African Alliance Illustrates Need For A Private Forum
10:33 AM on Oct 21, 2010
Every industry has its cycles, and ours is definitely in the midst of an exciting time when almost anything is possible. And while consolidation and environmental causes, for now, are dominating headlines around the world, an interesting concept brewing in Africa shows that innovation is not limited to the northern hemisphere.
The plan involves three of Africa’s largest carriers, Egyptair, Ethiopian Airlines and South African Airways (SAA), and could spark a new chapter for the continent’s aviation sector. Separately these three are relatively strong, but if ongoing talks prove fruitful, these operators could band together to form an intra-African alliance as strong if not stronger than the multibillion-dollar ventures currently operated by the power brokers of Europe and North America.
Key to the proposed collaboration is a core of feeder carriers controlled in some way by the three airlines, be it direct investment, managerial expertise or equipment. Starting early next year with a new entity in Central Africa, the plan envisions a family of feeders for Addis Ababa, Ethiopia, Cairo and Johannesburg across the entire continent that will be supported by government travel requirements that have already helped the likes of Ethiopian to not only weather the latest global recession but to steadily grow.
This sounds grand, and it is, but when all three CEOs talked to Aviation Week about this during a ceremony marking Ethiopian’s plan to join Egyptair and SAA in the Star Alliance, they not only appeared committed to the concept, they had obviously worked diligently to make the idea a reality.
But there are more reasons to discuss this, as if an overhaul of African aviation is not enough. Consider the role of Star Alliance, or any alliance for that matter. Now well into their second decade, the world’s three alliances have cemented a role in global aviation that has facilitated the latest evolutions. Once promoted as a vehicle to aid joint buying and design—something that was never really fulfilled (although it will be interesting to see what Star’s coach seat looks like)—they have evolved into a platform that allows airlines to test joint operations with relatively little investment or the risk of costly failures.
In just the past few years, members of all three alliances have merged or are in the process of combining, and in three cases created the world’s largest air transport operation. The financial benefit of alliance membership also influences core business decisions by some of the world’s largest carriers, something that would have shocked regulators just 10 years ago but now seems routine.
But while alliances have increased their role, there are limits to membership, and the African partnership also illustrates this. While intrinsically an attempt to gather intra-African traffic to their hubs, Egyptair, Ethiopian and SAA are also trying to counter the emergence of Middle East carriers like Emirates, Etihad Airways and Qatar Airways. These airlines are beginning to dominate international traffic out of Africa, particularly to China, which has replaced the Soviet Union as the major foreign player across the continent. With high service standards and a massive potential to boost capacity, these non-aligned airlines have shown that brute force and huge investments can destroy any legacy carrier’s market dominance.
The collaboration between the three African airlines is, in essence, a logical reaction to a market-share grab.
Emirates, in particular, has come under intense pressure from several of the world’s airlines for its growth strategy, and this has resulted in some heated exchanges at government level for the Canadians. Accusations of subsidization by the Arab states abound, and while the United Arab Emirates dismisses these claims, there is a lack of transparency that only continues to fuel the opposition.
But this spat ignores a larger problem with the world’s airline industry. While European and North American carriers hold the flame of capitalism, everyone in the business has benefitted at some point from government largess, and even today state ownership distorts—for good or bad—the way the world’s airline industry operates. Maybe now, as the International Civil Aviation Organization unveils a historic climate-control initiative, the global airline industry should seize the moment, and like the alliances establish a new forum where industry can not only debate its issues but possibly resolve them without the involvement of politics or glare of headline-grabbing vendettas.
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