The Government of Ghana and Fund the New National Flagship Airline

Introduction

Background Information

The airline transport sector is essential for the growth and development of several economies. 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). In particular, airlines in Africa are developing rapidly (especially considering that before announcing many African states sovereign in the 1961declaration, African aviation had no development prospects), and new airlines are founded every year to make flights more comfortable and cheaper, which, in turn, increases competition in the African civilian transportation market. Thus, the question of creating a new airline in Ghana is an “equation with many unknowns” requiring a thorough, scientifically sound analysis and a balanced approach.

Statement of the Problem

African airlines now have connections with almost all countries of the world, both located in the neighborhood and quite remote. The O.R. Tambo International Airport (Johannesburg) alone serves more than 20 million passengers annually. According to ICAO’s current long-term forecasts, passenger and cargo traffic in the African region is expected to grow by 4.3% and 3.8% annually until 2035. Africa accounts for 4% of global air travel services, and it has the highest growth potential from all ICAO’s global regions (Button, Martini, & Scotti, 2017). Ghana’s aviation industry is one of the fastest-growing and most competitive industries in the West Africa sub-region, showing an average annual growth of 10 percent (Hammond, 2019). Moreover, Ghana’s aviation industry has been ranked as the best one in terms of safety in Africa (Hammond, 2019). This fact, to a large extent, contributes to the sustainable competitive advantages of Ghana’s air transportation sector.

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). In 2018, the Ghana Civil Aviation Authority announced a long line of applications for a national operator certificate from aviation start-ups. However, these initiatives are adopted when the world is facing the coronavirus pandemic, which has caused the destabilization of several economies and widespread uncertainty on national and global markets, including aviation transportation. 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 of crisis and under the conditions of the high level of private airlines competition in Ghana and the overall African air transportation market.

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 compare implications of Covid-19 pandemic to those of the 2008 global financial crisis, to estimate their impact on the expediency of new airline establishment in Ghana.
  • 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 potential 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 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, as well as other countries of the African continent, 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). Covid-19 pandemic will impede the aviation ambitions of Ghana. Ghana, like most other countries, has provided travel restrictions in an attempt to reduce the distribution of the virus. These restrictions will lead to the fact that there will be no demand for commercial flights. The initially predicted 20% reduction is now likely to be substantially more and crucial. Naturally, the “knock-down effects” to the wider economy are also of concern (Deloitte, 2020b). Moreover, pressure is expected in the international aviation sector since the general profits are directly related to the levels of traffic. Many international airlines have prohibited 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 traffic demand limits the cost-reduction strategies that can be applied by 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 resumes 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 4th of July 1958 and stopped its operations in December 2004, while Ghana International Airlines started to operate on 29th 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 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 guesthouses have an even distribution throughout Ghana and have facilities that can fit the needs of travelers from any part of the world (Nutsugbodo, 2016). The hotels are ranked based on the variety of services they provide, and the associated costs. The hospitality industry in Ghana is the 4th most profitable in Africa, though is 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 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 a qualitative design, based on the subjectivity of reality. The data will be collected through a semi-structured online survey, in which the respondents are allowed to communicate their views concerning the appropriateness of adopting a new airline by the Ghanaian government. The online format of the survey was chosen to avoid direct contact with the respondents 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 20 aviation experts ‑ representatives of the Organization of International Civil Aviation (ICAO), Ghana Civil Aviation Authority, the Ministry of Finance and Economic Planning, SEO representatives of Ghana’s airlines, and Ghana PwC branch representatives. Such a broad range of experts would allow obtaining the most unbiased and in-depth opinions about the expediency of funding a new national flagship airline, in particular in the context of comparing the situation with the one characteristic of the 2008 global financial crisis.

The latter is very important as the head of the World Trade Organization predicts that the global economic slowdown caused by the coronavirus may be larger than the 2008 crisis. A pandemic and massive closure of borders provoked a decrease in trade and passenger traffic, as well as weakened business activity in most countries. As a result, the collapse of world GDP can reach 1.5% (Ozili & Arun, 2020).

The results of the survey will be processed with the help of the grounded theory approach. The grounded theory approach is implemented within the framework of the “discovery” metaphor as opposed to the “existence” metaphor used in classical positivist research and is the result of a constant interchange between data and research conceptualizations (Charmaz, 2014). The approach from the standpoint of a grounded theory provides extremely broad opportunities for constructing theories, firstly, most closely and fully reflecting the peculiarity of the real phenomenology of social being; secondly, it helps to relieve stereotypes and frameworks of previous theories from pressure, and thirdly, it helps to increase the constructive, internal, and external validity of the research results. Given the non-standard nature of the current crisis associated with the coronavirus pandemic, the use of grounded theory seems to be very appropriate.

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 African as a whole and Ghana’s in the particular aviation sector. 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. Thus, the aviation sector has generally experienced a reduction in revenue streams. 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. Moreover, 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, taking into account the current economic crisis caused by the Covid-19 pandemic.

References

Amoah, J. (2014). A tale of two failed companies and unwanted inheritance. Journal of Business and Research, 35(12), 1894-1903.

Asante, K., & Achia, A. (2020). Determinants of consumer adoption of online air ticketing in Ghana. Management science letters, 8(4), 1215-1222.

Belobaba, P., Odoni, A., & Barnhart, C. (2015). The global airline industry. Wiley.

Bilotkach, V. (2017). The economics of airlines. Agenda Publishing.

Button, K., Martini, G., & Scotti, D. (2017). The economics and political economy of African air transport. Routledge.

Charmaz, K. (2014). Constructing Grounded Theory. SAGE Publications.

Craven, M., Mysore, M., Singhal, S., & Wilson, M. (2020). Covid-19: Implications for business. Web.

Deloitte. (2020). Airlines and transportation. Web.

Deloitte. (2020b). Understanding COVID-19’s impact on the airline sector. Web.

Hammond, M. (2019). Ghana’s aviation industry has been ranked as best in Africa. MSN, Web.

"Looking for a Similar Assignment? Order now and Get a Discount!

Place New Order
It's Free, Fast & Safe

"Looking for a Similar Assignment? Order now and Get a Discount!