Wednesday, October 8, 2014

IMPROVING UGANDA AVIATION INFRASTRUCTURE MORE COST EFFECTIVE


Regional transport ministers have agreed on a battery of initiatives to slash the price of travelling in the region.

Among the suggestions is to scrap VAT on airlines be scrapped, promoting budget airlines and implement an open air space policy in the region.

Under current regimes countries national airlines or designated carriers are shielded from competition often to the detriment of the customer. Prices are uncompetitive and safety standards are not adhered to.

Transport costs in increasing order are water, rail, road and air. The lower value, bulkier cargo will be shipped by water with the higher valued, least bulky cargo saved for air transport.

The cost of transport is key to a landlocked country like Uganda. So governments like ours have to be bolder in lowering transport costs.

It has been done before. In the 1980s coffee accounted for more than half the tax revenues to the treasury. But in order to make our coffee more competitive on the world market the government removed the export tax on coffee. Three decades later the net effect of this is that we export more coffee than we did in the 1980s but also collect much more than the pittance we used to collect in taxes from taxing the associated industries.

One of the lessons of liberalisation is that we have to lose some to get more. Not always but often enough for it to make sense.

The challenge of course with air travel unfortunately is that we cannot make unilateral decisions on our side of the pond, but countries have to agree for the decisions to be make an impact. Take the issue of open skies, where among other things airlines from other countries, other than national carriers or designated carriers will be able to take on traffic, needs the permission of both countries.


Increased competition would invariably bury the Entebbe-Nairobi route’s reputation as one of the most expensive in the world per kilometre.  


So for instance not having a national carrier to do the Nairobi route would not be a problem because we would allow British Airways or Ethiopian or Emirates to take passengers from Entebbe for Nairobi. That doesn’t happen now hence the spike in prices after the closure of Air Uganda.

Increased competition would invariably bury the Entebbe-Nairobi route’s reputation as one of the most expensive in the world per kilometre.

Observers suggest that an open skies policy and a scrapping of some taxes could lower ticket prices by as much as half.

The challenge of course is whether the Kenya government, which has a stake in Kenya Airways which has benefitted disproportionately from the high cost fares in the region would let its advantage go away like that.

The concern is not unfounded. Whenever there has been a gap on the Entebbe-Nairobi route Kenya Airways has not been averse to hiking its prices. And they have fought tooth and nail to retain the choice time slots in the face of competition. In fact about a decade ago they drove a hard bargain with East African Airlines that was trying to muscle in on their routes on the route, by cancelling their contracts with local ground handlers Entebbe Handling Services (ENHAS), an affiliate of East African Airlines. The airline folded soon after that.
 



However long protracted negotiations may take to eventually bear fruit, it will be a smaller price to pay than trying to revive Uganda Airlines.

Thankfully the sources familiar with last week’s events in the cabinet retreat report that plans for the revival of Uganda Airlines has been put on the backburner for the time being.

"My opposition to a state owned airline is against the background of the inability of the government to run even a kiosk. An airline is an expensive proposition – by the time of the closure of Uganda Airlines it was gobbling sh10b or about $5m a month and it was only flying one route. Such monies would be better spent equipping our health centers and schools and opening up murram roads....

Given the experience of the Air Uganda, private investors are more likely to avoid us like the plague.
The truth is if we are suffering with high fares we brought it upon ourselves and the casualness with which our regulators sunk Air Uganda is proof enough of how they will be even more careless with tax payers money in a state airline.

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