RwandAir banking on new aircraft, cargo for growth

Saturday August 25 2018

RwandAir

RwandAir plans to start new routes to the US, Asia, Europe and deeper into Africa. PHOTO | NMG 

KABONA ESIARA
By KABONA ESIARA
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RwandAir is banking on new aircraft and competitive airfreight charges to boost its belly cargo business as it seeks to diversify earnings that are under pressure from high operational costs.

Next year, RwandAir expects four aircraft as it takes on new routes to the US, Asia, Europe and deeper into Africa.

Chief executive Yvonne Makolo said two Airbus A330 New Engine Option and two Boeing 737 MAX 8-narrow body aeroplanes are expected in July 2019.

Though the aircraft are passenger-configured, aviation experts say they have significant belly capacity for cargo. The airlines cargo space sales have remained low, though the business picked up last year.

Airfreight grew from 8,000 tonnes in 2016 to 13,000 tonnes in the 12 months ending December 2017, driven by RwandAir’s growing network and fleet.

The volume of air cargo at Kigali International Airport is expected to grow by 30 per cent — reaching 16,900 tonnes by December 2018.

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“RwandAir longhaul aircraft, which fly to and from Europe, Asia, the Middle East and African airports and the planned US and China routes are expected to drive the growth,” the airline said.

RwandAir is betting on affordable airfreight charges to drive demand for its belly space, as it aims to generate nine per cent of revenues from cargo.

Aviation experts recommend that passenger airlines generate that percentage of revenue from cargo if they are to be profitable.

With the subsidies from the government, the freight costs per kilo have dropped by 62 per cent, to as low as $0.95/kg, whereas their regional peers forked out less than $1.5/kg.

Basa deals

RwandAir could soon start flying to Rome after the Italian and Rwandan government last week signed bilateral air services agreements that paves the way for airlines from the two countries to pick and drop both cargo and passengers in each other’s airports.

Rwanda’s Infrastructure Minister Claver Gatete and Italy’s ambassador to Rwanda, Uganda and Burundi Domenico Fornara signed the deal in Kigali.

This is the 32nd such agreement Rwanda has signed with a country outside Africa, indicating Kigali’s increasing interest in opening up business opportunities for its national carrier.

The carrier is at an advanced stage of starting direct flights to the US. It will become the fourth African airline to fly directly to New York, after Kenya Airways, South African Airways and Ethiopian Airlines. RwandAir has received the nod from Washington, allowing it to operate through a code-share agreement.

The airline is also expected to start flying to Guangzhou, China after new deliveries.

But analysts are sceptical about RwandAir’s expansion, at a time airlines’ business is becoming increasingly competitive, raising fears it will struggle on some routes. For example, KLM is giving RwandAir a run for its money on the Kigali- Amsterdam route on which Rwanda’s horticulture products are flown from.

But government officials say revamping the airline is a long-term investment with spillover effects on the economy.

“We see it as an opportunity because on our side we are more interested in RwandAir businesses; the competition is also good for the sector to grow,” said the head of Aviation Travel and Logistics Holding Ltd Jules Ndenga.

The airline’s grant allocation from the government was reduced to $47 million last year, from $53.8 million in 2016 and $56.2 million in 2015.

RwandAir posted a $1.01 million loss in 2016, from an operating profit of $2.8 million.

International Air Transport Association (IATA) experts say while the African continent offers growth potential, challenges remain, with the region’s contribution to the global airline business remaining weak over the past four years.

“Break-even load factors are relatively low, as yields are higher than average and costs are lower. However, few airlines in the region are able to achieve adequate load factors, which average the lowest globally at 61.5 per cent in 2018. Performance is improving, but only slowly,” notes IATA in its half-year Economic Performance report on the airline industry.

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