KQ-SAA Pact to Create a Broad African Airline Group that would benefit from economies of scale and other synergies

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Kenya Airways and its South African compatriot teamed up in November last year to sign a strategic partnership that would enable the two companies to combine under the roof of a common holding company, signaling a move toward post-pandemic Pan-African airline consolidation.

The two airlines will still, retain their respective brands and talent under this partnership expected to launch in 2023.

The respective chief executives of the two national carriers see the chance to unlock the potential of greater air connectivity within Africa as they focus on achieving synergies that ensure lower costs and route expansion, under the holding firm, the companies have noted without providing details.

As the airline chiefs work on developing plans for a pan-African operation, the unanswered question is, when will African aviation bypass the stage of a continent with “huge potential?”

Answering a question about the partnership plans at the recent IATA AGM in Doha, Kenya Airways chief executive Allan Kilavuka said, “This is my pet subject and it is my pet subject because I truly believe it is going to be a game-changer in the African aviation space,” the KQ boss said reports Flight Global.

”How do you grow from 2% to closer to 16%? You do that by making the airlines more viable. And how do you make them more viable? You make them scalable, and that is why we are talking to South Africans, and quite frankly, others as well.”

His counterpart at SAA, chief executive John Lamola, similarly enthuses about the potential such a partnership could have. He also highlights the relatively small size of the African aviation market, the lack of connectivity, and infrastructure challenges in certain countries.

”Within that context, we have partnered with Kenya as a first start,” he says.

”We have left it to the politicians to talk about the Yamoussoukro Declaration, they have all these things in their political control, and after all these years, we are still not there.”

The landmark Yamoussoukro Declaration, in which several countries agreed on the principles of liberalization, was drawn up more than three decades ago, and the follow-up Yamoussoukro Decision on deregulation is itself over 20 years old.

”One option we are driving with Kenya Airways is the pan-African airline, along the lines of IAG and the Lufthansa Group. That is a doable thing. It is less a risk. So that is a plan,” Lamola says.

Kilavuka adds that the aim is to take advantage of the scale working together brings while retaining national brands.

“The whole point is you want to make it bigger and you want to make it more connected. So we have two hubs, one in East Africa, one in southern Africa, and hopefully, there will be one in West Africa and other places as well. And we coordinate those two hubs in a fashion that creates a lot more connectivity for the rest of Africa.

”Also you take advantage of the strengths of the two airlines because the two airlines have different strengths – even geographically. So take advantage of those two strengths and then use economies of scale to see how you can overall reduce the cost of operations of the two airlines, to the mutual benefit of these two airlines. That is the whole point.”

According to the SAA chief on the benefits of wider cooperation, ”We have Oneworld, SkyTeam, and Star Alliance, why can’t we have an African alliance given the uniqueness of our challenges and situation?

“There are serious problems that need to be sorted out to ensure we get people traveling. It is a fragmented market.

The African air travelers are the victim of this,” he adds. “The fact that only 1.9% of Africans are traveling has dangerous cultural and social consequences – because people don’t know the world, and that affects how Africa locks into the new trends of the globalized world.

”It is a fascinating mission being in this industry because we achieve more than just making money,” he says.

European airlines have successfully consolidated under a holding company structure similar to KQ and SAA proposal. Air France-KLM, International Airlines Group, and the Lufthansa Group all own multiple individual airline brands but benefit from economies of scale and other synergies through their larger group structures.

In Latin America, both Avianca and Latam grew through acquisitions in which they unified operations under a single brand but maintained individual operating airlines in each country.

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