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SAA signs MoU with Kenya Airways, what does it mean for the Airline Industry?

In September 2021 a memorandum of co-operation was signed between South Africa Airways (SAA) and its counterpart, Kenya Airways, where they announced their intention to form a pan-African airline group, with an aim to support each other’s growth and take advantage of their hubs at Johannesburg O.R. Tambo and Nairobi Jomo Kenyatta, and possibly also Cape Town.The memorandum which was signed in September 2021, focused on improving the customer experience by offering a wider range of choices and destinations. The cooperation was also made to help in the standardisation of product and service offering that is in line with current global aviation trends. Following this, Mr. Allan Kilavuka, Kenya Airways’ CEO, highlighted the partnership’s significance in turning around the fortunes of both KQ and SAA. “The future of aviation and its long-term sustenance is hinged on partnership and collaboration. Kenya Airways and South African Airways collaboration will enhance customer benefits by availing a larger combined passenger and Cargo network, fostering the exchange of expertise, innovation, best practices, and adopting home-grown organic solutions to technical and operational challenges’’. Said Mr Kilavuka.

Following their intentions which were laid two months back, the SAA and the Kenya Airways have signed a strategic partnership framework agreement to from a pan-African airline group by 2023. In a joint statement, they said they would now work together to increase passenger traffic, cargo opportunities and general trade. The partnership is believed to improve the financial viability of both airlines and deliver more competitive pricing for passengers and cargo customers. The alliance will also use the carriers’ respective hubs of Johannesburg O.R. Tambo (South Africa) and Nairobi Jomo Kenyatta (Kenya) to rekindle tourism in both countries following the COVID-19 pandemic. Signed under the presence of Kenyan president Uhuru Kenyatta and his South African counterpart, Cyril Ramaphosa, the partnershipalso includes demand recovery and other cost containment strategies that would aid the recovery of both carriers in an increasingly competitive African airline environment.The partnership between the SAA and the Kenya Airways is aligned with the aspirations of the Africa Continental Free Trade Area Agreement, which aims to provide a single market for goods and services in the continent. During the signing ceremony of this agreement, Kenya Airways chairman Michael Joseph highlighted that the alliance would capitalise on the geographic position of both countries. “The geo-location of the two countries will make the pan-African airline group attractive by creating the most formidable airline group that is expected to take advantage of strengths in South Africa, Kenya, and Africa,” he said.

The South African Airways exited bankruptcy on April 30, 2021, after a rough 17 months. SAA was placed under administration in December 2019 and its long-standing financial woes worsened during the Covid-19 pandemic. All its operations were mothballed in September 2020. The airlines paid $ 662.6 million taxpayer-funded bailout to absorb the national carrier’s historical debt burden. The operations of the SAA were resumed on September 23, 2021. Since the resume, it has made several adjustments to its regional network, depending on passenger volumes and incoming revenues. Citing low demand, the airlines has removed Maputo (Mozambique) from its daily schedule, which is said to go into force from December 1, 2021. Moreover, it has made adjustments to flights to Accra (Ghana), Kinshasa N'Djili (DRC), and Lusaka (Zambia), due to lower demand. While bookings to two new routes to Lagos (Nigeria) and Mauritius have been encouraged.

Speaking about the Kenya Airways, it is also looking towards the country’s treasury to settle its USD250 million debt. Wiping out the liabilities, including debt to aircraft lessors and suppliers, would assist the airline in executing its recovery- and cost-cutting turnaround plan. Chief Executive Officer, Allan Kilavuka believes that their strategy will be to focus on minimising the cost, while at the same time attaining maximum productivity. “What we are focusing on is to have the least-cost actions to the shareholder,” Kilavuka said. “That is what the strategy is going to focus on, that we are right-sized, we have the least possible cost, and that we have the best possible productivity from the assets and from our employees.” Kenya Airways, which accrued a debt of $ 250 million during the pandemic, is of the belief that their capacity would return from a current 55% to 65% in the coming year compared to pre-COVID levels.

Apart from the MoU with the SAA, Kenya Airways had also singed a Memorandum of Understanding (MoU) for strategic cooperation with the Congo Airways on April 23, 2021. The agreement is an aim by the two national carriers to team up in areas of capacity sharing, aircraft maintenance, and training. The two-year agreement includes a route and code-sharing provision with the prime aim for expanding the carriers’ domestic, African and international networks.




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