African carriers non-competitive on global stage

Globally, African airlines’ contribution to the world air travel is very minimal because they don’t have competitive edge. WOLE SHADARE writes.

 

Catalyst for growth
The airline industry is known to be one of the biggest industries in the world. It started in 1919 immediately after the First World War (1914-1918). But it was only after the end of the Second World War that the airline industry extended and started its major expansion.
More than 50 years later the industry now caters for around four billion passengers a year, generating $600 billion in revenue and employing millions of people.
The airline industry is of such importance in terms of revenue and employment, that it generates $600 billion a year in revenue, accounts for approximately 10 per cent of world Gross Domestic Product (GDP), takes about 11 per cent of consumer spending, and employs over 500 million people. It is the key element in the world’s largest industry – that is Travel and Tourism.

The dynamics
Therefore, the numerous changes within the industry and the understanding of the dynamic of airline competition in Europe and worldwide, have made it more difficult for managers to develop a sustainable competitive strategy and to implement necessary organisational and strategic changes.
Within this context, airline managers are under constant pressure to improve performance, and are seeking different approaches to increase the efficiency of their operation and to gain or keep their competitive advantage.
It is in this type of working environment and competition that carriers and the industry especially in Africa had to undergo restructuring to be ready to face the new millennium and the increase of competition that goes with it.

The struggle
While many European and American carriers are forming alliances and competing amongst themselves on the big stage, same cannot be said of African carriers that have struggled over the years. Aside Ethiopian Airlines, it is doubtful any African airline is profitable. On the local scene, domestic airlines are struggling; a situation that has led to a huge turnover of carriers that have gone into extinction. Over 200 Nigerian carriers have died in the last 25 years. Many are sick. They lack the competitive edge to remain afloat for so many years.
To change the narrative, there have to be emergence of competitive advantage, which requires some form of change to take place, either internally or externally.
Level of profit between airlines is always a disequilibrium phenomenon; it is different because different airlines have different resources and capabilities.
An airline that is efficient in responding to changes in its external environment will be more competent in exploiting the situation and creating advantage for them.

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Competitive cost structure
Lack of competitiveness of the continent’s carriers led to disclosure by the International Air Transport Association (IATA) that airlines in Africa, on average, lose $1.55 for every passenger carried. It added that establishing competitive cost structures that enable growth and reducing blocked funds are essential to improving the competitiveness of African aviation.
The Director-General of IATA, Alexandre de Juniac in a paper he delivered at the just concluded African Airline Association (AFRAA) 50th Annual General Meeting held in Casablanca, the IATA chief said, “Africa is an expensive place for airlines to do business. There is no shortage of examples illustrating the heavy burden that governments extract from aviation.
“Jet fuel costs are 35 per cent higher than the rest of the world. User charges, as a percentage of airlines’ operating costs, are double the industry average. And taxes and charges are among the highest in the world.
“On top of that, $670 million of airline funds are blocked. Too many African governments view aviation as a luxury rather than a necessity. We must change that perception.”

 

Infrastructure
Infrastructure has equally hindered or slowed down the continent’s carriers. In Africa we have infrastructure problems in two extremes. In some cases, it is overbuilt and expensive. In other cases, it is deficient and cannot meet demand. Dialogue between industry and government is critical to ensure that there is sufficient capacity to meet demand, that airline technical and commercial quality standards are met and that the infrastructure is affordable. Achieving that will create the platform on which aviation’s economic and social benefits can be maximized.
Recently, however, the lack of competitiveness of many African airlines has become more pronounced in the global airline industry when we look at the fact that around 80 per cent of intercontinental traffic between Africa and the rest of the world is controlled by non-African airlines This means that African airlines accounted for only 20 per cent of passengers on inter-African routes. This is further exemplified by the fact that the top airlines in terms of capacity on flights between Western Europe and Africa are Air France, British Airways and KLM. Although EgyptAir, Royal Air Maroc and South African Airways are among the top airlines operating in Africa, a large part of the inter-African market has been carved out by non-African airlines largely due to the lack of competitiveness of many African airlines.
By the same token, the African and Middle Eastern routes are mainly dominated by Qatar Airways and Etihad Airways with EgyptAir exerting pressure on their dominance. The historical underperformance of many African airlines in recent decades has been an issue of growing concern amongst public policy-makers, governments and the African Airlines Association.
Although some African companies have emerged at the frontier of global competition, many are largely uncompetitive. Indeed, across an array of industries, many African firms have often failed to not only capture market share in the global marketplace, but also collapsed and exited their industries. In spite of the importance of the competitiveness issue, an unanswered question is why so many are uncompetitive in global markets.
The assertion that many African firms are unprepared for global competition is no longer a critique but increasingly a reality, which warrants further scholarly attention.

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Slow YD implementation
The slow implementation of the Yamoussoukro Declaration and protection of state-owned airlines, have historically distorted the nature of competition and hampered the exposure of many airlines to “genuine” or fair competition.
When shielded from competition, such firms’ ability to transition to the global stage and outwit rivals is hampered. Furthermore, there are indications that internal factors such as limited economies of scale and poor quality of services have affected some of the firms’ ability to compete. With the notable exception of airlines such as Ethiopian Airlines, South African Airways and Kenya Airways, the preponderance of airlines have struggled to compete. These factors help to account for the fact that African airlines equate to only 20 per cent of all air traffic on inter-African routes.

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Political factor
This is a factor, which deals with the government policy and its effects. It encompasses the legal elements such as, taxation policy, government stability, and government regulation and so on. The stability of the government in the other country needs to be taken into account. The government always influences the market either directly or indirectly. Organization within the industry need to be on their heels all the time because of the pressure of the new entrants who might come in with cheaper and innovative products.

 

Last line
The dearth of research is surprising given that the question of why some firms situated in a particular geographical jurisdiction consistently underperform relative to others is at the heart of strategic management and global business strategy research.

 

Wole Shadare