How Vulnerable Are African Airlines?

Africa is an expensive place for airlines to do business. Having access to finance, market share, good route network, minimising costs and a harmonised regulatory system are all crucial for air transport to develop. WOLE SHADARE writes

Airlines on life support

The coronavirus pandemic has brought the global aviation industry to its knees, and African carriers are particularly vulnerable as they seek assistance from governments already facing constrained finances.

The International Air Transport Association (IATA) recently warned that the damage being done to the African aviation industry and on economies by the shutdown of air traffic owing to the COVID-19 pandemic has deepened.

According to new data published by the Air Transport Action Group of which IATA is a member, five million African jobs will be lost in aviation and industries supported by aviation in 2020. This is well over half of the region’s 7.7 million aviation-related employment.

Cracks

The vulnerability of African airlines is not as a result of the pandemic. As a matter of fact, the carriers’ vulnerability is as a result of many factors such as lack of government support, high taxes, poor or deplorable infrastructure, lack of cooperation, very unfriendly environment, poor route network, lack of finance by financial institution, high interest rates from commercial bank and absence of Maintenance Repair Overhaul (MRO) facilities, poor connectivity among others.

The problems of the continent’s carriers came to the fore again at the just concluded 29th African Aviation Summit – Air Finance Africa 2020 webinar, which was monitored online by Woleshadarenews at the weekend and convened by Chairman, African Business Aviation Association (AfBAA), Nick Fadugba.
Traditionally, African airlines have been collectively loss making and for many. According to IATA, African airlines even before the pandemic the future had not really looked too rosy.

Airlines had been grounded for more than five months as a result of COVID-19. African Airlines Association (AFRAA) made some assessments and came to a conclusion that the carriers could lose $9b in revenue in 2020 compared to 2019.

Liquidity challenge

 

Secretary General, AFRAA, Abderahmane Berthe, lamented that liquidity issue was a very critical challenge of African airlines today and urged states, financial institutions to support airlines in any means.

“It can be grants, it can be loans, it can be in form of charges reduction. We also are urging governments to support the private airlines because we are seeing that the support for airlines so far are going to state owned airlines. This is very critical because even if we are seeing a re-start, the conditions for restart are very difficult because airlines are operating with very low load factors and also, they are reducing the ticket fares to attract passengers.

“Having low load factor and reduced revenue per passengers, it means that the flight is economically not sustainable. We can see up today, we have only 21 per cent of destinations that have re-opened if we compare it to February,” he added.

Financial institutions’ support

Are banks, Africa and international financial institutions willing to support them giving African airlines’ plights? The answer is yes and no depending on the angle it is viewed from.

Many feel that the banks are willing to do so. Commercial banks need some guarantees and some collateral when on how they will give loans to airlines. They need to look at the books and also the plans for the future and it is a work in progress.

 

AFRAA’s support

Berthe disclosed that AFRAA was still in discussion with international financial organizations pushing for support to the industry, adding that the Africa Union Commission was pushing with international financial organisations ready to put in place $25 billion funds to support the industry. He noted that the group would continue to work on its implementation.

Not too good news is that African airlines have only 18 per cent traffic to and from Africa. Year on year, it has been going down. The continent used to have about 50 per cent traffic in and out of the region and now it is down by about 18 per cent and is likely to continue with so much uncertainty of when the market share for the carriers would rebound.

South African Airways (SAA) is struggling to survive. It faces liquidation. Liquidation of airlines however depends on the shareholders depending on the financial situation. One is of the opinion that if SAA as it today is liquidated; a new SAA will emerge and may be stronger and more sustainable.

Foreign carriers get big pie

When it comes to generating revenue in Africa’s airspace, global carriers are the biggest winners with only two African airlines in the top 10 most lucrative air routes in Africa.

Topping the list was Emirates, whose flights to cities including Johannesburg, Cairo and Cape Town earned it over $830 million between April 2018 and March 2019.

British Airways, which runs the most flights in the world’s only billion-dollar route, earned almost half a billion dollars in its annual flights to South Africa’s major urban areas.

Connections to West Africa appeared only once in the list with Air France’s Abidjan-Paris ranking $175 million.

Conspicuously missing from the list was Ethiopian Airlines, Africa’s biggest carrier. The state owned airline is not just the largest by passengers and number of fleet, but by revenue and profit too.

There are thought to be up to 100 African airlines, all competing for the same market. This is dominated by international carriers, accounting for 80 per cent of passenger numbers.

 

Poor connectivity, low load factor

Across Africa, the situation is similar. Commercial flights are infrequent, expensive, and circuitous. To get from one country to another, an African traveler may have to go thousands of miles out of their way and transfer through the Middle East or Europe.

Experts attributed the struggle of the continent’s carriers for market share, stressing that African airlines charge less US Cents per passenger-kilometer than European air carriers, on equivalent travel distances.

They added that the applicable charges and taxes paid by passenger become double in Africa compared to Europe; yet, African operators’ cost of the availability seat-kilometer is twice expensive compared to European airlines.

Another reason for the anomaly, they said, was the fact that airlines from the region operate with an average load factor lower by 10 percentage points compared to the world average; while European airlines’ load factors are higher than the industry average.

Last line

Aviation is prone to the minutest situation in the economy, ranging from weather, politics and others. Governments need to come to their aid as they are of systemic importance to the continent’s economy.

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