Why a country that doesn’t have a national airline should never start one (especially those in Africa)

Some of you know from my tweets that I was in Africa for the first time this month, in Kampala, Uganda to be specific. It was a great experience to be finally on the continent that I had heard so much about. It was also when Qatar Airways launched their non-stop daily service from Doha to Kampala. And at the press conference, the CEO promised to add services to neighboring Kigali in Rwanda, Mombasa in Kenya and Zanzibar in Tanzania.

And Qatar Airways is not the only airline expanding into Africa. Gulf Air is adding flights, so are Turkish Airlines and regional giants Ethiopian and Kenya Airways. Which begs the question, if a nation doesn’t yet have a national airline, should it start one to boost tourism, or get other airlines to fly more often into its airports? I’d say starting a national airline would be self-defeating today.

Travel is growing, but not airline profits

While the growth in the number of air travelers continues to surge ahead in the developing world, due to fast growing middle-class, that doesn’t necessarily co-relate to airlines making profits too.

The last decade, 2001-2010, was a horrible one for airlines. As a group, airlines in the US lost $54.6 billion, and made money in only three of those years (2006, 2007 and 2010). The Air Transport Association has numbers going back to 1947. In the 64 years from 1947 through 2010, the industry has been profitable in 45 of those years. However, the profits in those 45 years, $63 billion, is more than offset by the losses in the other 19 years, $97 billion). That means the industry since 1947 has cumulatively lost about $34 billion.

This trend accentuates further when we look at national airlines.

National airlines are bottomless pits for taxpayers’ money

While some of the private budget carriers somehow make a profit through innovative marketing and product offerings, majority-government owned airlines are almost always complete basket-cases. Look at Air-India. It loses so much money that it’s enough to feed 400mn Indians for a year. If we analyze Alitalia, it’s no  mystery the airline is still flying only because of multiple bailouts by the government. Air Canada is not only loss-making, but the Canadian government is too scared of allowing competition in, as jobs are at stake. Or at least that’s the thinking.

So why is having a national airline still in fashion in government corridors?  Because it is “the mother of all cash-cows — milked by the political and bureaucratic class she is now being forced to give their life blood since she has already been sucked dry”, as Devesh Agarwal from Bangalore Aviation puts it, referring to Air India.

And that’s possibly the onlyreason why unprofitable national airlines still fly – to serve as private jets for the political class and their cronies. Which is why I was shocked when I read an article in the Daily Monitor in Uganda advocating that a national airline should start a national airline to boost tourism.

Does Uganda need a national airline? Nope.

For those who’re unaware, Uganda is known as the “Pearl of Africa” for its scenic beauty, temperate climate and flora and fauna. Certainly lots to do for a tourist. But that doesn’t justify setting up an airline.

The article, written by a former employee of the now-defunct East African Airways, advocates that a national airline is needed to boost tourism. Unfortunately, that was the case in the 60s, not today. Ryanair carrier more passengers to and from Britain than British Airways. AirAsia has more planes on order than Malaysia Airlines and Singapore Airlines combined. Even in Africa, non-national airlines like Mango and Kulula carry more passengers than the likes of South African Airways. Moreover, the capacity added by other airlines from the Gulf and Europe cannot be ignored.

So in order to boost tourism, a conducive environment for airlines to operate out of should be created. In fact, Uganda is very well located in the center of Africa, to act as a natural hub for airlines flying small regional aircraft across the country. Perhaps, the money should be spent upgrading the airport, which is decades old, like the Rwandan government is doing. And airlines already flying to the country should be empowered to spread the word about the tourism potential, as if they were the national carriers.

Listen to Warren Buffet

Warren Buffett, who put some money into US Airways back in the 1990s, wrote in his 2008 letter to Berkshire Hathaway shareholders: “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

A national airline can only promise to provide direct employment, but in no time has the likelihood of turning into a government stooge, and burn up taxpayers’ money.

Hence, if a country doesn’t have a national airline, precious resources should be spent in boosting tourism by bringing other airlines to the country, not plundering money into a new source of national pride.

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