Government unable to sustain Air Seychelles’ high operation costs


19-November-2011

The Minister for Home Affairs, Environment, Transport and Energy Joel Morgan said this yesterday following the announcement that the airline is repositioning itself and will focus on more profitable regional routes now that it is stopping its flights to some European destinations because of great losses incurred.

With forward bookings for November and December so low the airline has already informed the government that it will need another R95 million to complete the remaining two months of this year.

Minister Morgan said the government cannot continue to provide such large sums of money to continue meeting the airline’s operation costs.

“It has become practically impossible,” Mr Morgan pointed out.

He said the airline has to find ways to break even as soon as possible in order to sustain itself.

During the same interview, Education, Employment and Human Resources Minister Macsuzy Mondon also talked about the redeployment of the airline’s 900 workers. (Details on that will be given in a future article).

Mr Morgan said it was in October last year that the government, as the main shareholder of Air Seychelles, took note of the difficulties the airline was facing to pay the costs of its day-to-day operations.

The Ministry of Finance and the Ministry of Home Affairs, Environment, Transport and Energy had a series of important meetings with the airline management on a regular basis to try and review its financial situation and discuss ways the government could intervene to stabilise the situation.

Minister Morgan noted that at that time the losses were not that substantial.

But as the financial crisis situation in Europe continued to deteriorate, the airline’s bookings on major European market routes continued to drop alarmingly thus decreasing its revenue and the government had to inject large sums of money on a monthly basis to help the airline meet its mounting operation costs .

Since April this year there has been a remarkable decrease in the airline’s profits due to the persisting European financial crisis.

Mr Morgan noted that Air Seychelles is a very small airline with no marketing network and distribution like large airlines and that it has been relying on marketing through Air France and its own marketing office in Paris and other sales agents in other European countries.

He added that the impact on the economy has started to be felt with a shortage of foreign currency in local banks as payment for international costs of the airline’s operations has to be made in foreign currencies.

But as the airline’s ticket sales continued to dwindle, the economy was being affected and the government had to ensure the airline’s financial situation did not affect the economy, thus the decision for it to restructure and reposition itself as a regional carrier.

Refuting allegations that the airline’s financial situation resulted from big international airlines flying to Seychelles, Mr Morgan said this is not the case because our country and our economy, like other economies, needs to open up to the world and, inevitably, for our economy to continue expanding we need to open our aerial transport route to other airlines in the world.

“It is very important that we do that because hotel rooms need to be filled and occupancy rates need to increase,” said Mr Morgan.

He stressed that the local airline does not have the marketing capabilities like the others, and the situation worsened as a result of the European financial crisis and the fact that tourists from affected countries can no longer afford to travel long haul routes.

Mr Morgan noted that the Seychelles Tourism Board has had to review its marketing strategy so as to diversify our tourism markets towards regions like the Far East and Asia where there is growth.

He noted that Air Seychelles is considering partnering with other airlines in order to access these emerging markets.
Mr Morgan said for the time being the government remains the airline’s main shareholder with the focus being on repositioning it so that it remains strong.

He said it is expected that the airline can start to sustain itself as of the first quarter of 2012.
Following reports that a large sum of money has just been spent repainting one of the planes just before the measures were announced, Mr Morgan said this forms part of the airline’s obligation under the contract with the leasing company ILFC and it could not be disregarded.

Asked why the first partnership for code sharing is with Etihad Airways – a new airline flying to Seychelles – while there are other long-established airlines serving the country, Mr Morgan said Etihad Airways was the most willing commercial partner and the existing friendship between our two government have also helped.

But Mr Morgan said discussions with other airlines are ongoing and other announcements will be made by Air Seychelles in due course.

With regard to corruption allegations at Air Seychelles Mr Morgan noted that investigation carried out so far in collaboration with the Ministry of Finance and the International Monetary Fund has not shown any proof of financial abuse.

He said it is rather a combination of circumstances of decisions taken by the airline, the European crisis and other factors affecting the aviation sector worldwide.

He noted that many airlines in the world are facing similar situation as Air Seychelles.

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