Trouble in paradise…
Cape Verde's unique geography, landscape and demographics should be a blessing for state-owned Transportes Aéreos de Cabo Verde, (TACV). But, as Martin Rivers reports, the flag-carrier is struggling to turn potential into profits.
On paper, Cape Verde would seem to be the ideal place to invest in a national carrier.
The volcanic archipelago consists of 10 islands located 570km off the west African coast, making air travel the only viable means of getting from one part of the country to another.
Cape Verde’s picturesque beaches also serve as a magnet for foreign tourists – half a million of whom visit the island nation each year, typically taking a short flight from western Europe. Travel and tourism currently accounts for 15% of gross domestic product (GDP) and should grow its share to nearly 19% by 2025, according to the World Travel & Tourism Council.
Throw in the fact that most Cape Verdeans live abroad – guaranteeing a steady flow of ‘visiting friends and relatives’ (VFR) traffic – and it is hard to imagine TACV, the country’s flag-carrier, performing badly.
Yet it consistently does so, racking up liabilities of 10 billion escudos ($101 million) to date.
For outgoing chairman and chief executive, Joao Pereira da Silva, whose board was dismissed in April following a change of government, unlocking the full potential of TACV has been a thankless – and ultimately fruitless – endeavour.
“We have taken steps [to rehabilitate the airline]. We have been restructuring from 2012 to now,” the former economy minister said shortly before his four-year stint came to an end.
Route development dominated the latter stage of the strategy, with six destinations joining the network in 2015. Da Silva ultimately hoped to more than double TACV's five-strong fleet, but his long-term plan failed to address the short-term losses. “Nothing was done with respect to the size of the headcount,” he admitted of his time in office. “The cost of human resources is very high at TACV.”
Efforts to cut the workforce by a quarter – belatedly announced in the final days of his tenure – were suspended when the Movement for Democracy Party (MPD) won this year’s election. MPD had been critical of da Silva'’ board while in opposition and is now conducting an audit of the flag-carrier before committing to a strategy.
Jose Luis Sa Nogueira, the airline’s former representative in Brazil, has been named by local media as the new chief executive.
If Nogueira is to succeed where da Silva failed, he will need to tailor his turnaround plan to the airline’s idiosyncratic network.
About three-quarters of TACV’s seating capacity is deployed on domestic flights between seven island airports. The two primary gateways are located in Sal Island – the country’s most popular tourism destination – and Santiago Island, home to capital city Praia.
Internationally, TACV makes use of Cape Verde’s mid-Atlantic position to provide unusual connecting flows. Three destinations are served in Brazil to the south-west (Fortaleza, Natal and Recife), and three in western Europe in the opposite direction (Lisbon, Paris and Amsterdam). The rest of the network comprises Providence in the US state of Rhode Island; Dakar, Senegal and Bissau, Guinea-Bissau in west Africa; and Las Palmas in the Canary Islands.
Madrid and Bergamo (near Milan) also feature in the seasonal winter network.
“TACV benefits from the location of Cape Verde,” da Silva explained. “If you look to the Atlantic charts, you see that Cape Verde is in the middle of [flight-paths from] Europe to South America. It’s exactly in the middle.”
The outgoing chief had hoped to capitalise on this trait by developing a sixth-freedom hub in the island nation. “The projections are for about 20 million passengers [to be] flying over Cape Verde in 2020,” he said, estimating that the ratio of international transfer passengers at TACV has increased from 3% in 2014 to somewhere in the double digits today. “I can’t give you a precise figure, but it has grown substantially.”
Crucially, it was not only the government that da Silva was trying to convince about the merits of sixth-freedom flying.
Cape Verde has been attempting to privatise its flag-carrier for more than a decade, with TAAG Angola, China’s Okay Airways and Portugal’s EuroAtlantic Airways all reportedly expressing interest at one time or another.
Da Silva said the discussions repeatedly focused on the ability of the island nation to serve as an intercontinental stopover.
“That’s the potential [of the business that] we are showing to the investors… but the interest [on their side] is not strong,” he admitted.
“Now we are not talking anymore with the Chinese carriers. In the past, the Government of Cape Verde has been in talks with the Angolan Government, but with the new agreement between Emirates and TAAG it will be more difficult,” he acknowledged, referring to the 10-year management deal announced by the flag-carriers of Dubai and Angola in 2014. “The decisions [over any investment by TAAG] will be less political and more commercial.”
Hopes of attracting unnamed “Gulf investors” also fizzled, bringing the divestment strategy to a dead end.
“Privatisation is one of the solutions [to TACV's troubles], but first we have to restructure the company,” Olavo Correia, the country’s new finance minister, was reported as saying by local media in May. “[We must first create] additional strategic value, and then privatise TACV.”
Correia’s remarks coincided with a series of meetings between TACV employees and Jose Goncalves, the new economy minister, who warned that there would be no “sacred cows” in the next restructuring plan.
For da Silva, the writing was on the wall as soon MPD won parliamentary elections in March. Having been appointed by the rival African Party for the Independence of Cape Verde (PAICV), he was considered emblematic of the previous administration’s failed attempts to reform the flag-carrier. His final year was also tarnished by a series of apparent cash-flow problems, including TACV’s temporary suspension from the International Air Transport Association (IATA) Clearing House and the attempted seizure of two aircraft over unpaid debts.
Nonetheless, despite widespread support for a fresh start, it would be unfair to blame da Silva for all of TACV’s woes. Political interference at the parastatal – one of Cape Verde’s main employers – was a constant theme during the 15-year-long administration of former prime minister Jose Maria Neves.
Da Silva also made tangible steps to improve efficiency at the airline, aided by consultant turned chief commercial officer Arik De.
The pair replaced TACV’s under-performing Boston route with Providence, for example, betting on improved economics for the more niche connection. Both cities are hubs for the Cape Verdean diaspora in the US East Coast.
They also restructured the domestic network to enhance connecting options, while strengthening the sixth-freedom proposition with Recife, Natal and Rotterdam (although the latter route appears to have been quietly suspended this year).
Had he been given the chance, da Silva planned to launch additional routes to Frankfurt, Joao Pessoa in Brazil, and potentially Conakry in Guinea and Freetown in Sierra Leone. He also wanted to grow the existing fleet of five aircraft – one 757, one 737-800, two ATR 72s and one ATR 42 – to 11 units by the end of the decade.
Though the outgoing chief could have tackled labour issues more forcefully, he found himself up against severe political hurdles and unique demographic challenges.
“You have the opinion of the experts based on their benchmarking, but for small carriers in an island nation it is very difficult to make comparisons,” he said, when asked what sort of retrenchment the company ultimately needs to attain profitability.
The government’s unwillingness to directly recompense TACV for loss-making inter-island routes also affected its financial results. “We are doing those [public service obligation] flights but the government is not paying,” da Silva complained, drawing a contrast with other countries that negotiate subsidies for commercially unviable strategic routes. He said a change in law is pending to rectify the situation.
Before its electoral defeat, PAICV authorised a string of loans for TACV from banks in Angola and Cape Verde – demonstrating the party’s long-term commitment to the flag-carrier.
Da Silva sees no reason why the new MPD government will be any less supportive.
“Cape Verde is an isolated archipelago 500km from Dakar, 3,000km from Europe, 3,000km from Brazil, and maybe 5,000km from North America,” he concluded. “The country needs to have air links. We just can’t afford to be without them.”