Deep reflections on Africa’s troubled airlines

Africa’s airlines must wake up to the brutal competition outside the continent. That remains their biggest challenge, writes, WOLE SHADARE

 Sharp contrast

The sheer size of Africa, the distances between cities, and the poor state of road and rail infrastructure should, in theory, make aviation an ideal mode of transport for the movement of goods and people alike.

Air transportation, however, has failed to fill this gap and the market remains small by the standard of any other developing market.

Despite being one of the most populous continents on the planet, Africa accounts for just 2% of global air traffic. By contrast, Southeast Asia, with a population half the size of Africa’s, accounts for 15% of the world’s air traffic.

 Indeed, Africa is the smallest continental player in the aviation world. It has the fewest annual seats, the smallest and oldest fleet, the lowest number of aircraft on order and the weakest passenger load factors.

It also averages just 5% of the world’s international passenger travel and less than 2% of domestic passengers by the route.

There are only three full-service carriers with continent-wide networks in Africa – Ethiopian Airlines, Kenya Airways and South African Airways (SAA). These three have done a fine job connecting their respective hubs with the rest of the world.

Persistent loses

For the past five years or more years, major African airlines have made losses amounting to $1.8 billion — about $700 million in 2015 and $500 million in 2016 according to the International Air Transport Association (IATA) 2016 report. But this is not the most troubling news.

Experts now warn that if African governments, most of which are pumping billions of dollars into the air travel business, will not put their acts together, then the loss-making string could continue.

Loss-making is not peculiar with state-owned airlines alone, private or privately-owned flag carriers are equally bleeding with no respite in sight.

Re-evaluation

The Chief Executive Officer of African Aviation Services and a former Secretary-General of the African Airlines Association (AFRAA), Nick Fadugba said, “African leaders and investors need to re-evaluate their policies and come up with strategies on how to move the region’s aviation industry forward, or they will continue to lag as international airlines make headways into the region’s airspace.”

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Fadugba’s sentiments as captured in the IATA 2023 report reflect the huge losses incurred by African carriers due to fierce competition from European, Middle East and American airlines plying long-haul routes. 

The continent’s carriers generally suffer from weak economies and stiff competition from international players, especially in trade, a position that economists seem to agree with.

“The collapse of commodity prices has hard hit Several African economies, and this has hurt revenues and inflow of hard currencies,” said Brian Pearce, IATA’s former chief economist.

Contributory factors

Unresolved foreign exchange crises have also contributed to the continent’s airlines’ economic difficulties. Add this to the lack of direct flights between major African towns, infrastructure deficiencies, regulatory barriers, hiked travel costs, management and labour disputes, graft allegations, and political instability in several African countries and the trouble only gets bigger for the African carriers.

Among the leading African carriers, Egypt Air, Ethiopian Airlines and Kenya Airways are a few of the national carriers making a profit while resilient South African Airways has come out of so many crises with the country bailing it out on many occasions.

IATA’s report indicates that the Ethiopian flag carrier’s full-year profit is more than all the other African airlines put together.

 

Inconsistency

South African Airways disappeared from our skies altogether in September 2020, having fallen victim not just to COVID-19 but also to another disease that has plagued some other state-run carriers – corruption and mismanagement.

It may be on the verge of a sale that would see a private consortium take a majority share in the business.

However, its handling of finances has recently come in for severe criticism by the country’s public spending watchdog.

 

In a scathing report, Auditor-General Tsakani Maluleke said that the financial statements SAA had drawn updating from the 2018-19 financial year lacked credibility. The airline recorded losses in the four years from 2018 of a staggering $1.2bn (£1bn).

 

But interim chief executive officer (CEO) John Lamola said this did not reflect the current position of the airline, which is under new management.

 

He said the situation had improved in the most recent financial year, with the airline now “running on financial resources generated from its operations”.

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Towards the end of last year, in a sign that SAA wants to be a major player again, it reopened its routes from Cape Town and Johannesburg to São Paulo, Brazil. And now it is selling tickets for flights to Perth, Australia.

 

Familiar stories

Several other African flag carriers share similar stories with KQ and SAA. Whereas some are making losses from their existing carriers, others are attempting to revive or rebuild one that had succumbed to debts and losses. These include Egypt Air, Air Tanzania, and most notably Uganda Airlines.

Uganda’s national airline is especially a good example of an African carrier that collapsed as a result of huge debts and losses.

The airline was liquidated in May 2001 after it accumulated US$6 billion in debt since its establishment in 1976 during the era of Idi Amin.

The carrier has been revived but is still in a financial mess. According to reports by the Auditor General, Uganda Airlines’ financial performance was poor for the last three consecutive financial years. They posted huge losses; 104 billion Shillings in FY 2020/21, 164 billion in FY 2021/22, and 234 billion 2022//23 – all totaling 502 billion Shillings.

The Chief Executive Officer of the Uganda National Airlines Company, Jenifer Bamuturaki has said that the national flag carrier needs at least three more years to break even.

Bamuturaki revealed that her administration has set a timeline of at least three years from now to be able to break even as the airline currently generates up to 85 per cent revenue to meet its direct operation expenses such as maintenance costs, crew costs, landing fees, and navigation charges among others.

Since its revival in 2019 after 18 years of absence, the future of Air Uganda is commendable, especially as it acquires new flight routes to expand its network.

Since 2019, with six aircraft, Uganda Airlines flies to about 12 destinations including Nairobi, Dar-es-Salaam, Bujumbura, Mogadishu, Zanzibar, Mombasa, Kinsasha, Juba, Lagos, and South Africa among others. It also operates intercontinental flights to Dubai, Mumbai, London, and Guangzhou.

Bright spot

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Ethiopian Airlines earnings jumped 20% to $6.1 billion in the 2022/2023 fiscal year, despite the impact of the Russian-Ukraine war and the increase in fuel prices, the country’s state news agency reported.

The airline transported 13.7 million passengers and 723,000 tons of cargo in the fiscal year, which ends on July 7, the company’s chief executive officer Mesfin Tasew said.

It is also the largest African airline by profit, according to IATA. Its growth figures have been through the roof. In the year highlighted, its net profit grew by 70%, in a continent where its peers are making losses upon losses or are simply insolvent.

Unsurprisingly, it is being called upon to help out elsewhere. In January, it signed an agreement with the Zambian government to help re-launch Zambia Airways, a national carrier that was liquidated in 1994.

This is just the latest addition to a burgeoning portfolio. Ethiopian Airlines already partners with Asky, a West African airline, and Malawi Airlines. Is Ethiopia’s success a reason to be hopeful?

Ethiopian’s success does suggest that a few firms will find their niche; but Africa certainly doesn’t need 54 competing national airlines linking their various capitals to London, Paris, and Johannesburg.

Playing catchup

Generally, African states are investing heavily in building, upgrading and expanding their airlines in what seems like attempts to catch up with competition regionally and globally. But this, experts argue, may not be enough to move Africa’s aviation business to the next level.

Africa’s airlines must wake up to the brutal competition outside the continent. That remains their biggest challenge.

Not a few believe that the region’s airlines need to form alliances that allow both big and small players to interact for the greater good and realise that governments are often no longer interested in protecting domestic carriers.

Last line

The continent needs strong political goodwill and cooperation among African states, leaders and operators to come up with a credible plan and clear objectives to help formulate and implement policies that will promote the bigger interests of the region’s aviation industry.

Wole Shadare