Airline Profits - Vol II - Issue 10 - Sep-Oct 2016

Volume II—Issue 10

A Magazine for Aviation Leaders & Influencers

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FEATURED

Can the Airline Industry Thrive on Patchworks?

More articles inside...

Air Canada: A Steady Return to Profitability?

Edition: September-October 2016

Is ASKY Airlines Setting a New Normal in Africa?

Is Seat Auctioning a Potential Profitability Leakage?

Volume II—Issue 10

September-October 2016

Airline Profits

Contents 6

Editorial: Cou ld the Aviation In dustr y B e at A Turning Point?

10

Profile: Allegian t: W hat Did the Air line Pr ofits Sustainability Index Reveal?

16

Perspective: Is Seat Auction in g a Tar geted Upsell Or a Potential Profitability Leakage?

22

Performance: Air Canada: A Steady Return to Profitability?

28

Paradigm: Can the Air line In du str y Thrive on Patchworks?

34

Platform: Is ASK Y Air lines Setting a New Normal in Africa?

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3

HEAD OF PROGRAMS: Kofi Sonokpon kofi.sonokpon@airlineprofits.com

PUBLISHED BY: Airline Profits Publications CP 53506 CSP Norgate Saint-Laurent, QC, Canada H4L 5J9 magazine@airlineprofits.com

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Airline Profits is the fir st a v ia tion ma g a zine dev oted to im pro v ing airline effectiveness and profitability. It is a bi-monthly publication.

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The digital, Kindle and print formats can be ordered via www.airlineprofits.com from the magazine page. A Kindle version can also be acquired through Amazon worldwide.

Airline Profits is a tr a dem a r k o f Ma ckso n Av ia tio n. Š2015 Airline Profits ISSN 2368-7800 (Print)

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Airline Profits

September-October 2016

Volume II—Issue 10

Editorial Could the Aviation Industry Be at a Turning Point?

Kofi Sonokpon editor@airlineprofits.com

Dear Reader, beforehand I would to welcome you warmly to the tenth and special edition of Airline Profits.

If you follow aviation news regularly, part of which is available in the Aviatio n New s section of the Airline Profits Blog, you are probably aware of significant events taking place in the aviation industry, involving IATA and ICAO.

Alexandre de Juniac Took Office as Director General and CEO of IATA

With visionary leadership and frank cooperation with all stakeholders, we believe that Alexandre de Juniac can put his extensive leadership and rich aviation experience to contribution and succeed in his mission as captain of industry and effectively represent the voice of the airline industry.

Firstly, as of September 1, 2016, Alexandre de Juniac took office as the seventh Director General of the International Air Transport Association (IATA). Mr. de Juniac also assumes the role of Chief Executive Officer (CEO), which Tony Tyler, his predecessor had.

Mr. Tyler who led the organization since 2011 had announced his retirement early this year.

faced with unprecedented challenges on multiple fronts.

This the place to congratulate Mr. de Juniac on his appointment at the time when the airline industry is not only in need of profound transformation, but also is

With visionary leadership and frank cooperation with all stakeholders, we believe that Alexandre de Juniac can put his extensive leadership and rich aviation

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experience to contribution and succeed in his mission as captain of industry and effectively represent the voice of the airline industry.

This is also the place to recognize the unique contribution of Tony Tyler, not only to IATA and the

Alexandre de Juniac Adressing the 72nd IATA AGM in Dublin, Ireland. Photo Credit: IATA

airline industry in particular, but also to the aviation industry as a whole.

ICAO’s 39th Triennial Assembly to Be Held in Montreal Secondly, the other significant industry event is the 39th Triennial Assembly of the International Civil Aviation Organization (ICAO) at their headquarters in Montreal. This high level meeting, which happens every three years will occur from September 27 to October 7, 2016. According to preliminary information, some 5,000 delegates are anticipated to

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Beyond administrative and membership discussions, the provisional agenda for this 2-week gathering includes regulatory topics related to safety, security, air navigation, economy, facilitation, environment, training and capacity building, human resources as well as the No Co untry Left Behind (NCLB) initiative among other things. Apart from the plenary, discussions will be held within an Executive Committee and four commissions pertaining to economic, legal, technical, administrative matters.

The 39th Triennial Assembly will

September-October 2016

Aviation Forum, which will host ministers in charge of aviation from around the world on September 26th. The discussion at this forum will focus on the No Country Left Behind (NLCB) initiative.

We will be monitoring the discussions and share any pertinent news as they unfold and possibly a summary in the next edition of Airline Profits.

We hope you enjoy this new edition of Airline Profits and share your reading with colleagues and friends.

Volume II—Issue 10

“ The desire to fly is an idea handed down to us by our ancestors who... looked enviously on the birds soaring freely through space... on the infinite highway of the air. ― Wilbur Wright

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Volume II—Issue 10

Profile Allegiant Air: What Did the Airline Profits Sustainability Index Reveal?

In the nineth edition of Airline Profits, we presented our first review of Spirit Airlines based the Airline Profits Sustainability Index (APSI). This is an integrated metric, which takes into account three dimensions: People, Performance and Agility.

In this edition, we are presenting another airline review on the basis of the APSI: that of Allegiant Air. Our analysis covered a period of 10 years, starting 2006 through 2015.

We have also considered pieces of information available on Allegiant Air’s website and other reputable sources such as Flightglobal at the time our review was conducted.

Based on the data available as of August 2016, our analysis revealed that on a scale of 1 to 10, Allegiant Air has an Airline Profits Sustainability Index of 8.8.

Based on the data available as of September, our analysis revealed that on a scale of 1 to 10, Allegiant Air has an Airline Profits Sustainability Index of 8.8.

In the next few lines, we are going to offer a breakdown of this rating.

However, let’s begin with a brief overview of the company by highlighting some key facts.

partners: Mitch Allee, Jim Patterson and Captain Dave Beadle to provide charter operations. Given the name similarity with other existing entities, including South Dakotabased West Jet Air Center and CanCreation and History ada’s second largest air carrier Allegiant Air was formed initially WestJet Airlines, the founders of as WestJet Express in 1997 by three the new airline had to rename it.

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Hence, the carrier became Allegiant Air and started operations in 1998. A few months later, the airline began scheduled operation between the State of California, where it was originally based and the State of Nevada (where it is currently based).

An Allegiant Air’s Boeing 757. Photo Credit: Allegiant Air

At the end of the year 2000, Allegi- industry in terms of operating and

of over 80 aircraft in-service com-

ant Air was on the brink of bank-

net profit margins, respectively by

posed mainly of MD80s along with

ruptcy and sought reorganization

22 and 12 percentage points.

Boeing 757 as well as Airbus A319

under Chapter 11. The airline emerged from bankruptcy in 2001

Business Model, Network and Fleet

under the leadership of Maurice J. Gallagher, Jr, its major creditor, who turned it into a low-cost carri-

er and moved it from Fresno, California to Las Vegas, Nevada.

fleet has an average age of 22.1 years. The airline also ordered a

A low-cost carrier, Allegiant Air

dozen more A320 in July 2016.

serves more than 100 destinations mostly located in the USA, but also

Ownership and Subsidiaries

in Canada and Mexico. Besides, the Allegiant Air is fully owned by Alairline provides charter flights

As of 2015, Allegiant Air is one of

and A320. The current in-service

legiant Travel Company.

within North America.

the world’s most profitable airlines, far outperforming the global airline

Airline Profits

Allegiant Air operates a mixed fleet

September-October 2016

Volume II—Issue 10

Airline Profits

September-October 2016

Volume II—Issue 10

Profile Leadership, People and Opera-

The People Index has a 45% weight formance Indices, which in this

tions

in the overall APSI.

Allegiant Air is led by Maurice J.

Performance Index

Gallagher, Jr. in the role of Chairman and Chief Executive Officer.

And as of 2015, the airline employed over 2,800 people.

Headquartered in Las Vegas, Nevada, Allegiant Air uses McCarran

International Airport as its main

is mainly due to the fact that over the past decade (2006-2015), Allegi-

The Airline Profits Performance Index is based on a scale of 1 to 10.

Allegiant Air has a very high Performance Index of 9.0. Five factors

ant Air was profitable ten years out of ten. In addition to that, the air-

line has posted above average operating and net profit margins.

were considered in our calculation.

The Performance Index has a 40%

With very high People and Perfor-

weight in the overall APSI.

mance indices, our primary recom-

operational base.

Agility Index

mendation is that Allegiant Air would do well to focus on improv-

Airline Profits Sustainability Profile

case happens to be very high. This

The Airline Profits Agility Index is

ing its Agility index.

based on a scale of 1 to 10. AllegiAs mentioned at the beginning of this review, our analysis covered a 10-year period ranging from 2006

ant Air has a relatively high Agility Index of 7.9. Seventeen factors were considered in our calculation.

to 2015.

The Agility Index has a 15% weight People Index The Airline Profits People Index is

in the overall APSI. Summary

based on a scale of 1 to 10. Allegiant Air has a very high People Index of 9.0. Five factors were considered in our calculation.

12

Allegiant Air’s Airline Profits Sustainability Index of 8.8 is essentially driven by the People and Per-

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Maurice J. Gallagher CEO, Allegiant Air Photo Credit: Allegiant

Leadership

“No man will make a great leader who wants to do it all himself or get all the credit for doing it. ” — Andrew Carnegie

Airline Profits

September-October 2016

Volume II—Issue 10

“ To me, business isn't about wearing suits or pleasing stockholders. It's about being true to yourself, your ideas and focusing on the essentials.

― Sir Richard Branson

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Volume II—Issue 10

Perspective Is Seat Auctioning a Targeted Upsell or a Potential Profitability Leakage?

Contributed by

René Armas Maes—Intl. Airline Commercial and Consulting Executive

Considering the bidding platform plusgrade.com and a number of articles written about the new trend of seat auctioning, it is very interesting to observe the concept of real time open bidding taking off in the airline industry. This new phenomenon is fast spreading.

For instance, to-date some premium service carriers, namely Lufthansa, Cathay Pacific, Etihad Airways and Virgin Atlantic have embraced this concept at least on a trial basis. Moreover, LATAM, Air China, Air New Zealand and Qantas are already pursuing this new merchandising and revenue enhancing opportunity.

Airline seat inventory is perishable, any unsold seat becomes a wasted revenue opportunity. Therefore, maximizing revenues per flight is treated as top priority. According to an article published in Condé Nast Traveler, a loyal airline expert suggested that “airlines that have adopted this approach are making seats available less expensively than they otherwise used to and that is good for travelers”.

16

It is important to keep potential for revenue leakage in perspective when adopting this new practice. A wellcrafted seat auctioning strategy that maximizes airline revenues should by necessity focus some key elements.

My reaction to that comment was: well, yes and no.

In the airline business, the typical high yield business traffic can represent 60 to 80% of premium service revenue and the ultra-elite traffic from 1 to 10%. Simply put, economy class passengers don’t generate enough revenue and net

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income to maintain viable and sustainable an airline, which offers a multi-cabin class products.

Furthermore, if distress (or potentially unsold) seat inventory and potential seats available for auction are not closely managed with clockwork precision, the results can be counter revenue productive

Aircraft Cabin with Passengers and Empty Seats. Photo Credit: Creative Commons CC0

including premium class cabin pricing, cause margin dilution, weaken product branding and loyalty and ultimately diminish overall business profitability. So in essence, there is a fine line between maximizing revenues and allowing it to be diluted by an inconsistent and risky revenue maximization strategy.

As a matter of fact, business travelers book tickets typically one week or just a few days before departure.

A seat bidding process is awarded to the highest bidder usually 36 to 72 hours before a flight, which could coincide precisely with when business traffic bookings are taking

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place. Hence, the following questions arise. What if customers who are naturally willing to pay a high price tag decide instead to join the bidding frenzy? Would an airline actually jeopardize high yield revenues and open the door to potentially lower yields and margins?

Therefore, it is important to keep potential for revenue leakage in perspective when adopting this new practice. A well-crafted seat auctioning strategy that maximizes airline revenues should by necessity focus the following key elements. An airline would need: 1) a strong revenue management and pricing model, 2) a dedicated

September-October 2016

team in place to release only those few premium seats expected to go unsold, 3) a meticulous data analytics platform that focuses on potential distress inventory based on market conditions, the competition and still available seat inventory, market intelligence (time of departure, date of flight, season, routing, etc.), 4) an up-to-date customer intelligence including buying preferences and behaviors, and 5) a series of targeted marketing initiatives toward the right passenger segment, among other things.

CONTINUED

Volume II—Issue 10

Airline Profits

September-October 2016

Volume II—Issue 10

Perspective Moreover, it is of paramount im-

ness class, it might eventually be

ULCC embracing a bidding con-

portance to build a strategy, which extended to all types of air tickets.

cept right from market inception.

does not cannibalize the airline’s

This may beg the question: would

This early adoption immediately

existing premium class products.

Low-cost carriers (LCC) and Ultra- triggers concerns about potential

Finally, whenever a premium seat

low cost carriers (ULCC) also join

yield deterioration and the long

upsell does occur, it frees up a

the frenzy? In my opinion this is

term sustainability of its business,

brand new unsold economy class

unlikely, as they already have a

especially considering how long it

inventory, ready to be marketed to bare fare structure in place and low might take the airline to amortize

further maximize revenues.

cost approach of doing business.

large capital expenditure (Capex)

It is also important to keep in mind However, since maintaining high

cost incurred. As for the rest time

that even before offering a premi-

load factors is a top priority for

will tell.

um seat for bidding, other viable

them in order to generate more an-

options must have been consid-

cillary revenues, a cross-breed

ered. This can include: on one hand, reconnecting with former business class passengers who may have downgraded to lower cabin products due to economic difficulties or corporate cost-cutting measures.

On the other hand, approaching cost conscious customers with yet a long term potential to upgrade; this

Although, the seat bidding concept has already been adopted by a number of premium service airlines mainly for economy and premium economy upgrades to business class, it might eventually be extended to all types of air tickets.

is applicable when airlines can build a solid case in support of cab- product might soon appear in the in class upgrades.

horizon.

Editor’s note: The statements and

In fact, Canada's newest discount

opinions expressed in this article

Although, the seat bidding concept airline, NewLeaf as per their press

are solely the viewpoint of the con-

has already been adopted by a

release as of July 20, 2016 revealed

tributor and do not necessarily re-

number of premium service air-

the intention of having passengers

flect the position of Airline Profits

lines mainly for economy and pre-

bid on unsold seats. Therefore,

magazine nor that of its editors.

mium economy upgrades to busi-

NewLeaf seems to be the first

18

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Teamwork

“Great things in business are never done by one person. They're done by a team of people. ” — Steve Jobs

Airline Profits

September-October 2016

Volume II—Issue 10

“ Talent wins games, but teamwork and intelligence wins championships.

― Michael Jordan

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Volume II—Issue 10

Performance Air Canada: A Steady Return to Profitability?

In a previous edition of Airline Profits, we shared our analysis of Air Canada on the basis of the Airline Profits Sustainability Index (APSI). In this article we are focusing on the financial performance of the airline over the last ten years (2006 to 2015).

Review of Net Profits During the last decade, the financial performance of Air Canada has been an evenly mix of profits and losses.

Indeed, the airline posted exceptional results for two consecutive years in 2006 and 2007: close to 1 billion US dollars in cumulative profits. Then followed five consecutive years of losses, some of which were very significant.

As matter of fact, in 2008 alone, Air Canada had lost more money than it had earned in the previous two years. Significant effort was put forth to narrow the gap in 2009 and 2010. Although the Montreal-based airline could not break even then, it did manage to maintain its yearly losses well below 25 million US

22

Air Canada posted exceptional results for two consecutive years in 2006 and 2007: close to 1 billion US dollars in cumulative profits.

also closed the financial year with US$ 9 million in net profits. From Furthermore, for the next two years then on, it seems that Air Canada (2011 and 2012), Air Canada somehow broke the spell and renosedived again with close to half gained control over its profitability. a billion US dollars in cumulative As matter of fact, the airline posted losses.

US$ 94 million in 2014, which repIn 2013 however, the Canadian flag resented nearly ten times as much carrier not only broke even, but profits as the previous year. dollars.

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Air Canada’s Boeing 787-800 Dreamliner. Photo Credit: Air Canada

Then Air Canada almost tripled its ward climb to 10.79% in 2015. In

sharp drop from 4% in 2007 to a

net earnings in 2015 with close to

fact, since 2012, the Canadian air-

negative 9.25% a year later, Air

US$ 240 million, despite a signifi-

line has outperformed the airline

Canada’s net margins have re-

cant 10% drop in total revenue

industry as far as operating mar-

mained negative for five consecu-

compared to the year before.

gins are concerned.

tive years, including 2012. The rise

Review of Profit Margins

Net Margins

Operating Margins

A closer look at net margins offer a

above the break-even point only started in 2013 with a tiny 0.08%.

In terms of operating margins, Air Canada has recovered from the lowest point of -3.25% reported in 2009. And since then, the airline has maintained an impressive up-

Airline Profits

different perspective. Unlike operating margins, Air Canada has

However, the airline’s net margins

have gradually improved from then on to reach 2.22% in 2015, rep-

mostly underperformed compared

resenting less than half of the airto the airline industry since 2008 in line industry’s 4.6%. terms of net margins. From the

September-October 2016

Volume II—Issue 10

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September-October 2016

Volume II—Issue 10

Performance

Conclusion It is worth highlighting that over the last decade 2006 and 2007 have been the best financial years for Air Canada. The fact being that the airline reached record profits and much higher net margins with much lower revenues compared to most of the subsequent financial years.

Although total revenues and operating profits have mostly increased during the last decade, Air Canada ended the decade with a cumulative net loss of US$ 142.47 million.

A key takeaway is that although ade with a cumulative net loss of Considering the first two quarterly total revenues and operating 142.47 million US dollars. results posted in 2016, Air Canada profits have mostly increased duris likely to be profitable for the four ing the last decade to reach respecconsecutive year since 2013 and tively US$ 107.3 billion and 3.82 most probably break its 2015 profit billion, Air Canada ended the decrecord.

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Values

“It's not hard to make decisions when you know what your values are. ” — Roy E. Disney

Airline Profits

September-October 2016

Volume II—Issue 10

“ There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else. ― Sam Walton

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Volume II—Issue 10

Paradigm Can the Airline Industry Thrive on Patchworks?

For almost two years, the core message of Airline Profits has been about the need to rethink the airline business. In this edition, we are considering yet another fact to emphasize that need. We assume that you follow airline industry news closely. Hence you are aware of recent technical issues, which led to the delay and cancellation of thousands of commercial flights around the world.

The glitches reported be it computer-related or electrical in nature did occur at some of the largest and leading airlines, namely Southwest Airlines, Delta Air Lines and British Airways. These occurrences and the alarming impact they had on hundreds of thousands of passengers worldwide are an indication that airlines are seriously in need of innovation.

After a century of existence, the airline industry is not only financially, but also technically sick. Far from being a pessimistic view of the state of a vital industry, this is rather a more pragmatic and balanced viewpoint.

Although aircraft technology and flight operations have improved significantly over the last century, it is critical to recognize that the

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The technical glitches and the alarming impact they had on hundreds of thousands of passengers worldwide are an indication that airlines are seriously in need of innovation. underlining airline business model admit or least realize that the existand supporting infrastructure need ing internal infrastructure, which a drastic makeover. supports the airline business operations also needs to be thoroughly Beyond the anticipated improvereviewed. ments in airport and navigation Following the technical meltdown infrastructure required to support a of operations at Southwest Airlines growing demand for air travel over and Delta Air Lines, some industry the next decades, one is forced to experts commented that airlines

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Airplanes Flying in Opposite Directions. Photo Credit: Creative Commons CC0

have actually outgrown their management information systems.

Some airlines do claim to have invested heavily into upgrading their systems. Yet, the state of chaos passengers have suffered from in past few months still points to the existence of a multi-generation gap between the state-of-the-art and costly flight equipment airlines operate and the infrastructure they rely on to ensure the return on investment (ROI) of these airplanes.

It is practically impossible for a failure on a single aircraft, regardless of its nature or complexity, to disrupt hundreds or even thousands of flights and for many

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days. The only exception to this statement would be a fleet-wide airworthiness issue, in which case the appropriate aviation regulatory authorities would decide to ground an entire fleet of aircraft for investigations and corrective actions.

By contrast, it is very astounding to hear an airline CEO apologize to passengers for a meltdown caused by a computer glitch or an electrical power outage. Not that there is something wrong about a CEO offering apologies; that in itself is a genuine and powerful sign of leadership. What is wrong is the reason why they are apologizing; it

September-October 2016

shouldn’t have happened in the first place.

Any man-made component or system can fail, this is a fact. Therefore, it is necessary for sensitive infrastructure an airline relies upon to have mechanisms in place to either protect the entire system from potential failures and to isolate faulty subsystems, in order to limit the scope of damage a given glitch can have on airline operational network.

In the recent cases reported, the faulty components or pieces of equipment appear to be insignificant compared to a multi-million dollar aircraft.

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September-October 2016

Volume II—Issue 10

Paradigm Yet, the consequence of their failure amounted to thousands cancelled or delayed flights, affecting hundreds of thousands of passengers worldwide. If leading and legacy airlines are experiencing these types of meltdown, this is likely to happen to smaller carriers too. So, these unfortunate events and similar ones which may occur in the future tend to suggest one thing: airlines need much more reliable and failsafe systems to support their operations. Some experts shared the view that because airlines rely on these systems to manage flights on a 24/7 basis, it is very difficult to tamper with them. The reality is that no one is expecting airlines to temper with these unfit systems. What they need to do is to acquire brand new, state-of-the-art, flexible, scalable and more adequate infrastructure and to off-load their current systems progressively without disrupting their operations. This is the type of unpatented, street-smart thinking and common sense approach many businesses apply every day in other industries, so obviously airlines can do the same, if they choose to.

The additional incentive is that modern equipment and infrastructure would probably cost less to acquire and maintain compared to the costly prohibitive systems air-

30

lines are currently hosting. Besides, given the record profits they have been earning over the past three years, they can afford to do so without too much hassle.

with its supporting systems, so as to transition into a new era where airlines can effectively deliver on their promise. The ultimate result of such a transformational process will be a rejuvenated and profitaConclusion ble airline industry with more In summary, we strongly share the congruent business models and opinion that airline industry is seri- more reliable infrastructure. This ously in need of renewal, especially will undoubtedly lead to more when it comes to airline business satisfied and loyal customers who model and infrastructure. There is willingly pay for services, which a need for visionary leadership, they perceive naturally to be of a which rises above the current state much higher value.

There is an urgent need to rethink the airline business along with its supporting systems, so as to transition into a new era where airlines can effectively deliver on their promise. of affairs and breaks away from status quo. From misaligned revenue models to vulnerable business infrastructure, airlines seem to be extremely exposed to customer dissatisfaction and disloyalty. Given the fact that the airline business fundamentals date back to a century old model, which has been copied over and over around the world without much improvement, there is an urgent need to rethink the airline business along

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The required transformation is not assumed to be the result of standalone initiatives here and there by individual airlines. This should rather be the fruit of a collective effort, based on a common understanding shared by the airline industry as whole that the current status quo can only lead to scarce profitability and that only excellent customer service could lead to sustain profits in the long run.

Attitude

“People may hear your words, but they feel your attitude. ” — Cavett Robert

Airline Profits

September-October 2016

Volume II—Issue 10

“ It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.

― Warren Buffet

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Volume II—Issue 10

Platform Is ASKY Airlines Setting a New Normal in Africa?

If you are familiar with the African aviation market, you would agree that air connectivity within the African continent is challenging. And if you are familiar with African aviation history, the name Air Afrique would certainly ring a bell. Similar to the Scandinavian multinational air carrier, SAS, Air Afrique was a multinational airline, owned by eleven West and Central African States.

The vision behind Air Afrique was ambitious, forward-thinking and brilliant. The reason for that being the very fact that many airlines have later formed alliances in order to gain access to much wider markets, to share a pool of resources to some extent and ultimately to benefit by association.

Unfortunately, the airline would suffer among other things from its multi-state ownership status and go bankrupt in 2002.

After just five years of operations, ASKY has declared profits for the first time: a decent four million US dollars for its 2015 financial year. That is yet another impressive record for a fairly new African airline, especially given the fact the African airline industry was expected to lose collectively some US$ 0.7 billion in 2015.

African region, required intercontinental flights to Europe and back to the African destination. UnfortuThe dismantling of Air Afrique did nately, delaying a full implementation of the nearly 30-year old Yaleave a tremendous void, which moussoukro Declaration to open until recent years made air travel within West Africa even more diffi- up the sky for the benefit of African cult. In many instances, going from States themselves, still maintains one country to another within the such an absurd way of air travel The Need for a Vibrant PanAfrican Airline

34

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alive and well. As a matter of consequence, travelling by air within Africa is often much more expensive than flying from Africa to other parts of the world. This reality needs to change, in order to allow African people and their respective countries to achieve their full economic potential; which one might

ASKY Fleet of Boeing 737 and Bombardier Q400. Photo Credit: ASKY Airlines

add is huge beyond measure.

Africa is a rich continent, not just in natural resources, but more importantly in human resources and market opportunities. Now combine that with the catalytic power of aviation and you get a powerful economic engine, which has the potential to deeply transform the African continent to unbelievable heights of economic and social progress. To fully grasp this viewpoint, one simply needs to consider how Gulf States such as the United Arab Emirates (UAE) and Qatar have harnessed the power of aviation to their economic advantage.

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The Creation of ASKY Airlines

Some three years later, the Economic Community of West African After Air Afrique ceased operaStates (ECOWAS) and the West tions in 2002, there was an urgent African Economic and Monetary need to establish a similar yet a Union (UEMOA) jointly supported much better structured airline to fill the creation of a new air carrier. the void. The lessons learned from The ambition was to replace the the Air Afrique venture clearly defunct Air Afrique with a better suggested that another multi-state alternative. Thus, SPCAR, an inowned airline was not a viable opterim company was formed in tion. Another obstacle to such a 2005 under the leadership of Gerpossibility was the fact that some of vais Koffi Djondo to conduct feathe major stakeholders had their sibility analysis and create a busiown State-owned airlines alongside ness plan leading to the foundaAir Afrique. Therefore, although tion of a regional airline. smaller, the renewed ambition to Mr. Djondo who will later receive grow them to fill some of the void many distinctions in recognition of was palpable.

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Volume II—Issue 10

Platform his outstanding contribution to the progress of the African aviation industry, was a very successful Togolese and pan-African business man. Prior to taking on the challenge to set up a new private panAfrican airline, Mr. Djondo had already set a record by creating Ecobank, the first private panAfrican bank with two business associates from Nigeria. Pulling on the extensive experience and talent of former Air Afrique human resources, for instance Francis Kankoe Alemdjrodo as Project Manager for SPCAR, a new airline named African Sky Airlines or ASKY for short was effectively founded in 2007.

ment roles within ASKY. For instance, Henock Teferra, the CEO was formerly Vice President of Strategy, Alliances and Communications at Ethiopian. Furthermore, ASKY acquired its fleet of aircraft, namely Bombardier Q400 and Boeing 737 through Ethiopian Airlines.

Good Perspectives for the Future

As of June 2016, ASKY serves 22 destinations across 19 countries in West and Central Africa, which represents a significant portion of the network Air Afrique used to cover. Its partnership with Ethiopian Airlines is a strong asset. A The operational and financial bemore recent testament to that is the ginnings were somehow difficult. Addis Ababa – New York ASKY Airlines operated its first (Newark) route, which Ethiopian revenue flight in January 2010.

Airlines inaugurated in July 2016 Subsequent revenue flights were via Lome, its West African regional reported to have had less than doz- hub. The attractiveness of this new en passengers, which suggests load route, which is operated with a factors of below 20%. However, Boeing 787 Dreamliner, has led turnout grew progressively to Ethiopian to increase the frequency reach one million revenue passen- from an initial three to four weekly gers carried by March 2013. At flights.

An Impressive Progress despite some point, ASKY reached an averAdditionally, the opening in April Early Challenges age load factor of 80%. Considering 2016 of a brand new, state-of-thethe average passenger load factor Beyond enlisting the collaboration art terminal at the International (PLF) for the African airline indusof former Air Afrique staff from Airport of Lome, offers a unique try is around 60% or less, attaining various African countries, ASKY opportunity to expand, since this 80% PLF is quite an achievement.

Airlines also benefitted from the will be attracting other internationsuccess of Ethiopian Airlines. InMoreover, after just five years of al airlines, in addition to Air deed, Ethiopian was involved in operations, ASKY has declared France, Brussels Airlines, Royal Air the creation of the new airline as a profits for the first time: a decent Maroc and Ethiopian Airlines who strategic and technical partner. four million US dollars for its already operate weekly flights to Ethiopian airline, which has an eq- 2015 financial year. That is yet an- Lome. uity participation in this new ven- other impressive record for a fairture also became responsible for ly new African airline, especially Besides, according to a recent interthe management of ASKY Airlines. given the fact the African airline As such, the East African carrier industry was expected to lose col- view given by Mr. Teferra, the award-winning ASKY is planning has transferred some experienced lectively some US$ 0.7 billion in to serve Paris in the near future. managers to assume key manage- 2015, according to IATA.

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Warm Handshake between Raphael Kuuchi (left), IATA VP for Africa and Gervais Koffi Djondo (right), Chairman of ASKY. Photo Credit: ASKY Airlines

Furthermore, the open sky agreements, which Togo has concluded respectively with the neighbouring Burkina Faso and with China will undoubtedly present opportunities to further expand the ASKY’s regional network, but also future intercontinental routes to Asia.

tion, but also make it a regional aviation hub of choice in the West African region.

Summary

In less than a decade after starting operations, ASKY Airlines has beat the odds to not only grow its network, but more importantly to beFinally, Tewolde GebreMariam, come profitable in a relatively short CEO of Ethiopian Airlines, was reperiod of time. What makes it specently reported to be in discussions cial is the fact that the regional opwith the Togolese Government in erational environment of the airline order to set up an MRO facility and is not very conducive to the airline a training center in Lome. When business. This is partly due to achieved, this move will contribute heavy taxation, limited intraamong other things not only to connectivity and shortage of qualistrengthen ASKY’s base of opera-

Airline Profits

September-October 2016

fied personnel. It is becoming more and more obvious that ASKY Airlines is not only meeting, but also exceeding the basic quest of filling the void left by the dismantling of Air Afrique over a decade ago.

We hope that the pan-African airline will maintain the upward climb, while striving to differentiate itself in terms of customer and employee satisfaction and loyalty.

In our opinion, these are but a few determining factors, which will sustain ASKY and turn it into an unprecedented success story within the African airline industry.

Volume II—Issue 10

“ No individual has any right to come into the world and go out of it without leaving behind him distinct and legitimate reasons for having passed through it. ―George Washington Carver

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Character

“Character is the ability to carry out a good resolution long after the excitement of the moment has passed.”

— Cavett Robert

Airline Profits

September-October 2016

Volume II—Issue 10

“ The foundation stones for a balanced success are honesty, character, integrity, faith, love and loyalty. ―Zig Ziglar

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