Skip to main content

THE GOOD THAT CAN COME OF THE NEW UGANDA AIRLINES



I have fond memories of the Old Uganda Airlines.

As a secondary school child, I took advantage of ticket concessions (my mother worked for Uganda Airlines) to fly to the UK to buy clothes and other goods for sale to my friends at school.

These trips were a great adventure and served as a good foundation for the businessman I am today.

It has been reported that the first two planes of the revived Uganda Airlines will be landing in the country within the month. The finance ministry has been presenting to parliament their needs to pay off deposits on the first two of six planes they are to take possession of in coming months.

The project has its equal share of supporters and critics. I am a qualified supporter of the project.

In business nothing is certain. We deal in probabilities. When getting into a venture we often must weigh the risks versus the returns of a project. If the risk of failure outweighs the potential profit we stay away, otherwise you are gambling. But if the returns far outweigh the risks, we jump in with both feet.

In my mind the benefits of Uganda Airlines taking to the sky far outweigh the risks and the government and all Ugandans should back the project to the hilt....

"Uganda is abundantly gifted by nature. The question then arises that if this is an indisputable fact, then why are we still struggling as a country? There are many reasons but I believe that a major reason is that we have not yet unlocked the full potential of our natural endowments for the benefit of our people....

The govt has been very focused on infrastructural development for the last 9 years, roads, bridges, electricity, clean water. Unfortunately, nearly always there is the typical small-time lag between investment and results, then it will certainly pay off. We can’t wait to the dividend to fully manifest, and so need to soldier on to developing our much-needed airports, national Airline and aviation services.

Look at a map of Africa, land-locked Uganda has a central location on the continent. We are surrounded in all directions by a fast-growing population that has an upward income trajectory.

Imagine if we had non-stop flights from Europe, Asia, Southern Africa, West Africa, North Africa, North and South America bringing passengers and cargo either to the country or for onward delivery to other destinations?  Our tourism would boom and trade numbers would skyrocket to reflect the new convenience.

The jobs created by the airline would be the tip of the iceberg, all the supporting logistical and hospitality industries that would spring around this initiative is where the action would be. It is such infrastructure that will unlock our competitive advantage of being at the center of the continent or the world, for that matter. The old Uganda airlines that was closed in May 2001 had crossed a point of no return in the economic and social times, even the best idea at the wrong time just won’t materialize. The time to start afresh with no historical baggage has arrived.

A credible airline would inject added impetus into our fast-growing horticultural sector. We have untold potential in the growing of fruits, vegetables and flowers, unfortunately we still have some deficiencies in the sectors’ value chain, not least of all the need for expanded cold storage, and sort out the challenges faced to evacuate our produce to the markets of Europe and Middle East through frequent and consistent flights out of Entebbe. Other high value exports – like Gold that outperformed coffee as our country’s leading single export by value, would be stimulated.

Related to that other sectors in which we can quickly develop a competitive advantage are tourism, mining, agroindustry, financial services, health-tourism, making Uganda a regional education centre and ICT services hub. These indirect profits are not so obvious to show and directly relate to the airline.  

I have only touched the surface of what potential a viable airline can unlock for this country.

That being said, earlier concerns I had with the project still persist.

The airline business is a long-term commitment. I have no illusion that in the best of circumstances the airline will be making losses for a long time – recent startups like Rwanda Air that was launched in 2001 and has never shown a profit to date. Attempts to sugar coat this reality may give the treasury false expectations and they may not have the stomach to keep subsidizing this project for very long without showing a direct financial profit return.

A close look at South African airways (SAA) is quite insightful and revealing. SAA operates the profitable airport businesses and through its subsidiaries owns Air Chefs, the profitable catering business, the ow cost carrier Mango, South African Travel centre, and south African airways technical. Then why would such an established airline fail to post a profit.  Some have suggested the risk of flying to less profitable routes, high maintenance cost, poor fleet management and the occasional speculation or absence of hedging against spikes in fuel prices

The last time SAA posted a profit was in 2011. It has since made financial losses year in year out on average of a million dollars a day.

Let’s take a look at another well-established airline closer to home Kenya airways. (KQ). KQ has a fleet of 44 planes and flies to 62 destinations with approx. 5 flights a day to Entebbe. The fare from EBB to Nairobi one-hour   flight is about the same as the fare to Dubai a five-hour flight. Could this be considered predatory pricing?

Nevertheless, KQ posted a financial loss of $560 million last year. It runs a pretty good cargo business but appears to lose money on the passenger side of business. Going by the latest goings on in Kenya, it is clear that for this project to have a better than even chance of success the operations of the new airline and the Entebbe International Airport, at least, have to come under one management. Ethiopian Airlines, Qatar and Emirates Airlines all control their home airports, the handling fees at these airports have proved invaluable to the viability and sustainability of those airlines.


Labels:

Comments

Post a Comment

Popular posts from this blog

OIL: WE NEED TO GET OUR ACT TOGETHER… YESTERDAY

(Published February, 2017) We are on the cusp of an important period in the history of this country and whether we can derive maximum advantage from this will depend on our capacity to put aside petty rivalries and come together as the business community. Over the next three years at least $20b or almost the size of the entire economy will be spent in readying us for first oil. This money will be spent on building infrastructure in the oil bearing areas of western Uganda, on our side of the oil pipeline to the Tanzanian port of Tanga, on the oil refinery and any number of things that will be needed to support oil production. About $3b (sh11trillion) was spent during the exploration phase of which less than three in every ten shillings   or about sh3trillion went to local contractors and suppliers. But this happened over eight years. This despite our local disorganisation and ignorance of the industry and its dynamics. However we should not be content with t...
Post a Comment
Read more

OIL IS COMING BUT LET US NOT FORGET OUR GOLD

The country is operating on a time table that first oil will be seen in 2020. There is a lot of frenetic activity around building supporting infrastructure, getting investment approvals, ensuring local participation and any number of other things to ensure readiness the moment the oil starts gushing down the pipeline to the coast. And so we should. I was intrigued the other day to read in the Kenyan press how Kisumu County, just across Lake Victoria from us, has set upon an ambitious project to ensure egg and poultry meat self-sufficiency for the county within the next few years. Under the plan Kisumu County will train 100 farmers every month over the 12 month pilot period. The intended aim is to be able to satisfy the county’s demand for 25,000 broilers and 75,000 eggs daily. Whereas I would prefer that this was private sector driven deal, I like this plan for a number of reasons not least of all that it shows leadership by the county and secondly, it relies o...
Post a Comment
Read more

LOCAL CONTENT IS NOT A DONE DEAL, WE NEED TO DO MORE

This year’s “Oil & Gas Convention & Regional Logistics Expo2017” has just concluded after three days of discussion, exploration and soul searching. First oil in Uganda is expected by 2020 and this Expo among other efforts are targeted at getting our local businessmen ready to take advantage of this historical development. At the risk of sounding like a broken record, the discovery and eventual exploitation of our oil resource is one of those once in a generation events, that can transform this nation, not only on a macro level but also in our individual lives. For starters at least $20b will be spent over the next three years in infrastructure development and other things that will ensure we are ready to pipe and refine our oil. During the exploration phase about $3b was spent by the international oil companies, with on three in every ten dollars being retained here. That was an exploration phase and one hopes that we have learnt enough from that period to ...
Post a Comment
Read more

A SHIFT AWAY FROM AGRICULTURE IS CRITICAL FOR UGANDA

Anyone who has half a stake in this country would be a keen observer of the economy and the direction it is taking. In the last three decades the economy has shown strong growth, only slowing to overcome bad weather, a global financial crisis or unrest in the region. Compared to when I started out in business, it has become a more liberal economy, with individual initiative being rewarded more and more. While the economy is still dominated by the informal sector, the formal sector is growing annually. But the biggest shift in the economy has to be the reduction in agriculture’s share of the economy from more than 80 percent to about 25 percent today. This has happened despite the leap in the production of everything from bananas to coffee or from milk to maize. What has happened is that more of the economy – though not nearly enough, has been taken up by industry, construction and services. This is how it should be and in fact, more work is needed in shifting t...
Post a Comment
Read more

GOOD BUSINESS SENSE WILL HELP OUR AGRICULTURE

The recent drought has at once alerted us to our deficiencies in our agriculture production and reawakened a drive to revitalise the sector. How is it that a country with half the arable land in the region has people suffering starvation? How is that our crops dried up in the fields when a fifth of our land mass is under water? And on a macro level how is it that the 70 percent of our people who rely on the land directly for a living, account for 30 percent of our economic output or GDP? Given our natural endowments in land, weather and manpower it is obvious that we are performing well below our potential. Reversing this trend of affairs should be the concern of everybody in the country. A lot of the debate has revolved around increasing production, value addition and market access locally and internationally. And rightly so. Taking one example the Uganda Coffee Development Authority says that the average yield per hectare is half a ton of coffee. But meanwhile with...
Post a Comment
Read more

WE NEED FASTER TURN AROUND ON OUR ROAD PROJECTS

During a recent trip to China I was shocked to find properly paved roads and first class infrastructure deep in the countryside, hundreds of kilometres away from the capital, Beijing. I rode the high-speed railway out of Beijing, doing more than 300 kilometres per hour and I can attest I have never been on anything like it anywhere in the world. Not in Europe. Not in the States. Nowhere. I was blown away and wondered why we can’t at least do a tenth of this at home. I have to say I was pleasantly surprised when I used the Entebbe Expressway from the airport. I was in Kampala in under an hour. The Entebbe road had become a nightmare. I was shaken out of my good feeling when I had to make a trip to Tororo the other day. On my way back I spent two and half hours between Mukono and Kampala, about the same time it took me from Tororo up to Mukono. Clearly there is a lot of work to be done on our transport infrastructure. The full extent we probably don’t appreciate,...
Post a Comment
Read more