Ethiopia, Malawi airlines deal puts pressure on KQ

Kenya Airways (KQ) is set to face stiff competition in southern Africa following the return of Malawi’s national carrier with Ethiopian Airlines as a majority shareholder, according to Kenya’s Business Daily.

Ethiopian Airlines, which is KQ’s top rival in the region, and has made an initial investment of $20 million (K6.9 billion), owns 49 percent of Malawian Airlines Limited, marking a return of a government-controlled airline following the liquidation of Air Malawi.

The Malawi Government owns 20 percent stake and is expected to invest about $10.2 million (K3.5 billion) to be disbursed in two tranches, the first being $4 million (K1.3 billion) and the rest at a later stage, should Malawian individuals and institutions, expected to hold the remaining 31 percent in the next 12 months, fail to come up with the offer.

Air Malawi collapsed due cashflow problems early this year and the government opted for a strategic equity partner won by Ethiopian Airlines which requested change of name which was granted.

The collapse of Air Malawi opened the window for KQ to get new rights to connect passengers between Lusaka and Lilongwe, which had been withdrawn in October by the Department of Civil Aviation (DCA) due to a disagreement with Air Malawi.

KQ was given rights to fly to commercial city Blantyre and started operations in June last year with three weekly flights over its 10 weekly flights to Lilongwe.

The partnership allows Ethiopian Airlines to set up a base in Southern Africa, its third, a move that will see it compete with Kenya Airways for passengers and revenues.

“Through this strategic partnership with Malawian Air, Lilongwe will become Ethiopian Airlines third hub on the continent after its main hub in Addis Ababa and Lome, Togo,” said the airline’s CEO, Tewolde Gebremariam, in a statement.

It is not yet clear how this will affect KQ’s rights to Lusaka from Malawi and Blantyre route.

But the presence of Ethiopian Airlines—which is bigger and so far one of the most successful carriers on the continent — will certainly put pressure on KQ and trigger a price war, according to Business Daily.

Gebremariam said the partnership will see the new airline harmonise their flight schedules to provide seamless connectivity, especially in southern Africa.

On September 5 2012, the Malawian Government through the Public Private Partnership Commission (PPPC) called for strategic partners to take up equity in Air Malawi riddled with huge debts which peaked at K10 billion and frequent flight cancellations.

Malawi is one of KQ’s lucrative routes in Southern Africa as it deepens its growth strategy of connecting more African cities to Asia and Europe through Nairobi. The airline has been heavily investing in Southern Africa with new routes and increased frequencies.

Ethiopian Airlines is also eyeing new markets. The second largest airline on the continent recently introduced flights to Sao Paulo, Brazil, a move that will see it position itself to move passengers to the South American country in time for the World Cup in 2014 and the Olympics in 2016.

The airline will serve the route through its Togo hub offering the only direct service between West Africa and the South American nation.

Meanwhile, Ethiopian Airlines, which is initially bringing two aircrafts, Boeing 737 300 with 130 seats and Bombardier Q400 with 78 seats, will operate regional flights to Johannesburg, Harare, Lusaka, Dar es Salaam and Luanda (Angola). Domestic flights will be Lilongwe, Blantyre, Mzuzu and Karonga.

Later, it is expected to expand flights to Nairobi, Kenya and Mozambique in the second year of operation.