African Airlines Need To Work On Their Cost Structure

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Aviation & Allied Business Journal had an exclusive discussion with Mr. Esayas W. Hailu, CEO, ASKY Airlines in Abuja, Nigeria. He discusses major issues in the African aviation including funding, manpower and charges amongst others.

Q: Congratulations on your recognition by AFCAC for being the airline with the most 5th Freedom Routes in Africa. In terms of motivation to open the fifth Freedom routes across Africa, what is actually driving ASKY Airline?

A: Just as you know, ASKY is a pan African airline. It’s a private commercial company which is based in Togo with a vision of connecting Africa with a commercial tagline of the pan African airline. We saw that, especially within West and Central Africa, essential, dependable connectivity is in short supply, so we came in to fill the gap 13 years ago. The founding fathers of ASKY, Chief (Gervais) Djondo, as well as Mr Girma (Wake) met in Cairo and they conceived the idea of bringing ASKY into light to fill the gap of that essential connectivity. People used to travel from one part of Western and Central Africa to the other through either Paris or Lisbon or some other places, they wanted to fill the gap and when they saw that there is a need for more 5th freedom, they went into it.

So it was inspired by the vision of serving that connectivity so because of that, ASKY was able to prepare itself for the last 13 years. Especially in the fifth Freedom there is a big traffic because there are not enough operators in those routes, so ASKY helped to grow its 5th freedom. The Fifth Freedom has been a launching pad for the Sixth Freedom.

Q: It is popularly known that Western and Central Africa regions have some of the most expensive ticket prices, and then you say it’s down to fees, charges etc. How do you think this can be resolved?

A: This question has two answers. Number one, aviation, by nature is a low margin industry to the lower side of the single digit. Even other aviation businesses in the value chain like airports, ground handlers and caterers have a better margin than the airline itself. So that’s number one.

Number two, when it comes to the region of West and Central Africa, airport navigational facilities like landing, parking, handling, catering everything is very expensive.

Taxes on tickets are very high and also aviation professionals like pilots and others are in a very short supply. So all this boils down to making the ticket very expensive. To beat the price down, the most plausible need including fuel, which in the region is also very expensive.

With all these cost components, governments need to look at things like, reducing the tax and charges, reducing the costs of aviation infrastructure and aviation value chain, services and vendors and supplies. All of these prices need to be reduced so that cost will be manageable and the airlines will be able to produce the single available seat kilometre one seat on the aircraft at a lower cost, and they can push some of the savings down to the passenger so they pay lesser.

This is the only way to do that because there is no business or company which has high costs and subsidises with a low price of tickets. That would mean making a loss and the airlines will not survive even to give the service which is desperately needed within the region now.

Q: In terms of your cost components, we hear that cost of MRO is quite high in the region. How is ASKY managing? Do you have your in house capacity or how does ASKY go about its maintenance to make sure that you are competitive?

A: You know, the ASKY maintenance service is being purchased from Ethiopian Airlines. This is an African resource, affordable, high quality and world standard. The other thing which beats up the prices is high aviation professionals being in short supply, especially licensed flight technicians. And also imports of parts. When parts are imported, governments levy big tax on that. So now for governments to be able to make flying affordable to their citizens, they need to be a little bit liberal on that. As far as ASKY is concerned, if we go to Europe or to expensive regions to buy MRO services, it will be very expensive, but Ethiopian airlines has got a very capable world standard MRO service at a reasonable cost. And this is the best South-South relationship which is well functioning and benefiting ASKY and making it viable.

Q: ASKY is undoubtedly one of the biggest operators in the West and Central African region and Africa. And you have experience of what the state of airport infrastructure is across Africa now. Would you say that infrastructure is improving across Africa? Also, where do you think Africa needs to pay attention?

A: Well, respective African governments, with the exception of a few, collect taxes and levies on ticket sales and claim to develop infrastructure for aviation, but most of the time they are not. They deploy that earning elsewhere in other industries or public services. They put infrastructure charges, solidarity taxes, liberty tax, and they collect it and they spend it elsewhere. That means the existing infrastructure get old and tired and don’t operate at their full capabilities. Because of lack of lightings, for example, there are night curfews in some airports. And when one ground power unit at the airport has some mechanical fault, then aircraft spend a night in the airport. There are a lot of things by way of infrastructure which needs to be really developed. This includes the terminal areas, passenger processing areas, passenger processing xray, baggage processing Xray. These are frequently failing; they are small in size and because of that, when you have a big number of baggage, there is delay, there is manual intervention, flights are delayed, and passengers complain. So infrastructure needs to be really revamped in many parts of Africa.

Q: Cargo helped airlines during the Covid-19 pandemic. Looking at your base in Lome in terms of the airport infrastructure there, what is your ambition for ASKY in terms of cargo operations?

A: Lome Airport is well situated between the western-most part of Africa and closer to Central Africa, so it is in a strategic location. And the airport has good facilities. In fact, they are now working even on the cargo terminal, which is state-of-the-art. But the thing is that, because ASKY is right now a narrow body operator, the belly space left is enough for passenger baggage and excess baggage. But we have a plan to grow to wide body aircraft in the coming years and then when we bring a lot of belly cargo to the base, we can have a dedicated freighter here in Lome so that it can collect and convey to two or three stations. That is our future plan. But as far as Lome Airport is concerned, relatively speaking, compared with other airports, it has one of the very good facilities.

Q: Talking about SAF, many think that considering Africa’s small size, why should Africa be bothered about SAF. From the vantage point of an airline CEO in Africa, why do you think Africa should be bothered about SAF and what do you think Africa should do about increasing its capacity to play in the SAF environment considering IATA’S Agenda 2050’s emission reduction?

A: Africa being a member of the global citizen, whatever is affecting the rest of the globe that concerns the environment should concern Africa. Africa should be preoccupied and be serious about the environment. So that’s for sure because we are part of the rest of humanity. But for Sustainable Aviation Fuel, the price is very expensive. It is not affordable for African standards. What I would suggest is that Africa should be concerned about it, we should be preoccupied about it, but there should be a formula by the developed nations to be able to sponsor a bit for the developing world till they come up to the task of being able to afford Sustainable Aviation Fuel because it’s more expensive. Even the conventional carbon fossil fuel is itself very expensive for Africa talk less of the Sustainable Aviation Fuel. So the rest of the developed world should be able to help Africa with some kind of credit or something like that.

Q: The profit margin is low for airlines. In your position, as an MD/CEO, what would be your advice to African airlines on optimising revenues and costs and be profitable in a very difficult market?

A: Well, there should be two or three things to do. Number one, aviation professionals in Africa, in many parts like pilots, flight technicians and aviation leadership are in short supply and people have to be paid bigger. So, if we increase the outlets of aviation professionals so that they are many, then labour costs will come down.

Number two, all the other cost components, internal processes need to be worked on with a view to saving costs, to increase quality, to reduce time and to reduce cost of producing that one seat on the aircraft. Because you know, the external environment (like the competition, the regulation and everything) we should be only responding to it. It’s not in our control, what is in our control is our internal cost structure.

So they need to work on the cost so that when cost is reduced, they will be able to give some discount to the passengers. The other thing is that there is a revenue management function within the airline, which means selling a seat today at whatever price if it can be unsold until departure or not selling a seat today if it can be sold for a better price tomorrow before departure.

So we have to segment our market. For those people who are price sensitive, we need to give them cheaper prices and for those people who can afford it like the corporates we need to be, collecting premium from them, therefore subsidising one by the other.

By so doing, we optimise revenue and we make the airline viable because economy class is covering cost and business class is helping the profits, some kind of formula like that.

Q: One of the key examples that your partner Ethiopian Airlines have shown to Africa is in the area of grooming leadership. Is ASKY trying to put that kind of structure in place in to make sure that it has a pool of management professionals that can run the airline in years to come?

A: Ethiopian Airlines has got an aviation university which produces flight technicians, pilots, aviation leadership etc. Now that helps produce the right kind of people for the industry and also grooming them in succession planning through the management hierarchy. We have already started doing the same for ASKY. There are flight technicians and pilots which are getting loan from Ecobank Trans International and ASKY is guaranteeing their loan and they are taking courses in Addis (Ababa) in the Ethiopian Aviation University. These are from the region, from the entire region, so they will be based in Togo and will be a nucleus aviation professionals for the future to continue handling the airline in a sustainable way as far as human resource is concerned. Within ASKY, there is a system of HR succession planning, coaching and mentoring, this will be able to prove fruitful for the future.

For example, right now in ASKY, at management area, there has been some movement. Some people have been going out to other airlines, but because of strong coaching and mentoring, we are able to substitute those places easily without having to worry about it. So this will continue when intensified for the future, to ensure the sustainability of ASKY when it comes to managing it professionally.

Q: Congratulations on your recognition by AFCAC for being the airline with the most 5th Freedom Routes in Africa. In terms of motivation to open the fifth Freedom routes across Africa, what is actually driving ASKY Airline?

A: Just as you know, ASKY is a pan African airline. It’s a private commercial company which is based in Togo with a vision of connecting Africa with a commercial tagline of the pan African airline. We saw that, especially within West and Central Africa, essential, dependable connectivity is in short supply, so we came in to fill the gap 13 years ago. The founding fathers of ASKY, Chief (Gervais) Djondo, as well as Mr Girma (Wake) met in Cairo and they conceived the idea of bringing ASKY into light to fill the gap of that essential connectivity. People used to travel from one part of Western and Central Africa to the other through either Paris or Lisbon or some other places, they wanted to fill the gap and when they saw that there is a need for more 5th freedom, they went into it.

So it was inspired by the vision of serving that connectivity so because of that, ASKY was able to prepare itself for the last 13 years. Especially in the fifth Freedom there is a big traffic because there are not enough operators in those routes, so ASKY helped to grow its 5th freedom. The Fifth Freedom has been a launching pad for the Sixth Freedom.

Q: It is popularly known that Western and Central Africa regions have some of the most expensive ticket prices, and then you say it’s down to fees, charges etc. How do you think this can be resolved?

A: This question has two answers. Number one, aviation, by nature is a low margin industry to the lower side of the single digit. Even other aviation businesses in the value chain like airports, ground handlers and caterers have a better margin than the airline itself. So that’s number one.

Number two, when it comes to the region of West and Central Africa, airport navigational facilities like landing, parking, handling, catering everything is very expensive.

Taxes on tickets are very high and also aviation professionals like pilots and others are in a very short supply. So all this boils down to making the ticket very expensive. To beat the price down, the most plausible need including fuel, which in the region is also very expensive.

With all these cost components, governments need to look at things like, reducing the tax and charges, reducing the costs of aviation infrastructure and aviation value chain, services and vendors and supplies. All of these prices need to be reduced so that cost will be manageable and the airlines will be able to produce the single available seat kilometre one seat on the aircraft at a lower cost, and they can push some of the savings down to the passenger so they pay lesser.

This is the only way to do that because there is no business or company which has high costs and subsidises with a low price of tickets. That would mean making a loss and the airlines will not survive even to give the service which is desperately needed within the region now.

Q: In terms of your cost components, we hear that cost of MRO is quite high in the region. How is ASKY managing? Do you have your in house capacity or how does ASKY go about its maintenance to make sure that you are competitive?

A: You know, the ASKY maintenance service is being purchased from Ethiopian Airlines. This is an African resource, affordable, high quality and world standard. The other thing which beats up the prices is high aviation professionals being in short supply, especially licensed flight technicians. And also imports of parts. When parts are imported, governments levy big tax on that. So now for governments to be able to make flying affordable to their citizens, they need to be a little bit liberal on that. As far as ASKY is concerned, if we go to Europe or to expensive regions to buy MRO services, it will be very expensive, but Ethiopian airlines has got a very capable world standard MRO service at a reasonable cost. And this is the best South-South relationship which is well functioning and benefiting ASKY and making it viable.

Q: ASKY is undoubtedly one of the biggest operators in the West and Central African region and Africa. And you have experience of what the state of airport infrastructure is across Africa now. Would you say that infrastructure is improving across Africa? Also, where do you think Africa needs to pay attention?

A: Well, respective African governments, with the exception of a few, collect taxes and levies on ticket sales and claim to develop infrastructure for aviation, but most of the time they are not. They deploy that earning elsewhere in other industries or public services. They put infrastructure charges, solidarity taxes, liberty tax, and they collect it and they spend it elsewhere. That means the existing infrastructure get old and tired and don’t operate at their full capabilities. Because of lack of lightings, for example, there are night curfews in some airports. And when one ground power unit at the airport has some mechanical fault, then aircraft spend a night in the airport. There are a lot of things by way of infrastructure which needs to be really developed. This includes the terminal areas, passenger processing areas, passenger processing xray, baggage processing Xray. These are frequently failing; they are small in size and because of that, when you have a big number of baggage, there is delay, there is manual intervention, flights are delayed, and passengers complain. So infrastructure needs to be really revamped in many parts of Africa.

Q: Cargo helped airlines during the Covid-19 pandemic. Looking at your base in Lome in terms of the airport infrastructure there, what is your ambition for ASKY in terms of cargo operations?

A: Lome Airport is well situated between the western-most part of Africa and closer to Central Africa, so it is in a strategic location. And the airport has good facilities. In fact, they are now working even on the cargo terminal, which is state-of-the-art. But the thing is that, because ASKY is right now a narrow body operator, the belly space left is enough for passenger baggage and excess baggage. But we have a plan to grow to wide body aircraft in the coming years and then when we bring a lot of belly cargo to the base, we can have a dedicated freighter here in Lome so that it can collect and convey to two or three stations. That is our future plan. But as far as Lome Airport is concerned, relatively speaking, compared with other airports, it has one of the very good facilities.

Q: Talking about SAF, many think that considering Africa’s small size, why should Africa be bothered about SAF. From the vantage point of an airline CEO in Africa, why do you think Africa should be bothered about SAF and what do you think Africa should do about increasing its capacity to play in the SAF environment considering IATA’S Agenda 2050’s emission reduction?

A: Africa being a member of the global citizen, whatever is affecting the rest of the globe that concerns the environment should concern Africa. Africa should be preoccupied and be serious about the environment. So that’s for sure because we are part of the rest of humanity. But for Sustainable Aviation Fuel, the price is very expensive. It is not affordable for African standards. What I would suggest is that Africa should be concerned about it, we should be preoccupied about it, but there should be a formula by the developed nations to be able to sponsor a bit for the developing world till they come up to the task of being able to afford Sustainable Aviation Fuel because it’s more expensive. Even the conventional carbon fossil fuel is itself very expensive for Africa talk less of the Sustainable Aviation Fuel. So the rest of the developed world should be able to help Africa with some kind of credit or something like that.

Q: The profit margin is low for airlines. In your position, as an MD/CEO, what would be your advice to African airlines on optimising revenues and costs and be profitable in a very difficult market?

A: Well, there should be two or three things to do. Number one, aviation professionals in Africa, in many parts like pilots, flight technicians and aviation leadership are in short supply and people have to be paid bigger. So, if we increase the outlets of aviation professionals so that they are many, then labour costs will come down.

Number two, all the other cost components, internal processes need to be worked on with a view to saving costs, to increase quality, to reduce time and to reduce cost of producing that one seat on the aircraft. Because you know, the external environment (like the competition, the regulation and everything) we should be only responding to it. It’s not in our control, what is in our control is our internal cost structure.

So they need to work on the cost so that when cost is reduced, they will be able to give some discount to the passengers. The other thing is that there is a revenue management function within the airline, which means selling a seat today at whatever price if it can be unsold until departure or not selling a seat today if it can be sold for a better price tomorrow before departure.

So we have to segment our market. For those people who are price sensitive, we need to give them cheaper prices and for those people who can afford it like the corporates we need to be, collecting premium from them, therefore subsidising one by the other.

By so doing, we optimise revenue and we make the airline viable because economy class is covering cost and business class is helping the profits, some kind of formula like that.

Q: One of the key examples that your partner Ethiopian Airlines have shown to Africa is in the area of grooming leadership. Is ASKY trying to put that kind of structure in place in to make sure that it has a pool of management professionals that can run the airline in years to come?

A: Ethiopian Airlines has got an aviation university which produces flight technicians, pilots, aviation leadership etc. Now that helps produce the right kind of people for the industry and also grooming them in succession planning through the management hierarchy. We have already started doing the same for ASKY. There are flight technicians and pilots which are getting loan from Ecobank Trans International and ASKY is guaranteeing their loan and they are taking courses in Addis (Ababa) in the Ethiopian Aviation University. These are from the region, from the entire region, so they will be based in Togo and will be a nucleus aviation professionals for the future to continue handling the airline in a sustainable way as far as human resource is concerned. Within ASKY, there is a system of HR succession planning, coaching and mentoring, this will be able to prove fruitful for the future.

For example, right now in ASKY, at management area, there has been some movement. Some people have been going out to other airlines, but because of strong coaching and mentoring, we are able to substitute those places easily without having to worry about it. So this will continue when intensified for the future, to ensure the sustainability of ASKY when it comes to managing it professionally.

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