The Funding of a New National Flagship Airline in Ghana

Introduction

Background Information

The airline transport sector is essential for the growth and development of several economies. The sector facilitates global trade, hence it has been identified as one of the sectors that should be invested in, for the equal engagement of all regions in international commercial activities. In the 2015 financial year, the global air transport sector had a total portfolio of $1.47 billion, which was 2% higher than that of 2014 (Deloitte, 2020). The IATA forecast for the development of aviation passenger traffic for the next 20 years indicates that the Asia-Pacific region will be the source of generating more than half of the global air passenger flow (IATA, 2020).

Statement of the Problem

The aviation ministry of the government of Ghana signed an agreement with Boeing Inc., for the purchasing of additional airbuses that would airlift passengers to the strategic hub of West Africa to Asia, Europe, and North America (Asante & Achia, 2020). However, this initiative is adopted when the world is facing the coronavirus pandemic, which has caused the destabilization of several economies. The government of Ghana may, therefore, strain to fund the proposed airline project. Therefore, it is crucial to establish if Ghana should fund the new airline project at this time.

Aim

This research aims at establishing whether Ghana should fund the new national flagship airline.

Objectives

The main objectives of this Project include;

• To establish the current situation of the air transport sector due to Covid-19.
• To examine the reasons behind the failure of previous Ghanaian airline flagship projects.
• To establish the availability of hotels in Ghana to support the new airline.
• To investigate the impact of the proposed airline on the existing ones.
• To establish the number of passengers that travel from the UK to Ghana through direct airlines.

Research Questions

• What is the current situation of the air transport sector due to Covid-19?
• When were the two previous Ghanaian airline flagship projects established, and why did they fail?
• Are hotels available in Ghana, to support the new airline?
• How will the new airline impact on the existing ones?
• How many passengers travel from the UK to Ghana through direct airlines?

Significance of the Study

The results of this research can be a framework to guide the decisions of the government of Ghana on adopting the new airline. Strategic measures to curb the negative impact of Covid-19 can also be formulated based on the findings of this study.

Preliminary Literature Review

Current Situation of the Air Transport Sector Due to Covid-19

Asia-Pacific airlines and the airport of the Middle Eastern have experienced a reduction in the generation of revenue, for the whole of the first 4 months of 2020 (IATA, 2020). The same pressure is expected in the international aviation sector since the general profits are directly related to the levels of traffic. Many international airlines have banned flights, while others have indefinitely canceled their bookings, and this has led to a reduction in aeronautical revenue. Unlike the other significant constituents in the aviation sector, a reduction in the traffic demand limits the cost-reduction strategies that can be applied by the airports. However, the operation costs for the airport infrastructure have remained the same, since the airlines cannot relocate or shut the runways and terminals. Revenues from non-aeronautical sources, which form almost 45% of the airlines’ profits, have also reduced due to the fall of the bottom line of airport retailers. Some of the airports have also asked their staff to consider unpaid leaves, to reduce the costs of operation. A suspension of the 80% usage of slots, or the 80/20 norm, will revive the aviation sector when the propensity to use flights resume to the normal (Craven et. al, 2020). However, the previous research works do not indicate the impact of adopting a new airline when the Covid-19 pandemic prevails.

The Reasons behind the Failure of Previous Ghanaian Airline Flagship Projects

Ghana Airways was established on the 4^th of July 1958 and stopped its operations in December 2004, while Ghana International Airlines started to operate on 29^th October 2005 and ceased to operate in 2010 (Amoah, 2014). Ghana airways stopped its operations when the government quit funding the airline’s activities. Consequently, the operation of the airline continuously yielded immense losses. The carrier had a total debt of roughly $160 million at the time it stopped its operations – the financial situation of the company was worsened by the excess severance fees that the former workers were paid. Moreover, Ghana airways started its operations on a landscape that fully depended on state funding. However, the government became less willing to support the operations of the airline, which needed a profit of between 1% and 3% to continue its operations. As a result, the carrier had to increase the costs of its services to generate the required revenue. On the other hand, the air transport sector of Ghana experienced an emergence of private carriers, which provided the same or higher quality services at reduced costs (Asante & Achia, 2020). The national airline was, therefore, pushed out of the market due to the inefficient operations. Both Ghana Airways and Ghana International Airlines terminated their operations, also due to the corruption and mismanagement of funds, abdication of duty, and other unhealthy corporate management practices. However, no information indicates how the mismanagement of funds and the consequent reduction in the generation of revenue can be abated.

The Availability of Hotels in Ghana to Support the New Airline

The major towns and cities in Ghana have both high-end and middle-class hotels that are used by tourists and business people. Most of the restaurants are strategically placed to target travelers from airports and workers in the aviation sector (Asante & Achia, 2020). The major hotels are located in Accra, Sekondi-Takoradi, Tamale, Cape Coast, Wa, Balgatanga, Kokrobite, Aburi, and Ho. Other key restaurants are located in Hohoe, Kumasi, Tema, Sunyani, Koforidua, Techiman, Elmina, Legon, Akosombo, Tarkwa, and Adenta. The guesthouses have an even distribution throughout Ghana and have facilities that can fit the needs of travelers from any part of the world. Some of the hotels that provide hospitality services include Kempinski, Labadi Beach, La Villa Boutique, Accra Marriott, Movenpick Ambassador, Kwarleyz Residence, and Villa Monticello (Nutsugbodo, 2016). Other hotels that provide a variety of services to the clients from airports include Tang Palace, Lou Moon Lodge, Wadoma Royale, His Majesty’s, and The Royal Senchi. The hotels are ranked based on the variety of services they provide, and the associated costs. The hospitality industry in Ghana is the 4^th most profitable in Africa, though are considered to be providing services at relatively expensive prices (Button, Martini, & Scotti, 2017). The high cost of services is due to the expenses on energy and gas. Moreover, Ghana is considered a destination for many international tourists and business people, hence a serious market for airline services. However, the previous studies do not explain the extent to which the existing hotels’ market has been occupied by the surviving airlines.

The Possible Impact of the New Airline on the Existing Ones

The entry of a new airline into the aviation sector improves the efficiency of air transport in a particular region. Due to the enhanced competitive environment, the existing airlines may be forced to optimize their pricing strategy and adjust their network (Belobaba, Odoni, & Barnhart, 2015). The average factor for load and efficiency of operations is likely to increase, both for the new airline and the existing ones. The carriers, which operate at low productive efficiencies at the time of the entry of the new one may relentlessly adopt strategic measures for the improvement of their operations. Others may have to merge to have an enhanced capital base, while some may be forced out of the market due to stiff competition and bankruptcy (Deloitte, 2020). Moreover, the entry of the new airline may cause a shift of employees from the existing carriers to the new service provider, as a means of diversification, or in the search for a better working environment than the current one (Bilotkach, 2017). Therefore, the operations of the existing carriers may be paralyzed. However, the extent of significance to which the entry of the new air transporter may affect the existing ones has not been established.

The Number of Passengers that Travel from the UK to Ghana through Direct Airlines

British Airways takes 410 minutes to fly from the UK to Accra. Other Airlines that provide direct flights to Ghana include Royal Air Maroc, KLM, Emirates, Kenya Airways, and Ethiopian Airlines (Asante & Achia, 2020). However, the peak season for traveling from London to Ghana is between October and December, when the weather is sunny and hot (Button, Martini, & Scotti, 2017). The offseason is between June and August when the region experiences heavy rains. However, data that indicates the traffic flow between the UK and Ghana is limited.

Methodology

This research adopts qualitative design to establish the minds of people regarding the establishment of a new airline by the government of Ghana. Qualitative research is based on the subjectivity of reality. The data will be collected through narratives, in which the study population is allowed to communicate their views concerning the appropriateness of adopting a new airline by the Ghanaian government. In this research direct contact with the respondents will be avoided in adherence to the guidelines by the World Health Organization, for the prevention of the spread of coronavirus. This study considers a sample population of 15 aviation experts who are selected from the Organization of International Civil Aviation (ICAO).

Limitations of the Study

A research sample of 20 is not statistically significant to represent the views of the whole world, regarding the aviation sector. Moreover, the data regarding the aviation sector of Ghana is limited, hence impedes extensive analysis. Finally, the views of the aviation experts do not represent the sentiments of the Ghanaians regarding the adoption of the new airline.

Conclusion

The main aim of this study is to establish whether Ghana should fund the new national flagship airline. The preliminary findings show the rapid growth of the aviation sector, with an expansion of the revenue generation capacity of the existing airlines. The research has also identified the significant role that the World Bank plays in the expansion of the air transport sector, both in the developed countries and the emerging economies. However, the operations of the aviation sector have been negatively affected by the coronavirus pandemic – most of the airlines have suspended their operations, while others have limited their services to the transportation of specific goods. Since human traffic is a significant contributor to the revenues of the carriers, the aviation sector has generally experienced a reduction in revenue streams. Consequently, strategies that have been adopted to minimize losses in air transport operations, and these include sending airports’ staff on unpaid leaves, and the reduction in the number of daily flights. Some airlines have been forced to continue with selected operations, just to raise some finances for the maintenance of airports’ infrastructure.

The government of Ghana had established Ghana Airways in 1958, and Ghana International Airlines in 2005. Both carriers collapsed when the central national leadership withdrew their financial support towards the operations of the airline. The lack of external funding compelled the airlines to increase the costs of services, as a strategy of raising sufficient revenue to fund their operations. Consequently, airline traffic shifted to private carriers, who were providing better services at reduced costs. The competitive commercial environment did not favor the operations of the national airlines, which then collapsed. Other factors that caused the stoppage of operations of the government-funded carriers were corruption and mismanagement of funds and abduction of duty.

An analysis of the hotels’ industry in Ghana shows that the country has several guesthouses. The hotels are evenly distributed within the nation and are equipped with facilities that favor international travelers. However, the hospitality sector of Ghana is rated the 4^th most expensive in Africa. Moreover, the establishment of a new airline can intensify the competition levels, hence either an enhancement of the levels of services of the existing ones or their exit.

The study revealed that the data regarding airline traffic between the UK and Ghana is quite limited. Therefore, extensive research should be conducted to establish the Ghanaian air traffic, and the ability of the restaurants in the country to accommodate a new airline.

References

1. Amoah, J. (2014). A tale of two failed companies and unwanted inheritance. Journal of Business and Research, 35(12), 1894-1903.
2. Asante, K., & Achia, A. (2020). Determinants of consumer adoption of online air ticketing in Ghana. Management science letters, 8(4), 1215-1222.
3. Belobaba, P., Odoni, A., & Barnhart, C. (2015). The global airline industry. Wiley.
4. Bilotkach, V. (2017). The economics of airlines. Agenda Publishing.
5. Button, K., Martini, G., & Scotti, D. (2017). The economics and political economy of African air transport. Routledge.
6. Craven, M., Mysore, M., Singhal, S., & Wilson, M. (2020, 4 13). Covid-19: Implications for business. McKinsey and Company.
7. Deloitte. (2020, 4 12). Airlines and transportation. Web.
8. IATA. (2020, 4 12). 20-year passenger forecast. IATA.
9. IATA. (2020, 3 5). Analysis of Coronavirus impact on the aviation industry. IATA.
10. Nutsugbodo, R. (2016). Tourist accommodation. The University of Energy and Natural Resources.