IT IS SURVIVAL FOR THE FITTEST IN AVIATION
The aviation industry, just recovering from the sharp recession during and after the global financial and economic crisis, is facing another serious threat to the industry’s ability to make up for the record losses IATA airlines suffered in past years. Rising fuel cost are causing crisis meetings amongst managements and only those fortunate enough to have favourable fuel hedging contracts with their suppliers are presently exempted from these worries, that is until those contracts come up for renewal again.
Most airlines however, especially those in Eastern Africa presently engaged in a do or die fare war on Kenya’s domestic routes, are contemplating fuel supplements, or where already in place those to rise even higher, a financially sound decision finance directors have been advocating for, but also a potential factor to drive customers back to overland busses, at least those marginal market segments the current low fares have attracted on the routes to Mombasa and Kisumu from Nairobi.
There is growing speculation in Nairobi’s aviation circles over an upcoming market consolidation, and while tourism to Kenya in particular continues to boom, for now, rising air fares – already hit this year by ‘eco taxes’ in parts of Europe and other related regulatory cost increases – may well hit and depress demand for air travel too. Home heating bills in the key consumer markets in Europe are already leaving potential long haul travellers with a sizeable hole in their pockets, and industry observers presently at ITB in Berlin are behind the scenes speaking of storm clouds on the horizon of vacation businesses and air travel, inspite of the entire industry hyping confidence, in public that is, to keep up appearances.
Should in fact the East African aviation market have to consolidate, it could span from the scheduled airlines operating jet services from JKIA to safari air operations at Wilson Airport. Inflationary data just obtained also show that the falling value of the regional currencies is pushing price rises up faster and further than expected, and such developments for sure also affect business travel plans as companies, afraid of another bust cycle, are tightening their belts again to save cost as and where they can before it may be too late.
Hence, it seems that the recent demand boom for airlines in Eastern Africa may well be an endangered species, at least while inflation is running way ahead of forecasts and aviation fuel prices too have now reached a level beyond the pain threshold.
Watch this space.