Appraising airlines, intra-Africa market hiccups

The COVID-19 pandemic has devastated global aviation. The fallout is being severely felt across the African continent, writes WOLE SHADARE

Negligible impact

Even before the pandemic, only 9% of the continent’s air traffic was between African countries themselves. It’s common to hear stories that the fastest, easiest, and sometimes cheapest way to fly within the continent is via one of the big hubs in Europe or the Middle East.

It’s no surprise that intra-regional African traffic is still underdeveloped while intercontinental traffic is dominant. Moreover, foreign carriers feed passengers to their mega hubs to connect them with the rest of the world.

Connectivity effects on trade

The big advantage from better connectivity is the positive effect on trade, employment, and Gross Domestic Product (GDP) growth. The International Air Traffic Association (IATA) estimates that cross-border deregulation between just 12 African countries would create five million additional passengers, produce annual GDP in excess of $1.3 billion, and add 155,000 new jobs.

Better air connectivity will also overcome today’s infrastructure challenges. More intraregional traffic will more efficiently and equitably amortize infrastructure costs.

African carriers developing new intra-regional connections will have a competitive advantage over their foreign competitors. A more comprehensive intra-regional network means African airlines can compete on par with their foreign rivals.

Another important reason why African airlines should focus on intra-regional connectivity is the urgent need to restore profitability and improve load factors.

Data showin African airlines’ performance

Staggering losses

Even before the pandemic, African carriers lost an average of $1.09 for every passenger they flew. African airlines also have the lowest load factors of any world region, and well below break-even.

Restoring profitability and raising load factors requires complete re-evaluation of airline networks and fleet strategies. Prioritizing the improvement of regional connectivity means carriers will need rightsized aircraft that suit the needs of the African market.

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Why is it so important to have the right aircraft?

Wide-body aircraft operate 14% of all intra-African flights. Is that really the best use of those assets given the low load factors and losses they generate? What about the cost of flying those big airplanes? Those who follow aviation know that wide-body jets are expensive to fly and are only economical when there is sufficient demand on a route to fill most of the seats. Distance is a big factor, too.

About 99% of all African intra-regional flights flown by wide-body jets are deployed on sectors of fewer than 4,500 km. A city pair up to 4,500 km is the “sweet spot” for cross-over jets, or narrow-body aircraft. Deployment of turboprops is another area that can be improved. Almost half of all turboprop flights are on sectors greater than 500 km. At that distance, the airplanes are less efficient than jets and less comfortable for passengers.

 

Some African airlines

Fleet renewal

African airlines have it in their power to improve regional connectivity, increase profitability, and close the load factor gap. The post-pandemic period is the ideal time for carriers to renew their fleets with right-sized airplanes.

Embraer’s portfolio of 50 to 150-seat aircraft offers the range of capacity African airlines need to replace wide-body jets, up-gauge existing types, and substitute long-distance turboprop flying.

Fleet renewal with Embraer airplanes brings huge efficiencies and cost savings – commonality of spare parts, common crew type ratings, right-sized airplanes on the right routes – that will help African carriers better compete with their foreign counterparts.

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Challenges

While it is evident that aviation in Africa has the potential to fuel economic growth, several barriers exist. Weak infrastructure, high ticket prices, poor connectivity and lack of liberalization are some of the many challenges.

Consider the reality: airport infrastructure in most African countries is outdated and not built to serve the growing volume of passengers or cargo. Airlines and airports are often managed by government entities or regulatory bodies. Foreign investment is discouraged.

In Malawi, for example, it’s illegal for a foreign airline or private investor to own more than 49% of a national airline. So, this prevented Ethiopian Airlines from purchasing more than a 49% stake in Malawian Airlines.

Modern infrastructure

Yet, modernizing infrastructure and operations requires both investment and expertise, ideally from public-private partnerships. Africa needs to open its doors for private capital investment.

Countries such as Côte d’Ivoire and Rwanda are heeding this call and making strategic bets in the sector while employing best practices to drive vibrant aviation growth.

Take the outstanding example of the Abidjan International Airport. In 1996, management and operation of the terminal in Côte d’Ivoire were privatized and awarded to AERIA, a French company. Ownership of AERIA is shared by private investors (65%), a technical partner (25%) and Côte d’Ivoire (10%). The company has invested in infrastructure and delivered quality service, impressing the government so much that the concession has been extended.

When private capital is involved, as it was in Côte d’Ivoire, partnerships can build greater efficiency, higher revenue and better quality service that demand financial discipline and eliminate corruption.

Govts’ role

Still, governments have an important role to play in delivering economic and social benefits by championing intercontinental aviation as well as shaping a dynamic African aviation sector.

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Liberalization will bring strong outcomes – new routes, more frequent flights, better connections and lower fares. These improvements will increase the number of passengers, which will have both direct and indirect positive effects on trade, business travel and tourism.

In turn, this has impacts for the broader economy, generating more tourism revenues, jobs and productivity. That will enhance the GDP of African countries and improve the welfare of ordinary Africans.

According to an IATA survey, if just 12 key African countries opened their markets and increased connectivity, an extra 155,000 jobs and $1.3 billion in annual GDP would be created in those countries.

A study by InterVISTAS Consulting shows that in South Africa, liberalization could yield an estimated 15,000 new jobs and generate $284 million in national revenues.

On the other hand, the lack of liberalization affects connectivity and ticket costs. In Africa, no direct flight exists to travel from Abidjan, a hub in West Africa, to Dar Es Salam, a hub in East Africa. Instead, a traveller inefficiently flies to a second or third country before reaching the final destination.

Last line

So, what lies ahead for Africa’s skies? First, the Single African Air Transport Market introduced earlier this year aims to open up African airspace and improve intra-African air connectivity. So far, 26 African countries have signed up. The movement is promising and will be more effective once all African countries come onboard.

Wole Shadare