, they require a substantial infrastructure to support their activity, including airports, air-traffic control systems, and facilities for training and maintenance.
But those that have survived – and the new ones that have taken off – have done so because of rising demand across the world. According to the International Air Transport Association’s Annual Review 2019, the global airline industry carried almost 4 billion passengers and 64 million tons of cargo in 2018. The pandemic returned it to the levels of 1999.
Hard to be an airline
Airlines offer the fastest and safest form of long-distance travel, provide direct and indirect employment, and contribute to tourism and economic development.
For these reasons, nations and regions have an interest in the health and welfare of airlines.
But how many airlines is too many or too few?
There is no simple answer to this question. High-income countries with large domestic traffic bases, like the U.S., can support a handful of carriers to transport the bulk of their commercial passengers. Countries without a large domestic base, such as the United Arab Emirates, must rely on attracting international and connecting traffic.
Lower-income countries often struggle to support a single carrier. Air Mauritius, Avianca (Colombia), LATAM (Chile), and Philippine Airlines all declared bankruptcy during the pandemic.
In Africa, it may take a region to support an airline because the industry needs both a large base of potential customers and a sizable investment in assets and infrastructure.
In 1999, 44 African countries signed the Yamoussoukro Decision, which committed them to deregulating air services. The Single African Air Transport market and the African Continental Free Trade Area expanded the vision. Liberalizing air- service agreements would allow airlines to draw on a larger base of potential passengers, trained workers, and government resources.
Talks between Kenya Airways and South African Airways are a tangible expression of the vision of creating a regional carrier structure strong enough to weather the unpredictable winds of the aviation industry.
Maybe 2022 will be the year that Africa puts aside purely national aspirations and rises up to make the goal of a single sky with a few strong, safe airlines a reality.