tag:theconversation.com,2011:/africa/topics/emirates-2573/articlesEmirates – The Conversation2023-12-05T13:12:52Ztag:theconversation.com,2011:article/2188482023-12-05T13:12:52Z2023-12-05T13:12:52ZSocotra archipelago: why the Emiratis have set their sights on the Arab world’s Garden of Eden<p>Days into COP28 in Dubai, one little-known archipelago has come into sharp relief: Socotra. Composed of four small Yemeni islands, Socotra has been in the sights of the United Arab Emirates (UAE) ever since the civil war in Yemen erupted in September 2014. The UAE has been part of the Saudi-led coalition – backed logistically by the United States – against the Iran-aligned Houthi rebels since March 2015, but Socotra has been spared by the civil war and Houthis thus far.</p>
<h2>One of the world’s most biodiverse islands</h2>
<p>Known for its unique and abundant wildlife, Socotra was believed to be the original location of the Garden of Eden. The archipelago is listed as a <a href="https://whc.unesco.org/en/list/1263/">Unesco World Heritage site</a> to protect what is considered one of the world’s most biodiverse and distinctive islands. Naturalists and environmentalists estimate that 37% of 825 plant species 90% of its reptiles and 95% of its land snails exist nowhere else in the world.</p>
<p>The archipelago is increasingly in the UAE’s sights because of its strategic location between the navigable waterways of the Gulf, Africa and Asia. It’s a potential linchpin for shipping, logistics and military defence or projection, and could allow the UAE to advance their geostrategic goals while countering those of competitors and adversaries. The Emirates are also thought to be eyeing Socotra for its touristic development potential and this would represent a sure threat to the archipelago’s biodiversity. But how real are these scenarios?</p>
<h2>Old Emirati ties</h2>
<p>It would be easy to frame UAE’s influence in Socotra in terms of “intrusion”. Such a narrative, however, glosses over the Socotrans’ and Emiratis’ historic ties, which long predate the war. In the late 1950s, before the oil was discovered in Abu Dhabi, some Emiratis – especially traders from Ajman – migrated to the island while, conversely, many Socotrans settled in the sheikhdoms in the ‘60s for work.</p>
<p>Currently, about 30% of Socotra’s population live in the UAE, above all north of Dubai in <a href="https://gulfstateanalytics.com/socotra-denying-rivals-of-refuge/">Ajman emirate</a>. The UAE has strengthened its economic, military and cultural influence in the archipelago, all while Socotra Island underwent deep social change following its special conservation status decreed in 2000 by the United Nations. Known as <a href="https://www.researchgate.net/publication/260871562_Soqotra's_Conservation_Zoning_Plan_in_the_marine_realm_Achievements_limitations_and_the_way_forward">Soqotra’s Conservation Zoning Plan</a>, the new binding environmental regime effectively turned the island into a <a href="https://journals.openedition.org/cy/1766">national park and placed it under the international supervision</a>. The Arab Spring also spread to its capital in 2011, inspiring locals to rise against <a href="https://merip.org/2012/05/revolution-in-socotra/">Yemen’s president Ali Abdullah Saleh</a>. The Emiratis took advantage of this period of instability to weave patronage networks.</p>
<p>The Emirati presence has therefore accelerated the politicisation and militarisation of Socotra. Nevertheless, Socotra is still being studied mostly through the lenses of environmentalists and anthropologists, rather than of political scientists and security experts. This makes it difficult to obtain reliable information on the archipelago’s political and military make-up.</p>
<h2>From isolation to political awareness</h2>
<p>In Socotra’s history, the issue of being ruled from the outside has always been a powerful <em>topos</em>, probably due to its geographical remoteness. The 2011 Yemeni uprising encouraged debate about autonomy among islanders and, later, the rise of the Emirati presence in the archipelago has boosted fears of foreign interference.</p>
<p>In 2011-12, protests in Hadiboh, the island’s largest town – remarkably recounted by the anthropologist <a href="https://merip.org/2012/05/revolution-in-socotra/">Nathalie Peutz</a> – echoed the slogans heard in the Yemeni cities of Sana’a and Taiz calling for political reform and the end of the regime and its corruption. <a href="https://merip.org/2012/05/revolution-in-socotra/">Internet access has since been on the rise</a>, with locals shifting into two camps: those claiming for a Socotran governorate, and those demanding autonomy from the central government. Little by little, political awareness took root. Competing councils opposed official authorities, perceived as corrupt and inefficient: these councils mirrored the party politics’ divisions of the mainland. In 2013, Socotra became a governorate on its own, since it was previously under the administrative authority of Hadhramawt (Eastern Yemen) and, before, the Southern port city of Aden.</p>
<p>Then the archipelago was struck by a series of cyclones, <a href="https://www.thenationalnews.com/uae/fourth-uae-aid-ship-reaches-socotra-1.50668">Chapala</a> and <a href="https://www.thenationalnews.com/world/death-toll-climbs-as-cyclone-megh-batters-yemen-1.36283">Megh</a> in 2015 and <a href="https://www.thenationalnews.com/uae/government/uae-sends-aid-to-help-socotra-recover-from-cyclone-mekunu-1.738573">Mekunu in 2018</a>, wreaking havoc on the island’s infrastructure and nature. In response, the Emiratis rebuilt mosques, created a water network and established the Shaykh Zayed City with education and <a href="https://www.thenationalnews.com/world/mena/uae-s-role-in-yemen-s-socotra-essential-for-development-and-reconstruction-says-sheikh-hamdan-1.7289">health facilities</a>. They also rebuilt the port of Hadiboh and the airport. </p>
<p>The pattern wasn’t new: in the Southern regions of Yemen, the UAE had already established considerable influence in the port cities of Mokha, Aden and Mukalla, operating and expanding infrastructures. By doing so, the Emiratis capitalised on patronage ties with Southern groups and militias, mostly linked to the <a href="https://www.yemenpolicy.org/institutional-prerequisites-for-the-stc-coup-in-aden-and-perspectives-on-the-jeddah-deal-2/">pro-secessionist and UAE-backed</a> Southern Transitional Council (STC). Reconstruction in Socotra has intertwined with commercial and tourism-oriented initiatives, with weekly flights now linking <a href="https://www.ft.com/content/37c1ce68-ea4e-4c97-978e-531c11bbbfb6">Abu Dhabi to Hadiboh</a>.</p>
<h2>Emirati and Saudi boots</h2>
<p>The deployment of Emirati troops and armoured vehicles in Socotra in <a href="https://www.france24.com/en/20180506-uae-says-military-presence-yemens-socotra-distorted">2018</a> was a watershed moment for the island. Deployment occurred without coordination with local authorities, still loyal to the internationally recognised government. <a href="https://www.thenationalnews.com/world/mena/uae-deploys-to-yemen-island-to-protect-residents-1.727456">According to Emirati officials</a>, the UAE sent troops to “support [Socotra’s residents], in stability, health care, education, and living conditions”. <a href="https://acleddata.com/2019/05/31/yemens-fractured-south-socotra-and-mahrah/">Many locals</a>, especially from Muslim Brotherhood’s sympathisers opposed to the UAE, protested, urging for their removal. Seeking to resolve the situation, Socotra’s authorities arranged for the mediation of Saudi Arabia. The Riyadh-brokered compromise resulted into the Emirati withdrawal of most forces and equipment from the island.</p>
<p>But in coordination with the local governor, Saudi Arabia sent soldiers to Socotra on a <a href="https://apnews.com/8b09a56849ee432890f488a019f61cc7/config/newrelic/prod">“training and support mission”</a> for Yemeni forces and to operate the <a href="https://www.middleeasteye.net/news/uae-military-withdraws-yemens-socotra-under-saudi-deal">port and airport</a>. Moreover, the Saudi agreement included comprehensive <a href="https://www.middleeasteye.net/news/uae-military-withdraws-yemens-socotra-under-saudi-deal">“development and relief”</a> for Socotra, revealing that the kingdom had its own <a href="https://www.spa.gov.sa/w689247">development projects</a>. Because of local divisions and foreign interference, the mainland tussle between Yemen’ pro-government forces (backed by Saudi Arabia) and the STC (supported by the UAE and secessionist interests) reached the island.</p>
<p>Since 2019, the STC increased its presence on the island, with fighters mostly coming <a href="https://orientxxi.info/magazine/yemen-the-socotra-archipelago-threatened-by-the-civil-war,4988">from Aden and the Southwest</a>. According to other sources, however, locals are trained by the UAE in Aden and then deployed in Socotra as part of the Emirati-backed and pro-STC <a href="https://acleddata.com/2019/05/31/yemens-fractured-south-socotra-and-mahrah/">“Security Belt Forces”</a>.</p>
<figure class="align-center ">
<img alt="Video of Eva zu Beck, a travel influencer." src="https://images.theconversation.com/files/562477/original/file-20231129-15-yrse3g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/562477/original/file-20231129-15-yrse3g.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=431&fit=crop&dpr=1 600w, https://images.theconversation.com/files/562477/original/file-20231129-15-yrse3g.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=431&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/562477/original/file-20231129-15-yrse3g.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=431&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/562477/original/file-20231129-15-yrse3g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=541&fit=crop&dpr=1 754w, https://images.theconversation.com/files/562477/original/file-20231129-15-yrse3g.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=541&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/562477/original/file-20231129-15-yrse3g.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=541&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In recent years, Socotra has become an increasingly popular destination for tourists. Above, a screenshot of a video of Eva zu Beck, a travel ‘influencer’.</span>
<span class="attribution"><span class="source">Screenshot</span></span>
</figcaption>
</figure>
<h2>UAE flags fluttering at check points</h2>
<p>In 2020, after Socotra’s governor opposed the establishment of a local pro-Emirati elite force, the STC finally took control of the island, prompting Saudi forces to <a href="https://www.aa.com.tr/en/middle-east/yemen-saudi-forces-abandon-security-points-in-socotra/1831978">quickly withdraw</a>. A <em>de facto</em> coup by the STC, it allowed the Emiratis to indirectly control the island, with the wages of Socotran civil servants reportedly <a href="https://www.france24.com/en/live-news/20210607-yemen-s-socotra-isolated-island-at-strategic-crossroads">paid by the UAE</a>, and a unit of the local Coast Guard <a href="https://www.newarab.com/news/socotra-coast-guard-battalion-defects-uae-backed-southern-separatists">pledging its allegiance</a>. An AFP report from 2021 also describes that “the STC’s banners are dwarfed by far larger UAE flags fluttering at police checkpoints”, while newly erected communication masts <a href="https://www.france24.com/en/live-news/20210607-yemen-s-socotra-isolated-island-at-strategic-crossroads">link phones directly to UAE networks</a> rather than Yemen.</p>
<p>Much indicates that the island has undergone extensive militarisation. In April 2019, reports emerged that the UAE was building a <a href="https://www.independent.co.uk/news/world/middle-east/socotra-yemen-civil-war-uae-saudi-arabia-occupation-military-emirates-a8360441.html">military base on the island</a>, close to the rebuilt <a href="https://acleddata.com/2019/05/31/yemens-fractured-south-socotra-and-mahrah/andmanagedbytheSTC">Hawlaf port</a>.</p>
<p>In 2020, <a href="https://carnegie-mec.org/diwan/80827">Ahmed Nagi</a>, one of the few political researchers able to visit Socotra recently, wrote “the island has become a regional football”. For analysts working abroad, information mainly comes from UAE media outlets <a href="https://www.thenationalnews.com/uae/government/2021/07/31/uae-has-pledged-110-million-in-humanitarian-aid-to-socotra-since-2015/">aligned with the government</a>, or from media linked to <a href="https://www.presstv.ir/Detail/2022/01/02/673875/UAE-establishing-second-military-airport-on-Yemen%E2%80%99s-strategic-Socotra-Island,-report-says">UAE’s regional rivals</a>. As long as reliable information on political and military issues in Socotra remains scarce, analysts continue to have a hard time assessing the impact of “development” and “foreign intervention” on the region’s Garden of Eden.</p><img src="https://counter.theconversation.com/content/218848/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eleonora Ardemagni ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>Long a well-kept secret, the archipelago of Socotra is one of the most biodiverse on earth. But the Emirates have other plans for its main island, with which it has long cultivated ties.Eleonora Ardemagni, Teaching Assistant ("New Conflicts") Catholic University of Milan, Senior Associate Research Fellow at ISPI, and Adjunct Professor at ASERI ("Yemen: Drivers of Conflict and Security Implications"), Università Cattolica del Sacro Cuore - Catholic University of MilanLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1120862019-02-19T15:29:00Z2019-02-19T15:29:00ZAirbus A380: from high-tech marvel to commercial flop<figure><img src="https://images.theconversation.com/files/259728/original/file-20190219-43273-w16gs4.jpg?ixlib=rb-1.1.0&rect=0%2C26%2C968%2C592&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The final deliveries of the A380 are anticipated for 2021.</span> <span class="attribution"><span class="source">Mike Fuchslocher/Shutterstock</span></span></figcaption></figure><p>This time it really is over. Airbus chief executive, Tom Enders, recently announced the <a href="https://www.youtube.com/watch?v=6T4nijoSdyk">end of the A380</a>, the largest commercial aircraft ever built. Despite reported investments of more than <a href="https://www.bloomberg.com/news/articles/2015-04-26/airbus-a380-haunted-by-lack-of-orders-marks-decade-in-the-skies">€14 billion</a>, this iconic European project has not been as successful as was originally hoped. With only <a href="https://www.airbus.com/aircraft/market/orders-deliveries.html">234 units delivered out of 313 ordered</a> over 13 years, it is far from the break-even point – originally estimated at 1,200 aircraft over 20 years. With orders drying up and production already running at a minimum, it was time for Airbus to stop the damage.</p>
<p>Long before its launch date, the A380 appeared to represent the future of Airbus, which anticipated that <a href="https://www.cnbc.com/id/16882170">air traffic would double in the next 20 years</a>. That’s why it is both big – it can carry anywhere from 550 to more than 800 passengers on two full decks – and luxurious, with options such as private rooms, restaurants and bars – even an <a href="https://www.dailymail.co.uk/travel/travel_news/article-6700789/The-amazing-story-A380-told-incredible-pictures.html">in-flight casino</a>. Its engines are on average <a href="https://www.rolls-royce.com/products-and-services/civil-aerospace/airlines/trent-900.aspx">30% more powerful than those of the Boeing 747</a> and are worth €13 million each – the value of a ton of gold for all four.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/RlOq5MJr2LM?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">National Geographic dedicated an episode of its series ‘Megastructures’ to the A380.</span></figcaption>
</figure>
<p>To keep the overall weight down, the A380’s designers used <a href="https://www.ingenia.org.uk/Ingenia/Articles/b48c6ee4-965a-4a55-a3fc-b8c2619fa6ec">groundbreaking composite structure</a>, including carbon ribs within aluminium wings. Equipped with the most advanced navigation system in commercial aviation, it can operate for more than 13 hours and fly more than 9,000 miles. </p>
<p>The aircraft is built on a continental scale: the wings are made in Wales, engines are made in England (Rolls Royce) or the US (Engine Alliance), the fuselage and the vertical stabiliser is built in Germany and the horizontal stabiliser in Spain. Final assembly is carried out in France. Each wing weighs 6.5 tons and is composed of <a href="https://captaindave.aero/2017/09/02/the-a380-wing-a-complex-work-of-art/">tens of thousands of components</a>, carrying the fuel, supporting the fuselage and channelling the power of the engines.</p>
<h2>Niche market</h2>
<p>If the A380 is undeniably one of the most impressive aircraft of all time, its unique design and distributed production system created numerous <a href="https://books.google.fr/books?hl=fr&lr=&id=KcaYjPhRnWUC&oi=fnd&pg=PA6&dq=A380+program+cost&ots=rmv403X072&sig=Yst8-nwpx2dv8bZs2hSjEj6S9wM#v=onepage&q=A380%20program%20cost&f=false">technical and coordination problems</a>. The initial launch was delayed 18 months by a range of difficulties, and the ability of airlines to customise the aircraft proved to be an additional source of delays. </p>
<p>While the A380’s first flight – on April 7 2005 – was a success, the market was already changing. Airlines that initially favoured big hubs such as <a href="https://www.sciencedirect.com/science/article/abs/pii/S0969699708000963">Singapore and Dubai</a> began to offer more direct flights from a significant number of middle-sized airports. The rise of low-cost airlines brought in influential new players and weakening the long-time leaders that had been seen as big prospects for the A380.</p>
<p>Most importantly, the 2008 economic crisis seriously cut into the growth in air traffic. <a href="https://skift.com/2018/09/14/10-years-later-how-the-travel-industry-came-back-from-the-financial-crisis/">While growth has returned</a>, the market is smaller than expected, making it harder to fill a wide-body aircraft, much less a double-deck one. It is simply not profitable for an airline to have flights with less than 80% of the seats filled. Emirates, which owns half of all operating A380s, has the <a href="https://www.sciencedirect.com/science/article/abs/pii/S0969699711000160">financial resources to take on this risk</a>, but not other carriers.</p>
<p>It was Airbus’ mimicry of its historic competitor, Boeing, that led to the gap between supply and a considerably evolved demand. While some experts claimed that the A380 was 10 to 20 years ahead of the market, Airbus executives now admit that the plane was <a href="https://www.youtube.com/watch?time_continue=7&v=5rh1Jj8P9t8">10 years too late</a>. As Enders said when announcing the A380’s demise: “What we are seeing here is the end of the large four-engine aircraft.”</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/5rh1Jj8P9t8?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Airbus CEO Tom Enders on the decision to end the A380’s production (AeronewsTV).</span></figcaption>
</figure>
<p>With A380 sales lagging, Airbus launched its new mid-size flagship, <a href="https://www.airbus.com/aircraft/passenger-aircraft/a350xwb-family/a350-900.html">the A350</a>, in 2014. It and Boeing’s 787 Dreamliner, both of which have only two engines yet can fly great distances, were preferred because they had <a href="https://edition.cnn.com/travel/article/ultra-long-haul-planes/index.html">lower costs and fewer constraints</a> than the A380.</p>
<p>A380 orders started to dry up in 2015 and persistent rumours suggested that the end was near. There were no orders from US carriers, few in Asia and even Air France <a href="https://www.forbes.com/sites/michaelgoldstein/2018/11/27/if-air-france-no-longer-wants-the-airbus-a380-will-anyone/">halved its anticipated A380 fleet</a>. On January 15 2018, John Leahy, Airbus’ chief commercial officer, declared that if Emirates didn’t order at least 30 more A380s, it wouldn’t be possible to <a href="https://www.forbes.com/sites/michaelgoldstein/2018/01/17/does-anyone-really-need-the-airbus-a380/#7c7237f27eb1">keep the program alive</a>. British Airways, which owns a dozen A380s, has suggested that it could acquire others, but only if Airbus was <a href="https://thepointsguy.com/news/ba-could-save-the-a380-program/">“aggressive on the pricing”</a>. Whatever the result of those discussions, they are unlikely to alter the company’s decision.</p>
<h2>An inevitable disaster?</h2>
<p>Today, the very design of the A380 is being questioned – that it was in many ways a delusion of grandeur by Airbus, which wanted at all costs to <a href="https://www.cnbc.com/id/49974666">beat the Boeing 747</a>. But its four engines consumed too much fuel, and being able to carry more passengers wasn’t enough to make up the difference. The A380’s immense size and double-deck layout also require airport investments <a href="https://www.ingentaconnect.com/content/lse/jtep/2005/00000039/00000003/art00006">not needed for other airliners</a>. </p>
<p>Without the support of Emirates, which has made the A380 its flagship and is probably the only company that will regret its end, the decision to cease production would have been made a long time ago. Emirates has agreed to convert part of its latest order to <a href="https://www.airbus.com/newsroom/press-releases/en/2019/02/airbus-and-emirates-reach-agreement-on-a380-fleet--sign-new-widebody-orders.html">A330neo and A350 aircraft</a>, remaining faithful to Airbus. The last delivery is scheduled for 2021 and there will be no new versions brought into service. Meanwhile, the <a href="https://www.bbc.com/news/av/uk-england-london-43009119/celebrating-50-years-of-the-boeing-747">Boeing 747 celebrates 50 years of service</a> – though it too is ending production, <a href="https://www.flightglobal.com/news/articles/boeing-747s-production-run-could-outlast-a380s-455772/">marking the end of an era for airline behemoths</a>.</p>
<p>The end of the A380 is not necessarily good news for Boeing: it releases Airbus from a weight that has long prevented it from <a href="https://www.researchgate.net/publication/265787531_Competition_evolves_to_simplicity_The_strategies_for_the_conquer_of_the_skies_and_the_announced_battle_between_the_Airbus_A380_and_the_Boeing_777">delivering its full potential</a>. Resources and skills can be better allocated and thousands of workers may be offered jobs on <a href="https://www.theguardian.com/business/2019/feb/14/a380-airbus-to-end-production-of-superjumbo">other production lines</a>. If the end of the A380 is a hard blow, the end of the story has yet to be written for Airbus.</p><img src="https://counter.theconversation.com/content/112086/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Oihab Allal-Chérif ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>The shifting market for air travel has forced Airbus to abandon the production of one of the most impressive aircraft of all time, the super-jumbo A380. Was it folly, bad luck or both?Oihab Allal-Chérif, Full Professor, Information Systems and Purchasing Management, Neoma Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1047792018-10-16T13:52:19Z2018-10-16T13:52:19ZWhy a new national carrier for Nigeria is never likely to get off the ground<figure><img src="https://images.theconversation.com/files/240395/original/file-20181012-119129-1kbrm5g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Nigeria has abandoned the idea of a national airline.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>One of the most vexatious ironies about Nigeria – perhaps even an embarrassment – is the <a href="https://www.thisdaylive.com/index.php/2017/10/20/why-nigeria-may-need-a-national-carrier/">lack of a national airline</a>. Nigerians are often very piqued to be travelling on airlines owned by smaller less resource-endowed African countries. Ethiopia, Kenya and Rwanda and South Africa national carriers are some of the big players on the continent. </p>
<p>Foreign airlines do well from the large and growing number of Nigerian passengers. For instance, Emirates flies <a href="https://www.vanguardngr.com/2017/11/emirates-restore-full-operations-nigeria-two-lagos-daily-flights-abuja-four-weekly-orhan-abbas/">twice a day from Lagos</a>, with over 12,000 passengers per week. </p>
<p>Many Nigerians were, therefore, elated when the Nigerian government announced during the 2018 International Air Show in London that it intended to establish <a href="https://edition.cnn.com/2018/07/18/africa/nigeria-new-national-carrier/index.html">a new national airline</a> to be named Nigeria Air.</p>
<p>The new national airline was expected to be jointly owned by the government and unnamed private investors at a cost of <a href="https://www.businesslive.co.za/bd/companies/transport-and-tourism/2018-07-23-nigeria-sends-out-feelers-for--strategic-partner-to-operate-its-new-national-airline/">USD$300 million</a>. To ensure that it didn’t run into the same set of problems that spelled the doom of Nigeria Airways in 2003, private investors were to hold a majority stake in the new venture. This was no doubt to shield the fledgling airline from undue interference by the government. </p>
<p>I was among some of those who were sceptical about the revival plan. Two previous attempts to resuscitate Nigeria Airways had been unsuccessful. So it came as no surprise when the government <a href="http://www.africanews.com/2018/09/20/nigeria-suspends-plans-for-new-national-carrier/">announced</a> it was abandoning its latest effort. Many of the <a href="https://www.independent.co.uk/travel/news-and-advice/nigeria-air-investors-airline-failure-africa-richard-branson-virgin-a8467116.html">structural and institutional deficiencies</a> that caused the collapse of Nigeria Airways remain. </p>
<p>Additionally, the global airline industry has become fiercely competitive, and new entrants would have a very hard time surviving. According to FlightGlobal, <a href="https://www.flightglobal.com/news/articles/analysis-airline-start-ups-and-failures-in-2017-444383/">37 airlines ceased operations in 2017 alone</a>.</p>
<h2>Growth, middle class and air travel</h2>
<p>Impressive economic growth within the past two decades in Africa has spurred demand for air travel. Foreign airlines that used to shun the continent are now scrambling for a share of the market. Average <a href="https://www.iata.org/pressroom/pr/Pages/2018-02-01-01.aspx">annual growth in passenger air travel</a> in Africa is estimated at 7.5%, compared with a global average of 7.9% in 2017. To meet the increasing demand for air travel in Africa, the region would need about <a href="http://www.defenceweb.co.za/index.php?option=com_content&view=article&id=32448:africa-needs-970-new-passenger-aircraft-over-the-next-20-years&catid=114:civil-aviation&Itemid=247">970 new passenger aircraft</a> (worth USD$126 billion) by 2032. </p>
<p>Despite this unprecedented growth in air travel, the market in Africa is still untapped. Although the continent constitutes about 12% of the world’s population, air travel in Africa is <a href="https://www.citylab.com/transportation/2017/11/why-is-african-air-travel-so-terrible/546422">only 1% of the global air travel market</a>. </p>
<p>Foreign airlines are now picking up the slack left by defunct national carriers in Africa. This has included US airlines like Delta Airlines and Continental, among others. </p>
<p>Demand in Africa is expected to continue to grow, due mainly to a phenomenal increase in the size of Africa’s middle class. <a href="https://www.bbc.com/news/business-22956470">It’s estimated</a> that the middle class in Africa and the Middle East will more than double, from 137 million in 2013 to 341 million in 2030. </p>
<p>Nigeria deserves a share of this growing market, especially given its desire to diversify its economy away from oil and gas. This is one of the reasons why Nigerians were excited about the prospects of reentering the global airline market.</p>
<p>But disappointment was waiting in the wings.</p>
<h2>Dashed hopes</h2>
<p>On September 19 the government announced it was <a href="http://www.africanews.com/2018/09/20/nigeria-suspends-plans-for-new-national-carrier/">jettisoning the whole idea</a> of a national airline. No formal reason has been given for the abrupt change in course. But there’s speculation that the government was <a href="https://www.independent.co.uk/travel/news-and-advice/nigeria-air-investors-airline-failure-africa-richard-branson-virgin-a8467116.html">hard-pressed to attract willing joint-venture partners</a>. </p>
<p>In fact, it’s not difficult to fathom that the idea of a national airline in Nigeria is purely a mirage. Nearly <a href="https://www.abuja-ng.com/the-raise-and-fall-of-nigerian-airways.html">all the problems</a> that beset Nigeria Airways, and which eventually resulted in its demise in 2003, are still present. </p>
<p>One is monumental corruption. Airline officials were accused of regularly inflating contracts for a cut of the contract sum, kickbacks for contract awards, and outright theft of revenues generated from airline operations. </p>
<p>Another problem that undermined the performance of Nigeria Airways, and which the new airline would also have to face, is crass nepotism. During the Nigeria Airways era, company officials were dolling out free or heavily subsidised airline tickets to friends, family members and the political elites.</p>
<p>The toxic combination of <a href="https://www.abuja-ng.com/the-raise-and-fall-of-nigerian-airways.html">inflated contracts</a> and lost revenues made the airline insolvent. This meant that it frequently needed an infusion of government cash. With declining revenues and meagre government subsidies, the airline was unable to service or replenish its ageing fleet. At a particular point, it had more grounded planes than the ones that were operational.</p>
<p>The current Nigerian government faces very serious fiscal constraints. It’s therefore not in a position to subsidise a complex project like a new national airline.</p>
<h2>Tough competition</h2>
<p>Another reason why it would have been an uphill task for Nigeria to sustain a national carrier is the fact that the competitive landscape in the global airline industry has changed dramatically since the days of Nigeria Airways. There are now far more competitors. </p>
<p>A new national carrier in Nigeria would have to compete with a host of new airlines. Learning how to compete in a crowded market would certainly be a herculean task for a new national airline. This would become particularly onerous given that many foreign airlines are heavily subsidised by their own governments. </p>
<p>Given all these facts, it hardly seems likely that a new national carrier in Nigeria will fly in the foreseeable future.</p><img src="https://counter.theconversation.com/content/104779/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Onyeiwu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Many of the structural and institutional deficiencies that caused the collapse of Nigeria Airways are still present.Stephen Onyeiwu, Professor and Chair of the Economics Department, Allegheny CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/872782017-11-11T18:31:12Z2017-11-11T18:31:12ZThe Louvre Abu Dhabi Museum: a disruptive innovation with no future?<figure><img src="https://images.theconversation.com/files/194155/original/file-20171110-29341-lbt7n2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">file yp ab</span> </figcaption></figure><p>In the new global cultural economy of creative regions, the United Arab Emirates have aimed high with the <a href="http://www.louvre.fr/louvre-abu-dhabi">Louvre Abu Dhabi</a>. This major and unprecedented project, risky political both for France and the UAE, required considerable creativity, significant investment, and a daring reconciliation between distant worlds that no one could have imagined just a few years earlier.</p>
<p>The innovation is a radical one : the UAE initiative was approved at the highest levels in both countries, making this partnership between the UAE and France unique in the world. The negotiation process was driven by a dynamism not usually seen in French government and by a small number of political, cultural and technocratic personalities who transcended their institutional restrictions, devised unexpected solutions and obtained an exceptional valuation for museum expertise in France, and all in the name of the most prestigious museum in the world, the Louvre.</p>
<p>To date, however, the venture’s momentum has not continued, neither for French cultural policy nor for the development and influence of museums and other major French cultural institutions. This conclusion is the result of a joint analysis by a researcher in management and the general administrator of the Louvre Museum at the time the project was launched.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/193984/original/file-20171109-27130-lwoqac.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/193984/original/file-20171109-27130-lwoqac.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/193984/original/file-20171109-27130-lwoqac.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/193984/original/file-20171109-27130-lwoqac.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/193984/original/file-20171109-27130-lwoqac.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/193984/original/file-20171109-27130-lwoqac.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/193984/original/file-20171109-27130-lwoqac.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/193984/original/file-20171109-27130-lwoqac.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Saadiyat Island project presented in Septembre 2008.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/lucadex/2856745964/in/gallery-43355952@N06-72157622931978665/">Luca De Santis/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>Genesis of an exceptional project</h2>
<p>The <a href="http://www.nytimes.com/2007/01/13/arts/design/13louv.html">2007 agreement between France and the UAE</a> was exceptional from an international standpoint and even more in France. It was the first time that two countries had made this kind of commitment to a sustainable partnership to create a universal museum of worldwide scope. The then director of the Louvre, Henri Loyrette, defined the Louvre Abu Dhabi as :</p>
<blockquote>
<p>“an extraordinary scientific project. It is a matter of assisting our Emirate partners to create a museum where the scientific, cultural, and pedagogical bias will be fixed firmly in new perspectives that we will have to invent, while helping them to build up their collections”. (Foreword, Louvre Annual Report 2007, p. 5-6.).</p>
</blockquote>
<p>This was the first time that a museum of the Louvre’s stature had agreed to have its name, with a thousand years of history behind it, associated with a museum outside France – and moreover, one in a part of the world with which it had few dealings. In other words, the Louvre museum, and French heritage in general, opening up a new market.</p>
<p>In 2001 the Louvre filed an application to protect its brand name. It was able to set the brand’s value at a level never before seen – 400 million euros over 30 years for the institutional communication of the future museum plus a share commercial profits – that also put monetary value on French heritage expertise at the highest international standards, 165 million euros. While payments for exhibitions were already largely applied by major French museums, the sums achieved – 190 million euros for the loan of works of art and 195 million euros for exhibitions from 2017 to 2032 – would make opponents of the projects dizzy.</p>
<p>This was also the first time that major French museums found themselves working together, as shareholders, in the joint venture <a href="http://www.agencefrancemuseums.fr/">Agence France-Museums</a> (AFM) which would bring the project to fruition, and export and promote French museum know-how.</p>
<p>In the wake of the agreement, the Louvre will benefit from the introduction of endowment funds in France, like those received by the major American museums. These are to be brought in as part of the <a href="http://www.iflr.com/Article/2324310/France-Modernising-the-economy.html">French Law of Modernization of the Economy</a>, passed in August 2009. The first such fund, created for the Louvre in 2009, will ensure that most of the monies received when the agreement was signed by the Museum (175 million euros) can be preserved so that funding for the museum can be guaranteed over time and will not be affected by any uncertainties in the state budget.</p>
<p>The negotiations by the Louvre received support at the highest level in France, with unfailing support from then President Jacques Chirac, and in turn from the Minister of Culture, <a href="http://bit.ly/2hWr1Et">Renaud Donnedieu de Vabres</a>, who ensured that many internal administrative obstacles were able to be overcome.</p>
<p>From the start, the agreement benefitted from the involvement of some remarkable figures : Laurence Des Cars, honorary curator of the d’Orsay Museum, was scientific director and Bruno Maquart, director general of the Centre Pompidou, was director general, serving the cultural and scientific aims of the project and overseeing meticulously all the commitments that were made.</p>
<p>In 2006, the choice of Jean Nouvel, one of the world’s “starchitects”, sent a clear message that French creativity was clearly associated with the project.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/193983/original/file-20171109-27169-dvne42.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/193983/original/file-20171109-27169-dvne42.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/193983/original/file-20171109-27169-dvne42.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/193983/original/file-20171109-27169-dvne42.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/193983/original/file-20171109-27169-dvne42.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/193983/original/file-20171109-27169-dvne42.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/193983/original/file-20171109-27169-dvne42.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/193983/original/file-20171109-27169-dvne42.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The project in 2009.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/hoss69/3309845584/in/gallery-43355952@N06-72157622931978665/">hoss69/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<p>In sum, the project was a disruptive innovation, yet it experienced a range of controversies, in particular geopolitical, with the UAE suspected of exploiting the heritage project and France of mercilessly commodifying its own heritage… Without entering into the question of their legitimacy, these controversies can be interpreted as an expression of the unease over the choices made by the Louvre. The project was seen as forcing a paradigm shift, with a radical entry into the arts business, aesthetic capitalism, branding, creative tourism, and more broadly into the global creative economy. However, this movement was long under way with the opening of the <a href="http://www.louvrelens.fr/">Louvre-Lens museum</a> in northern France or the <a href="http://www.lemonde.fr/culture/article/2006/01/30/louvre-atlanta-l-operation-discrete1/27359881/23246.html">Louvre-Atlanta collaboration</a> being the French contribution to this revolution which was already well established in the 1990s with the <a href="https://www.theguardian.com/artanddesign/2017/oct/01/bilbao-effect-frank-gehry-guggenheim-global-craze">Guggenheim Bilbao</a> in Spain, and the <a href="http://www.tate.org.uk/">Tate Modern</a> in London.</p>
<h2>2017 : what has been learned collectively ?</h2>
<p>As the Louvre Abu Dhabi opens in November 2017, on the one hand there are many articles <a href="https://www.theguardian.com/artanddesign/jonathanjonesblog/2015/mar/09/louvre-abu-dhabi-worth-celebrating-jean-nouvel-human-rights">celebrating the project</a>, and on the other, the persistence of museum-related and <a href="https://www.theguardian.com/world/2009/may/26/france-military-base-uae">geopolitical controversies</a>. Is it not possible to have an open debate on this sensitive subject that would be a useful learning process ? Astonishingly, both partisans and opponents of the project seem to have been silenced, authorizing a single political analysis of the project, at the expense of any cultural and managerial discussion.</p>
<p>First, what is striking is not that the project has finally come to fruition after 10 years, but rather that it is still the only one of its kind. Nothing similar has been launched, and the French Ministry of Culture – which was already marginalized in 2007 – seems to have learned nothing from the prospects offered not only in Abu Dhabi but internationally, not only for the Louvre but also for our major cultural institutions, nor has the question been raised of exploiting a brand, nor that of French museum and cultural expertise.</p>
<p>Now that the inauguration is over, the Agence France-Museums is being dismantled, yet no one has asked whether it should be transformed into a global agency for promoting French heritage and culture. This despite that fact that its activities could clearly have been extended to many artistic fields, first in Abu Dhabi, where they hoped to create a cultural hub that would include several more museums and cultural institutions, but also elsewhere in the world.</p>
<p>France is certainly more than able to project its soft power internationally in the cultural field, but only via traditional channels (literature, exhibitions, tours of live shows and concerts, tourism, network of French Institutes, etc.).</p>
<p>Louvre Abu Dhabi has in no way changed social representations and practices, let alone the ministerial organization, and it has barely affected how other museums operate. That said, they do tend to be more innovative, such as the <a href="https://www.centrepompidou.fr/en">Centre Pompidou</a> having opened branches in Malaga and Shanghai. Aspirations to become a designer, operator or partner in major cultural projects abroad in markets where the demand for culture is rising sharply. Such initiatives have not flourished, however : passivity is the order of the day, prospection is non-existent, transversality is impossible, and institutions are shackled.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/193985/original/file-20171109-27148-u1brqr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/193985/original/file-20171109-27148-u1brqr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/193985/original/file-20171109-27148-u1brqr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/193985/original/file-20171109-27148-u1brqr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/193985/original/file-20171109-27148-u1brqr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/193985/original/file-20171109-27148-u1brqr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/193985/original/file-20171109-27148-u1brqr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/193985/original/file-20171109-27148-u1brqr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Louvre Abu Dhabi exterior.</span>
<span class="attribution"><span class="source">Mohamed Somji/Louvre Abu Dhabi</span></span>
</figcaption>
</figure>
<p>There are still many more questions to be asked about Louvre Abu Dhabi, in particular about supporting this museum until 2037, when the agreement expires. Let us hope that a constructive dialogue can open up between all of the project’s French stakeholders, in an open and contemporary spirit, to enable France’s cultural leadership throughout the world to grow.</p>
<hr>
<p><em><strong>Gombault A. and Selles D. (2018), “The Louvre Abu Dhabi Museum : a disruptive innovation with no future ?”, <a href="https://www.gestiondesarts.com/en/ijam2/#.WgdBnhPWzq0">International Journal of Arts Management</a>, to be published</strong></em>.</p><img src="https://counter.theconversation.com/content/87278/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>For 20 years Anne Gombault has been researching on and writing about the Louvre Museum and its Grand Louvre strategy.</span></em></p><p class="fine-print"><em><span>From 2000 to 2009, Didier Selles was general administrator of the Louvre. From 2005-2007 he was the negotiator for the Louvre for the Abu Dhabi Accord.</span></em></p>A management researcher and an administrator of the Louvre at the time the Abu Dhabi project was launched analyse the new museum.Anne Gombault, Professeur de management, directrice du centre de recherche Industries créatives Culture, Kedge Business SchoolDidier Selles, Expert invité / Invited expert, Kedge Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/640042016-08-17T18:59:53Z2016-08-17T18:59:53ZSouth Africa must free itself from the burden of owning a national airline<figure><img src="https://images.theconversation.com/files/134397/original/image-20160817-3578-6sot4l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South African Airways is undoubtedly in crisis.</span> <span class="attribution"><span class="source">EPA/Udo Weitz</span></span></figcaption></figure><p>South Africa needs to accept the <a href="http://www.economist.com/blogs/economist-explains/2014/02/economist-explains-5">reality</a> that the time when national airlines flew as carriers of national pride is a thing of the past. Some national carriers – South African Airways (SAA) as <a href="http://www.financialmail.co.za/coverstory/2015/03/19/sa-airways-mission-impossible">a prime example</a> – have become major liabilities. They must be cut loose to protect the pride of the nation.</p>
<p>Across the globe the feature of national airlines as a natural property of nation states has been in <a href="http://www.economist.com/news/business/21612190-why-governments-are-so-keen-keep-their-loss-making-airlines-aloft-flags-inconvenience">decline</a>. Entrepreneurs have invaded the market and the success of a few national carriers, like Ethiopian Airlines, Emirates and Singapore Airlines is a function of <a href="http://www.economist.com/news/business/21612190-why-governments-are-so-keen-keep-their-loss-making-airlines-aloft-flags-inconvenience">some special features</a>.</p>
<p>With a few exceptions, the situation in developing countries is particularly bad. They can’t afford the huge financial burden that comes with failing national carriers. South Africa, which is <a href="https://theconversation.com/south-africa-can-expect-zero-growth-its-problems-are-largely-homemade-62943">facing economic difficulties</a>, is such a case. In raising the alarm over the country’s credit rating, the international agency <a href="http://www.bdlive.co.za/economy/2016/06/03/in-depth-credit-rating-affirmed-but-sp-sends-warnings">Standard and Poor</a> warned that the government faced risks from public enterprises with weak balance sheets. It included SAA on its list. The country narrowly missed being downgraded to junk status.</p>
<p>SAA is currently kept in the air on the basis of financial <a href="http://www.bdlive.co.za/companies/2016/01/11/saa-could-run-out-of-cash-in-weeks">guarantees</a> from the government amounting to R14 billion. This is coming out of over-stretched government coffers. And it must be stressed that it is taxpayers who have provided SAA with these costly guarantees. </p>
<p>This is not the first time the airline has been in trouble. It has a long history as a failed state owned enterprise. Yet it manages to stay afloat by asking for government bailouts and by using every available means to shut down competitors.</p>
<h2>Dubious uncompetitive behaviour</h2>
<p>The airline has once again been in the news for all the wrong reasons. This time it is making news headlines because of its role in the <a href="http://www.moneyweb.co.za/news/south-africa/saa-to-pay-huge-damages-to-nationwide">demise of Nationwide Airlines</a>, one of the few competitors it faced on domestic routes. </p>
<p>The state-owned airline has driven Nationwide out of the market and put another one (Comair) under pressure. This has ensured that there is limited competition in the domestic airline market. This, in turn, has prejudiced customers in a big way.</p>
<p>On August 9 2016 the South Gauteng High Court ruled that SAA must pay liquidated Nationwide Airlines a fine of some R104 million. </p>
<p>Nationwide was liquidated as it could not compete with SAA. The court found that <a href="http://www.moneyweb.co.za/news/south-africa/saa-to-pay-huge-damages-to-nationwide">SAA’s abuse of market dominance</a> from 2001 to 2006 contributed to the liquidation.</p>
<p>If interest is added to the damages awarded to Nationwide, the amount can double to some R200 million. SAA seemingly does not have the money to pay this claim. This is obvious from the fact that even before the court case it had asked the government (read: South African taxpayer) for a <a href="https://www.da.org.za/2015/11/da-rejects-r5-billion-saa-bailout/">further guarantee</a> of R5 billion.</p>
<p>There can be little doubt that SAA will attempt to take the court ruling on appeal. After all, when taxpayers “underwrite” failed business ventures such as SAA, appeal is always an easy option. It is expensive, but somebody else carries the cost.</p>
<p>But more is to come. Comair has brought a <a href="http://www.moneyweb.co.za/news/south-africa/ill-have-saa-liquidated-if-they-dont-pay-former-nationwide-ceo/">court application</a> similar to the one brought by Nationwide. In this case the claimed damages amount to R875 million. If interest is added in this instance, the claim amounts to some R1,5 billion. Again this is money that SAA does not have.</p>
<h2>Badly managed</h2>
<p>That South Africa’s national airline is in a parlous state is no longer in dispute. </p>
<p>It has <a href="http://www.sabreakingnews.co.za/2016/07/26/da-slams-request-for-another-saa-financials-delay">delayed</a> releasing its financial statements four times over the past 10 months. No convincing reasons have been provided for the delays.</p>
<p>The failure to issue financial statements on time is partly a reflection of the incompetent leadership that has led the airline astray in recent years. To be sure, the airline has been rocked by boardroom shenanigans for some time. It has over the past 10 years or so experienced <a href="http://www.bdlive.co.za/business/transport/2016/06/10/a-strong-leader-can-fix-saa-soapie-says-nico-bezuidenhout">unprecedented leadership volatility</a> with frequent changes to the board and the CEO post. </p>
<p>The tenure of the current board chairperson, Dudu Myeni, has taken things to a new level of scandalous corporate governance. It is clear that Myeni is <a href="http://mg.co.za/article/2015-11-26-zumas-favourite-is-wrecking-saa">unqualified</a> for the post of chairing the SAA board and has only survived due to her close <a href="http://www.news24.com/SouthAfrica/News/zuma-defends-myeni-quashing-rumours-of-a-romantic-relationship-20151212">relationship</a> with President Jacob Zuma. </p>
<p>The unceremonious and expensive firing of former finance minister, Nhlanhla Nene, came after <a href="http://www.fin24.com/Opinion/dudu-myeni-nenes-saa-nemesis-20151125">he crossed swords with Myeni</a>. And she appears to remain untouchable for the returning finance minister Pravin Gordhan. He has correctly called for the <a href="http://ewn.co.za/2016/07/28/Gordhan-adamant-a-new-SAA-board-can-bring-positive-change">revamp of the airline’s board</a> before advancing new bailout funds. His call has gone unheeded.</p>
<h2>Ordinary citizens are the losers</h2>
<p>Customers are indeed the losers in all of this. Many are also taxpayers, and it is their hard-earned tax contributions that provide guarantees to SAA, thus giving it the power to squeeze competitors. This action increases the cost of airfares to the detriment of the very same group of people that funds SAA by means of guarantees.</p>
<p>This is clearly an untenable position. There is only one solution. The South African government must simply give SAA away. This is, if anybody is interested in taking it.</p>
<p>SAA clearly has no value. It is not necessary to do any expensive due diligences to ascertain this. The mere fact that it is kept in the air on the back of a guarantee of R14 billion and has asked for another R5 billion confirms the matter.</p>
<p>The South African government can no longer afford to keep its national airline afloat. Neither should South African taxpayers be expected to.</p><img src="https://counter.theconversation.com/content/64004/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jannie Rossouw receives funding from the National Research Foundation (NDR) as a C2-rated researcher. </span></em></p>The costs to South Africa of maintaining the ownership of a national airline are proving to be unbearably expensive. It’s time to let the struggling carrier go.Jannie Rossouw, Head of School of Economic & Business Sciences, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/295632014-07-24T05:18:32Z2014-07-24T05:18:32ZMalaysia Airlines now faces stark choices in a battle to survive<p>The airline industry has a history of poor financial returns. On a global basis the cost of capital hasn’t been recovered any time in the past 25 years, and in 2014 the industry-wide profit forecast by the International Air Transport Association equates to little more than $4 per passenger. Some carriers do worse than others.</p>
<p>Malaysia Airlines (MAS) was struggling even before the loss of MH370 in March 2014, and the loss of MH17 in July 2014 can only compound the problems of the airline. Largely state-owned, and bound by its historical position of flag-carrier, MAS has struggled to compete. On one side it faces intense low cost competition in its home market from Air Asia and Air Asia’s long haul sibling Air Asia X. On the other side it sees relentless growth from gulf-state full service airlines. </p>
<p>This pressure can only be amplified with the recent opening of the dedicated low cost terminal KLIA 2 in Kuala Lumpur, replacing a cargo shed on the far side of the airport with a purpose-built terminal connected by fast train to the city centre. Air Asia’s passengers no longer contend with second rate facilities at their home base airport.</p>
<p>At the full-service end of the market, MAS faces steadily increasing competition from Emirates, Etihad, Qatar and Turkish Airways for its traditional role connecting passengers from Australasia and Southeast Asia to Europe. The once sprawling long haul network of MAS has shed services to North America, South America, and several cities in Europe over recent years, leaving it poorly positioned to compete with the Gulf-state airlines. </p>
<p>It also lacks Emirates’ focus on unit cost control, with the Dubai-based carrier flying more efficient seat configurations than MAS on Boeing 777 aircraft. Opportunities for MAS to exploit its recent oneworld alliance membership have also faded, as Qantas aligned itself with Emirates steering more Australian long-haul traffic away from Southeast Asia. Qantas further weakened the appeal of MAS to its frequent flyers by changing the status credits earned on MAS flights to Kuala Lumpur in a recent program overhaul.</p>
<h2>Stranded in the middle ground</h2>
<p>Strategy theorists warn of the risk of being “stuck in the middle”. MAS was stranded in the strategic middle ground the middle before the two crisis events of 2014. The regional markets in Southeast Asia are now largely the domain of low cost airlines. Air Asia’s several business units, as well as Cebu Pacific, Nok Air, and multiple subsidiaries of Lion, Jetstar, and Tigerair have reshaped both the cost and yield curves for shorthaul services. </p>
<p>MAS has found in Asia, as with the traditional full service airlines in Europe, that it is extremely difficult to compete with low cost airlines on shorter flights where tighter seat pitch and the lack of inflight entertainment have less impact than the appeal of cheaper fares. Its national carrier obligations and the trade union structures in Malaysia have made tough cost cutting difficult for MAS to deliver.</p>
<p>In the long haul markets from Asia-Pacific to Europe, MAS lacks adequate scale, connectivity, and brand presence to compete successfully with the well-funded and fast growing Gulf carriers. While Hong Kong-based Cathay Pacific is able to leverage its status as a gateway to mainland China, and Singapore Airlines nurtures its strong global brand, the relatively weak MAS marque is now scarred by the loss of two Boeing 777 aircraft in the space of five months. Further, its long-haul, low-cost competitor Air Asia X now markets connecting flights over its base in Kuala Lumpur to the Air Asia network, effectively copying the MAS network carrier model but at a lower cost base.</p>
<h2>Possible restructure</h2>
<p>MAS has been through several restructures since it was returned from an unsuccessful sale to entrepreneur Tajudin Ramli in 2001. The Malaysian state investment agency Khazanah is now facing another restructure of the struggling carrier, with <a href="http://www.smh.com.au/business/aviation/malaysia-airlines-may-be-taken-over-by-government-or-enter-bankruptcy-20140721-zvfqa.html">media reports</a> suggesting it may be taken private. The airline is a repeated loss maker and needs a major fleet overhaul to replace the aging Boeing 777-200 aircraft. </p>
<p>The choices facing Khazanah are stark. ASEAN’s open skies opens new market possibilities in the coming years, but MAS has little prospect of bridging the cost gap with its low cost regional competitors to capture that opportunity. On the other hand it lacks the scale and brand strength to take on the Gulf carriers on the long haul routes to Europe. Meanwhile Air Asia X is eating into its competitive position on flights from Australian cities offering connectivity throughout Asia. Large fleet orders are already in place for key competitors in both the regional and long haul market segments.</p>
<p>Without some radical trimming of its cost base and an aggressive repositioning of the MAS brand, it seems unlikely that a further capital injection could be justified on any basis other than the desire to retain MAS as a flag carrier. A recent example of a restructuring plan that could be followed, if there is sufficient political will, is that of fellow oneworld airline JAL. It would be a test of nerve to undertake the staff number and cost reductions that were seen in the JAL case.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/54727/original/qh2wsnfr-1406168059.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/54727/original/qh2wsnfr-1406168059.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=443&fit=crop&dpr=1 600w, https://images.theconversation.com/files/54727/original/qh2wsnfr-1406168059.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=443&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/54727/original/qh2wsnfr-1406168059.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=443&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/54727/original/qh2wsnfr-1406168059.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=556&fit=crop&dpr=1 754w, https://images.theconversation.com/files/54727/original/qh2wsnfr-1406168059.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=556&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/54727/original/qh2wsnfr-1406168059.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=556&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">JAL’s restructure could provide a roadmap for MAS.</span>
<span class="attribution"><span class="source">AAP/EPA/Kimimasa Mayama</span></span>
</figcaption>
</figure>
<h2>Suitors scarce</h2>
<p>Potential partners in the region seem scarce. The joint venture with Air Asia crumbled quickly, and talks with Australian carrier Qantas (already facing drastic cost cutting issues of its own) faded. Thai Airways International is too deeply embedded in the Thai political structure to look over its borders. Emirates already ruled out equity investments as it established its Qantas partnership, while Etihad has built its regional presence in Virgin Australia, alongside Singapore Airlines and Air New Zealand.</p>
<p>Airlines with state ownership can be profitable. Singapore Airlines and Air New Zealand are two examples in the Asia-Pacific region. Air New Zealand, toughened by a bankruptcy restructuring, is now lean and innovative. Singapore Airlines leverages its brand, location, and service consistency to sustain a premium market position. MAS enjoys neither of these strengths. A significant factor for both Air New Zealand and Singapore Airlines is that they are based in free and open economies, and charged with sustaining commercial viability. </p>
<p>Restructuring the fleet, network, and workforce of MAS is only the first step. Freeing the airline to operate as a truly commercial entity may be much tougher. Without that freedom the future for MAS looks bleak, relying on periodic cash injections as its competitive position steadily fades against low cost regional competitors and the growing dominance of the long haul routes by the Gulf airlines.</p><img src="https://counter.theconversation.com/content/29563/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Douglas acted as a consultant to MAS on pricing and revenue management in 2003/2004.</span></em></p>The airline industry has a history of poor financial returns. On a global basis the cost of capital hasn’t been recovered any time in the past 25 years, and in 2014 the industry-wide profit forecast by…Ian Douglas, Senior Lecturer, UNSW Aviation, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/176752013-09-02T04:07:20Z2013-09-02T04:07:20ZModest profit jump puts spring in Qantas step<figure><img src="https://images.theconversation.com/files/30469/original/7crppjn2-1378089714.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Emirates President Tim Clark and Qantas CEO Alan Joyce have plenty to smile about, with their partnership producing impressive first-year results</span> <span class="attribution"><span class="source">APP</span></span></figcaption></figure><p>Hopping from a A$250 million net profit for the 2010/11 financial year to a A$245 million net loss next period can make any CEO skip a few heartbeats, but this doesn’t deter Qantas chief executive Alan Joyce.</p>
<p>He’s forging ahead with the airline’s grand restructuring plans. The recent announcement of the 2012/13 after tax profit of a modest A$6 million, could be just the positive sign the “Flying Kangaroo’ needs to leap ahead. An aggressive A$700 million cost-cutting program coupled with a new international and internal operational strategy is Joyce’s flight plan and he’s not open to any course deviations, except up.</p>
<h2>Cutting costs</h2>
<p>The legacy of former Chief Executive Officer and Managing Director, Geoff Dixon in 2008, saddled management with inefficient and bureaucratic agreements, weakening its competitive position in the cut-throat aviation industry. Faced with waning trading conditions during the global financial crisis, Qantas curtailed labour costs by introducing new enterprise agreements replacing the traditional employee arrangements. </p>
<p>Industrial actions championed by various unions, including the Transport Workers Union (TWU), followed suit. In 2011, union disputes with the airline turned it into a "boxing kangaroo”, which saw 600 flights cancelled, disrupting 70,000 passengers and costing A$68 million.</p>
<p>The cost-cutting endeavour continued into 2012 with the review of catering and a restructure of engineering operations leaving 550 employees jobless. In fact, in August that year Joyce announced his intention to slash 2,800 full time jobs during the transformation to achieve $300 million in savings each year. His statement came on the heels of Fair Work Australia’s (FWA) decision in an arbitration case
with the TWU to mandate its entitlement to conduct business free from
union control. </p>
<p>However, it’s not all depressing news for employees. Part of Qantas’ process in acquiring a more modern fleet of aircraft is the movement of its maintenance facility from Melbourne to Brisbane. The facility is currently undergoing a $30 million upgrade with 120 new positions to be filled.</p>
<h2>The “new” Qantas</h2>
<p>The “new” Qantas is striving to run leaner by moving resources, lining infrastructure and utilising capital more efficiently. It’s reducing its domestic and international capacity and ongoing fuel surcharges. Importantly, it is reacting to customers’ calls for certain destinations, creating a market-by-market solution. For example, the new alliance with Emirates for flights to Europe will help lower the British departure tax by between £27-54 (A$47-94) per passenger, depending on their travel class. </p>
<p>All this by hubbing through Dubai instead of Singapore. This partnership has already produced impressive results, generating code share bookings at twice the rate of its previous European alliances. The proof of this pudding should be
edible in the 2015 financial year.</p>
<p>To compete with Virgin, which recently posted a dismal A$98 million net loss, Qantas is expanding local infrastructure, recently announcing a multi-million dollar investment in Perth airport. This is a significant growth pledge to boost the local economy and capture customers by providing “a seamless airport experience”. </p>
<p>As well, Qantas is attempting to lure more customers by upgrading part of the fleet to wide-bodied A330s and new Boeing 737-800s and offering attractive frequent-flyer schemes.</p>
<p>The airline’s discount arm Jetstar incurred a A$31 million start-up loss in its newly created Japan division, due to launch by the end of the year. The outlook points to a strong cash flow and absorption of Japan’s domestic air travel capacity. Six times larger than Australia’s, the Japanese market is a significant growth opportunity and experts indicate the Japanese are reacting to competitively priced airline tickets, having had limited choices thus far. </p>
<p>Locally, we witnessed similar responses when low-cost carriers entered our scene. CEO Joyce has buoyantly predicted Jetstar’s Japanese venture will be in the black within three years. This budget airline’s rising success in becoming the dominant regional player has influenced budget models in Asian markets.</p>
<h2>Has it all been worth it?</h2>
<p>The flying kangaroo’s pursuit of profitability has not been without its “human cost” with regard to employee relations. In 2012, Fair Work Australia observed that “Qantas faces significant competitive pressures and needs to implement cost savings in order to respond”. Qantas’ quest for greater employment flexibility has been met with considerable employee trepidation.</p>
<p>Escalating employment of contractors to replace full-time employees has created a sense of job insecurity amongst workers. This uncertainty could effect how front line staff engage with customers and the provision of overall customer service. Given increasing competition from other airlines, Qantas needs to embrace a customer-driven business approach. One of the keys to this would be to adopt a quality employee retention and engagement program so workers experience the value of loyalty to the business.</p>
<p>As for customers, maybe the new Qantas Cash venture, described by Joyce as the “Swiss Army Knife of Frequent Flyer cards”, may be just the “toolbox” addition the airline requires to set profits soaring. </p>
<p>Already the airline is courting 9.5 million customers to take up the various levels of bronze, silver and gold cards. In the meantime, Joyce has settled for basic “bronze”, because as CEO he doesn’t pay for his tickets.</p>
<p><em>Co-author Anna Thomas is a Special Project Officer in the Faculty of Business and Economics at Macquarie University.</em></p><img src="https://counter.theconversation.com/content/17675/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Co-author Anna Thomas is a Special Project Officer in the Faculty of Business and Economics at Macquarie University.
Macquarie University does not contribute to the cost of running The Conversation.
</span></em></p>Hopping from a A$250 million net profit for the 2010/11 financial year to a A$245 million net loss next period can make any CEO skip a few heartbeats, but this doesn’t deter Qantas chief executive Alan…Paul Gollan, Associate Dean, Research and Professor of Management, Faculty of Business and Economics, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/118172013-02-14T19:21:46Z2013-02-14T19:21:46ZBeyond Emirates: China-Eastern tie-up allows Qantas to spread its wings<figure><img src="https://images.theconversation.com/files/20259/original/yrgbpk5t-1360815230.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">An alliance with China Eastern Airlines could provide Qantas with a solid growth strategy.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>It’s been a tough year for Qantas CEO Alan Joyce. </p>
<p>Last year’s announcement of the airline’s first loss since privatisation, a new partnership with Emirates and the collapse of joint venture negotiations with Malaysia Airlines did nothing to salvage Joyce’s reputation in the aftermath of his shock decision to ground the carrier in late 2011. </p>
<p>Joyce’s very <a href="http://www.theaustralian.com.au/business/aviation/consortium-led-by-geoff-dixon-mark-carnegie-dumps-qantas-stake/story-e6frg95x-1226564725138">public stoush with his predecessor</a> over a rogue group of shareholders intent on changing course has further damaged Qantas management’s credibility. </p>
<p>Joyce — not to mention Qantas shareholders - must be wondering if there is any light at the end of the tunnel. </p>
<p>For all the rhetoric about the <a href="http://www.theage.com.au/business/qantas-emirates-align-loyalty-20130212-2eb1s.html">game-changing alliance with Middle Eastern giant Emirates</a>, it’s very easy to forget that it wasn’t so long ago that Qantas staked much of its future firmly in Asia. </p>
<p><a href="http://www.australiachinaquarterly.com.au/zh/business-and-politics/item/434-why-qantas-must-grow-in-asia.html">I have written elsewhere</a> about the extraordinary business case for a greater Qantas footprint in China, and the latest ABS data bears this out. </p>
<p>China is now Australia’s largest source of inbound tourists. Additionally, the Chinese are the <a href="http://www.smh.com.au/business/rolling-out-the-red-carpet-as-chinese-tourism-takes-off-20130125-2dc8i.html">highest value visitor group and inject more than $3.8 billion into the Australian economy</a>.</p>
<p>In August 2011, to much fanfare, Qantas boldly announced the creation of a new premium airline based out of an Asian hub. While the nuts and bolts of the deal were kept under lock and key (hindsight tells us that preliminary negotiations were only just beginning), Singapore and Kuala Lumpur were widely interpreted as the ideal springboard for an aggressive Asian expansion. </p>
<p>Ultimately, the lobbying power of Temasek Holdings meant that Singapore was off the cards and Joyce was forced to negotiate with Malaysian Airlines out of second-tier hub Kuala Lumpur. </p>
<p>While these talks stalled in February 2012, a month later Joyce wowed the naysayers with the announcement of a $200 million joint venture with Chinese state-owned aviation giant China Eastern Airlines to <a href="http://blogs.crikey.com.au/planetalking/2012/03/26/jetstar-hong-kong-with-china-eastern/">base a Jetstar offshoot in Hong Kong</a>. </p>
<p>While the venture is still awaiting final regulatory approval, this is significant because it is the first joint venture between a legacy Chinese carrier and a foreign airline. </p>
<p>It is also significant in an era where airline profits are being massively squeezed everywhere in the world apart from China. </p>
<p>Over the next five years, China will construct an <a href="http://centreforaviation.com/analysis/golden-era-for-china-aviation-expected-to-continue-for-20-years-with-a-little-government-help-55934">additional 45 commercial airports and invest US$232 billion in the civil aviation industry</a>. </p>
<p>Passenger numbers will almost double to over 450 million in the next two years and low cost carriers account for less than 3% of the Chinese domestic market. </p>
<p>Working out the business case of a tie-up with a Chinese carrier is hardly rocket science. </p>
<p>China is on the verge of transforming the scale and the entire business model of the global aviation industry. It’s easy to forget that it is an Australian carrier primed to pick the early, low-hanging fruit. </p>
<p>This also has immediate benefit to Qantas mainline, with the ACCC’s recent endorsement of Qantas’ proposal to coordinate pricing and scheduling between the parent carrier and its Asian Jetstar subsidiaries based in Hong Kong, Singapore, Vietnam and Japan. </p>
<p>Theoretically, this should mean at least more high-value Asian tourists bound for Australia on Qantas mainline services. </p>
<p>Yet what are the underlying drivers of China Eastern’s investment? </p>
<p>As the principle shareholder in the big three Chinese carriers, the Chinese government has called for airlines to seek substantive international partnerships and develop new alliance models. </p>
<p>The argument could be made that China Eastern is using Hong Kong as a ringfenced mechanism to access the successful Jetstar IP and business model before dumping Qantas and going it alone in an offshoot low-cost mainland carrier. </p>
<p>Under the direction of their government shareholders, China’s state-owned enterprises have a history of using Hong Kong as a first-step before further offshore expansion and the Jetstar Hong Kong example bears this out. </p>
<p>While direct investment in airlines offshore has yet to follow in the footsteps of other state-owned enterprises, it seems reasonable to assume that it is only a matter of time before Chinese airlines embark on an overseas spending spree. </p>
<p>Assuming the China Eastern tie-up doesn’t encounter too much turbulence, Qantas will be ideally leveraged to benefit from this investment when it comes. </p>
<p>Importantly, will the joint venture give Qantas and its subsidiaries an entree to service lucrative domestic routes in China? </p>
<p>This should be Joyce’s holy grail and a big part of his China strategy. </p>
<p>Foreign carriers are currently excluded from servicing domestic routes in what is still a highly protected and state monopolised sector of the Chinese economy. It should be said that Qantas is still subject to a significantly higher cost base than their Asian competitors and Asian leisure travellers are notoriously price sensitive. </p>
<p>Two things are certain. China’s aviation boom is here to stay and, now that the dust is settling on the Emirates alliance, Qantas shareholders are waiting on the flying kangaroo to pounce on the dragon. </p><img src="https://counter.theconversation.com/content/11817/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Laurie Pearcey was chief executive of the Australia China Business Council between 2009 and 2012. Qantas Airways was the Business Council's official airline partner and Laurie provided a number of China strategy seminars to both Qantas and Jetstar management. </span></em></p>It’s been a tough year for Qantas CEO Alan Joyce. Last year’s announcement of the airline’s first loss since privatisation, a new partnership with Emirates and the collapse of joint venture negotiations…Laurie Pearcey, Director - China Strategy & Development/Director, Confucius Institute, UNSW, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/109792012-11-26T03:07:07Z2012-11-26T03:07:07ZJoyce hangs on a wing and a prayer as investors plot a rival strategy for Qantas<figure><img src="https://images.theconversation.com/files/17984/original/sxmxyp4t-1353885891.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Alan Joyce (left) and former Qantas CEO Geoff Dixon in less turbulent times. </span> </figcaption></figure><p>The flying kangaroo might have lost its bounce, but it seems to be heading into another bumpy ride. The latest episode in the saga involves the old guard of Qantas, comprised of former chief Geoff Dixon, former executive Peter Gregg, and newcomers including venture capitalist Mark Carnegie, trucking magnate Lindsay Fox and advertising guru John Singleton.</p>
<p>It was reported by the <a href="http://afr.com/p/business/companies/carnegie_gregg_may_challenge_joyce_i9bm9SieKXLIUculg9wbaP">Fairfax press</a> over the past week that this group of investors are seeking a change of strategy in Qantas, and have put their money where their mouths are by investing in a strategic stake in the airline believed to be between one and two per cent of the shareholding. The reports suggest that Mr Gregg and Mr Carnegie held briefings a few months ago with a selected group of investors and unions disaffected by the airline’s strategy and leadership, and called on their support for an alternative strategy for the airline.</p>
<p>Interestingly, this group contains some of the same people whose abortive attempt to <a href="http://www.theage.com.au/news/business/qantas-wakes-from-private-equity-fright-to-hearty-realisation-ofits-assets/2007/05/24/1179601576098.html">take over Qantas by private equity</a> through a leveraged buyout in 2007 would have landed the carrier into a tailspin with investors losing just about everything when the GFC hit a few years later.</p>
<p>What is intriguing about these reports is that the series of briefings included unions representing Qantas pilots, engineers and ground workers to challenge the current CEO’s strategy for the airline. After what can only be described as industrial warfare, this approach by the old guard would seem like the light on the hill for Qantas unions.</p>
<p>Just at a time when Qantas needs to regain its former mojo and focus on staff engagement and customer service if it is ever to match <a href="https://theconversation.com/the-qantas-emirates-alliance-a-flight-path-to-future-growth-9363">new airline partner Emirates</a>, it would seem this pre-emptive strike by former executives is more than just a distraction.</p>
<p>The implications for companies and for industrial relations could be significant. If true, the new tactic of destabilisation does nothing to improve effectiveness or efficiency and draws attention away from the airline’s main game of focusing on greater engagement with its staff as a means to improve customer experience.</p>
<p>This requires leadership to forge direct relationships between managers and employees so the spirit of Australia, which Qantas promotes, can ring true once more. It also means unions and employers working in a form of partnership to tackle the challenges and costs faced by legacy airlines such as Qantas. The heavily unionised Northwest Airlines in North America has provided successful examples of how this can happen.</p>
<p>Mr Dixon and co. have so far have provided little in the way of how they are going to approach these issues, apart from reports that suggest focusing on Asia by <a href="http://www.businessspectator.com.au/bs.nsf/Article/Carnegie-Gregg-plotting-rival-Qantas-plan-report-pd20121119-26R2D?OpenDocument&src=hp16">floating Jetstar’s Asian franchises, and partially selling off Qantas’s very profitable Frequent Flyer program</a>. While such a strategy would bring billions of dollars in cash it would do little to improve the fundamental issues of reducing cost and improving efficiency so as to compete in a highly competitive market.</p>
<p>Speculation in taking advantage of a weak share price is not a long-term strategy. Sustainable share value will only come about by focusing on the core value of the company, its people. And only by direct engagement with its staff will Qantas be able to create that value for all investors, employees and unions.</p>
<p>Emirates president Tim Clark <a href="http://afr.com/p/business/companies/qantas_will_turn_around_says_clark_NOkArqSGbD0PQyEIoyhdbP">reportedly backed Mr Joyce’s strategy</a> by stating that Mr Joyce was addressing the legacies of his predecessors. A message from the head of one of the most successful airlines in the world should not go unnoticed.</p>
<p>One thing is for sure: this seems to be more of a case of the devil you know, rather than the one you don’t. And while Mr Joyce might be hanging on a wing and prayer, it is clear there is more turbulence to come for Qantas in the year ahead.</p><img src="https://counter.theconversation.com/content/10979/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Gollan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The flying kangaroo might have lost its bounce, but it seems to be heading into another bumpy ride. The latest episode in the saga involves the old guard of Qantas, comprised of former chief Geoff Dixon…Paul Gollan, Associate Dean, Research and Professor of Management, Faculty of Business and Economics, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/93632012-09-06T04:03:08Z2012-09-06T04:03:08ZThe Qantas-Emirates alliance: a flight path to future growth?<figure><img src="https://images.theconversation.com/files/15099/original/rpv4m8wn-1346892763.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Will the Qantas-Emirates alliance restore the beleaguered Australian airline back to profitability?</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Today, Alan Joyce has <a href="http://www.afr.com/rw/2009-2014/AFR/2012/09/06/Photos/b78ee7f8-f7b7-11e1-8884-4a78b9fbd9c0_QAN2.pdf">announced</a> that Qantas and Emirates have struck a <a href="http://www.theaustralian.com.au/business/breaking-news/qantas-to-announce-emirates-alliance/story-e6frg90f-1226466134032">joint venture alliance</a> for the next 10 years. </p>
<p>As a result, Qantas will be taking its passengers to Europe through Dubai, instead of Singapore. It will fly daily Airbus A380 services to London from Melbourne and Sydney by transiting via Dubai’s airport, and stop its service to Frankfurt.</p>
<p>The deal goes beyond a typical code-share agreement and will involve coordinated pricing, sales and scheduling, shared airport lounges and integrated frequent-flyer programs.</p>
<p>The arrangement, set to start in April 2013, still requires the approval from the Australian Competition and Consumer Commission (ACCC).</p>
<p>As a result of the new partnership, Qantas will terminate its agreement with British Airways, which began in 1995, as of March 2013.</p>
<p>The news was welcomed by investors with <a href="http://www.bloomberg.com/quote/QAN:AU">Qantas shares rising on the news</a>, up 6.5 cents (5.8%), and comes after the <a href="http://blogs.crikey.com.au/planetalking/2012/09/02/virgin-australia-now-10-owned-by-etihad-airways/">recent increase</a> of Etihad’s holdings in Virgin Australia to 10%.</p>
<p>Analysts at Macquarie Equities estimate an annual <a href="http://www.afr.com/p/business/companies/qantas_emirates_in_for_the_long_wsKp6UXOYitOkUSZcjqKRL">earnings uplift of as much as $90 million</a> from the new relationship with Emirates.</p>
<p>But how do airline alliances work? And what does that mean for you, the passenger?</p>
<p><strong>Airline alliances: stronger together</strong></p>
<p>Alliances became popular in the 1990s as a way for airlines to expand international connections and destinations. <a href="http://www.oneworld.com/">Oneworld</a> is one of the three big airline alliances, along with <a href="http://www.staralliance.com/en/">Star Alliance</a> and <a href="http://www.skyteam.com/">SkyTeam</a>. Together, they cover 58 airlines around the globe.</p>
<p>These alliances have been increasing their member base and <a href="http://www.nytimes.com/2011/12/06/business/global/forget-the-airlines-name-its-all-about-alliances.html?_r=1">analysts predict</a> that competition will soon move from being between specific airlines to global airline alliances.</p>
<p>Emirates is not a member of any of the world’s three major airline alliances. However, Alan Joyce revealed in <a href="http://www.afr.com/rw/2009-2014/AFR/2012/09/06/Photos/b78ee7f8-f7b7-11e1-8884-4a78b9fbd9c0_QAN2.pdf">his speech</a> that Emirates will complement the new deal with Qantas with partnerships with American Airlines, LAN, South African Airways and China Eastern, as well as oneworld. It will be interesting to see how Emirates expands its empire and reach in future years.</p>
<p>As Tim Hindle explains in <a href="http://www.amazon.com/Guide-Management-Ideas-Gurus-Economist/dp/1846681081">The Economist’s Guide to Management Ideas and Gurus</a>, strategic alliances have many advantages as they require little financial commitment, allow companies to reach new markets, and offer a relatively smooth exit if things don’t work out.</p>
<p>Indeed, the Qantas-Emirates new partnership only offers access to the Emirates network in the Middle East, Europe and Africa and, in turn, provides Emirates access to the large share of Australia’s domestic market that Qantas controls: a deal that seems to be a win-win.</p>
<p>However, <a href="http://www.economist.com/node/14301470">Tim Hindle also points out</a> that a crucial aspect to a successful alliance is a degree of cultural compatibility. Indeed, a lack of corporate understanding can lead decision-making deadlocks that are sapping the power out of the alliance and questions its efficiency.</p>
<p>Companies are advised, for example, to pick on someone their own size. With Emirates being the largest airline in the world, it will be interesting to see how the dynamic with Qantas will evolve in future years.</p>
<p><strong>Making ends meet</strong></p>
<p>The new partnership received mixed responses from the aviation community. The deal may well ease some pressure on the international arm of Qantas which has been bleeding money, with reported <a href="http://www.qantas.com.au/travel/airlines/media-releases/aug-2012/5439/global/en">losses of $450 million</a> for the last financial year.</p>
<p>However, some believe that Qantas just gave away one of its most precious assets: its Frequent Flyer program. Indeed, Emirates will now have access to 8.6 million Qantas frequent flyer members and — most importantly — to their points. </p>
<p>The Qantas Frequent Flyer program has been a very profitable venture for Qantas, with points becoming a lucrative source of profit as they can be sold to partners like Optus or Woolworths. <a href="http://www.smh.com.au/executive-style/business-travel/frequent-flyers-left-out-in-the-cold-20120329-1vzt4.html">Analysts value</a> Qantas’ frequent flyer program at more than $2 billion, over 50% of the airline’s market value.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/15118/original/dsj8dsp5-1346903930.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/15118/original/dsj8dsp5-1346903930.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=696&fit=crop&dpr=1 600w, https://images.theconversation.com/files/15118/original/dsj8dsp5-1346903930.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=696&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/15118/original/dsj8dsp5-1346903930.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=696&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/15118/original/dsj8dsp5-1346903930.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=875&fit=crop&dpr=1 754w, https://images.theconversation.com/files/15118/original/dsj8dsp5-1346903930.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=875&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/15118/original/dsj8dsp5-1346903930.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=875&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Alan Joyce shakes hands with Emirates CEO Tim Clark.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p><strong>Looking ahead</strong></p>
<p>As Alan Joyce also pointed out, Asia remains the area with the most potential for growth. As such, Mr Joyce said that future changes will be made to services to the Asia-Pacific region.</p>
<p>Qantas has been struggling with record high fuel costs, warfare with unions, dire economic conditions and increased competitions from Asia and the Middle East. This partnership may well ease things in the short-term but bolder actions may be required to get Qantas back to profitability in the years ahead.</p><img src="https://counter.theconversation.com/content/9363/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hamza Bendemra does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Today, Alan Joyce has announced that Qantas and Emirates have struck a joint venture alliance for the next 10 years. As a result, Qantas will be taking its passengers to Europe through Dubai, instead of…Hamza Bendemra, Doctoral Candidate, Engineering, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/58262012-03-16T04:53:26Z2012-03-16T04:53:26ZAre lowest airfares really guaranteed? Travel industry practices under scrutiny in Flight Centre case<figure><img src="https://images.theconversation.com/files/8641/original/fjpj9jx4-1331785312.jpg?ixlib=rb-1.1.0&rect=29%2C18%2C907%2C953&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Flight Centre versus the ACCC: commonplace travel industry practices are under the spotlight.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Australia’s biggest travel agency chain Flight Centre has been accused by the Australian Competition and Consumer Commission (ACCC) of illegal price fixing for attempting to collude with Singapore Airlines, Malaysia Airlines and Emirates. </p>
<p>The lawsuit filed in the Federal Court alleges that on six occasions between 2004 and 2009, Flight Centre tried to persuade the airlines to withdraw their internet-based discounted seats, which undercut the prices offered by the agency network. Flight Centre’s decision to fight the case, rather than settle, means that long established and commonplace travel industry practices are in the spotlight and of public interest.</p>
<p>Though the court may take years to determine any wrongdoing, it is timely to reflect on the travel industry’s inter-firm relationships and their appropriateness in an online and fast changing business environment. Are consumers really getting the best deals, or is the “Lowest Airfare Guarantee” boast of Australia’s most powerful travel retailer only possible because the cheapest POSSIBLE consumer prices have already been ruled out by an insistence on taking their cut?</p>
<h2>A brewing brawl</h2>
<p>The case raises challenging issues about the appropriateness of the price related dealings which occur between travel “principals” (for instance, airlines and hotels) and their “agents” (for example, retailers such as Flight Centre). In the battle for consumer hearts and minds and an atmosphere of freewheeling assertions about the “consumer interest”, a public brawl is likely to draw in different parts of the industry with unpredictable and risky consequences. </p>
<p>For consumers, travel businesses are generally “good guys” working hard to deliver the best possible fares (“Lowest Airfare Guarantee” and “Unbeatable”), unlike banks, which are widely viewed as profiteers. In a public spat involving airlines and a travel agency chain when questions are being asked about whether prices really are “unbeatable” or are artificially high, the “good guys” label will be harder to sustain.</p>
<p>Debates about the most effective system for distributing air tickets have occurred ever since mass international tourism boomed in the post-war period. In this context a key question behind the ACCC price fixing dispute is whether “direct selling” of tickets by principals should be a prominent feature of the travel industry landscape, or whether using an agent is the norm. Agencies such as Flight Centre undoubtedly provide important value-adding services to consumers by packaging the various components of travel (for instance, accommodation, flights and attractions). </p>
<h2>Online inducements</h2>
<p>And it is a successful business with a loyal and high-yielding customer base - in 2011, its profit was $249 million. But in the world of social networking where customers may prefer to go online to purchase a simple point-to-point airfare, should airlines be prevented from offering potential customers an inducement (say a cheaper price that includes no agent commission plus bonus frequent flier points)? Hotels commonly urge their repeat customers to make a direct online booking next time in return for a discount. Expressed simplistically, the principal is saying to the customer, “by cutting out the middleman, I’ll share the saving with you”. </p>
<p>Direct selling by airlines to customers has been surprisingly rare in Australia, with most relying on third parties such as Flight Centre and resisting the temptation to make savings by undercutting.</p>
<p>However the industry dynamics are changing. A combination of rising aviation fuel costs, increased seat capacity (like the A380 superjumbos) and a proliferation of new entrants (from China and the Middle East) have squeezed airline profits and made direct selling online a tempting way to exercise greater control over distribution.</p>
<h2>Stagnating inbound tourism </h2>
<p>And unlike retailers such Flight Centre which have been positioned to capitalise on Australia’s outbound travel boom, airlines have been exposed to stagnating inbound tourism with recessionary conditions in many source markets. Though Flight Centre is undoubtedly a major Australian employer and generator of income, it is the airlines which have been working harder to support inbound tourism. </p>
<p>It may be argued that airlines should routinely be capable of offering cheaper seats than those available through third parties, particularly when delivered online and to repeat customers. Did Flight Centre attempt to influence its airline suppliers because it needs to support a costly distribution infrastructure (“bricks & mortar”) that is only relevant to some airline customers? Is maintaining this infrastructure in the consumer interest if the system and network of relationships which support it has the effect of retarding the availability of cheap seats supplied direct by the airlines? </p>
<p>Again the court will need to assess the evidence, but in the interim the question will be asked, if I go direct to my airline, will that provide me with the best available price? And if not what is preventing this from occurring?</p>
<p>Whether the court finds for or against Flight Centre is yet to be determined. However the fact that the ACCC case has been launched against an organisation which, however successful, represents an older-style high street style of retailing means that it will be closely studied by all travel industry principals including airlines and also by Flight Centre’s competitors such as Wotif and Webjet which have put all their faith in the online approach to distribution. </p>
<p>Flight Centre’s success has kept the beacon of the high street travel agent alive. An unfavourable court decision could signal high tide for old-style travel distribution and for the “bricks and mortar” retailer.</p><img src="https://counter.theconversation.com/content/5826/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brian King is a non-executive director with Destination Melbourne</span></em></p>Australia’s biggest travel agency chain Flight Centre has been accused by the Australian Competition and Consumer Commission (ACCC) of illegal price fixing for attempting to collude with Singapore Airlines…Brian King, Professor of Tourism, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.