Air Mauritius: The Undending Saga

The global history of the airline operations industry is replete with examples of even very large companies being turned around, from the brink of insolvency sometimes, on several occasions in their lifetime.

The situation may be desperate but certainly not insurmountable

“Desperate affairs require desperate measures”

— Lord H Nelson

When Amédée Maingard de la Ville-ès-Offrans, an entrepreneur and a visionary if ever there was one, enriched by his experience serving in World War II in Europe, thought of the idea of setting up an airline in Mauritius, he was clearly envisioning this as a strategic tool for the other industry which he was pioneering at the time – Tourism. In so doing he was also unwittingly tying a Gordian knot which generations later policy-makers would struggle to unlock.

In those days Mr Maingard was unquestionably right to have figured that CONNECTION was going to be the name of the game if ever the tourism industry was to take off in the country. The highly successful trajectory of the industry at a time when employment creation and earning of foreign exchange were the two key policy objectives of the country has vindicated that no-nonsense approach. In those days the subordination of the interest of the airline to the interests of the tourism industry was an incontestable choice.

But that was then.

Since those days several factors have contributed in destabilizing the beneficial synergies which characterized the relationship between these two industries. The sheer growth in size of both the airline and the hotel/tourism industries has significantly impacted the existing equation, if only because each one grew to become an economic entity of its own with their specific objectives and different stakes.

Furthermore the diversification of the economy also meant that the national airline could not simply ignore the demands coming from these new businesses. The operating environment also changed radically from the highly predictable internally driven one to a turbulent open and competitive one.

Arguably all the stakeholders with interests in both the tourism industry and the national airline, including different governments, sensed that these contradictions were becoming increasingly unmanageable within the existing business model. Surprisingly though, the issue lingered on in the absence of a collective effort to carve out a decisive national strategic response.

Instead the model was tweaked at the seams with some “liberalization” of air access by allowing a few additional flights within the framework of existing Bilateral Air Services Agreements. It was the negotiations with Emirates Airlines and the introduction of daily flights on Dubai which finally proved to be a real game changer and a challenge for the cosiness that had characterized the business until then.

How far this was a deliberate and well-planned move whose impact on the national airline was appropriately assessed is not very clear.

The fact remains that the introduction of this new competitor has proven a tough nut to crack for Air Mauritius. From the very start, they refused to play by the usual rules of the game of Code Sharing which Air Mauritius had hitherto rather skilfully “negotiated” with foreign carriers serving the local destination.

The challenges posed to the airline under these conditions and the worsening relations with the hoteliers were exacerbated by the financial crisis of 2008 — our principal tourist markets were seriously impaired and the Euro suffered from accelerated depreciation — and the sudden spike in the cost of oil which led to the infamous and hugely damaging “hedging” operation by the company.

There are many structural impediments which stand on the way of a proper organizational structure and professional management culture being adopted by the national airline. For starters, directors who are appointed to the board as a form of compensation for political loyalty, especially in cases where they do not have any experience or qualifications that would even remotely justify their appointment, will be excused for behaving like this as it was simply a sinecure to be enjoyed. This is why it is imperative to redefine the role, powers and responsibilities of the State in a formal and transparent manner which could take the form of a “shareholders agreement.”

The point remains, nevertheless, that so long as the central issue of re-alignment of the interests of the other stakeholders of the national airline with those of its main source of revenue — the operators of the tourism industry – is not resolved, the airline as well as the tourism industry will both continue to suffer.

It is critical to find the new level of equilibrium which will restore the synergistic gains which once characterized the relationship between the two. To re-align the interests of the airline as a business unit in its own right with those of its role as a strategic tool for the development of the country with special regards to the tourism sector is a critical task which needs to be completed with the utmost urgency. Resolving these two key issues will constitute the cornerstone on which Air Mauritius would re-invent itself so as to be competitive in the new complex environment.

Having said the above though it might be interesting to put the present woes of Air Mauritius into some kind of perspective. The airline industry globally is reputed to be a low margin, cyclical business. As the International Air Transport Association pointed out in 2010, the global airline industry recorded a paltry 2.9% of profits and yet this has proven to be the best annual profits recorded since the beginning of the century.

The reasons for this are well known. Some of the critical operational cost factors such as the price of oil or even regulatory charges are beyond the direct control of the airline companies. Add to this the high volatility of the price of oil and you have a recipe for catastrophe waiting to happen. The least mistake in financial or any other strategic decision can wipe out the hard work put in over a number of years.

Given these challenging characteristics of the airline operations business, it is a remarkable feat that the national airline of a tiny island nation has achieved such a successful trajectory up to now. It has during its short history followed the same pattern of crisis followed by prosperity that characterizes the global industry. It is certainly true to say though that the Air Mauritius business model as we have known it up to now may have reached the end of its life cycle. Again the global history of the airline operations industry is replete with examples of even very large companies being turned around, from the brink of insolvency sometimes, on several occasions in their lifetime. The situation may be desperate but certainly not insurmountable…

 

* Published in print edition on 15 May  2015

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