The economic effects of closing borders and banning travel to curb the spread of COVID-19 threw commercial African aviation into uncertainty as the vast majority of the continent shut down operations for several months. Prior to COVID-19, aviation was responsible for 63 million jobs worldwide and made up 3.5 percent of global GPD.
On 21 October, The International Road Federation in support of the Southern African Transport Conference, hosted its fourth and final webinar for 2020 on the impact COVID-19 has had on African aviation, aviation technology developments and the evolving state of the Africa’s flight industry.
Ogaga Udjo, managing director of ZA Logics, presented on the evolving state of African aviation. Before COVID-19, “The global airline industry enjoyed 11 years of consecutive profits, strongly driven by performance in North America,” stated Udjo.
African aviation had an expected available seat kilometre (ASK) growth of 3.8%, revenue passenger kilometres (RPK) growth of 4.9% and profitability of a $200 million loss for 2020, similar to 2019. COVID-19 obviously changed these forecasts.
Udjo added that the African aviation industry supports $56 billion per annum in economic activity and 6.2 million jobs.
It is forecasted that the economic recession for Africa will be lower in proportionate terms compared to other regions for 2020. This is due to steady economic growth over the last three years (3.23% year-on-year). Africa’s gross domestic product (GPD) is expected to be -4.4% for 2020, with recovery in 2022 at 3.6%. Larger economies like South Africa are expected to have a deeper recession in the short term.
Looking at African aviation’s market structure, it has a high dependence on intercontinental traffic, with intra-Africa traffic as the lowest contribution. Udjo said this is a topic under much debate but African connectivity remains low, which is not just a matter of liberalisation but that it is due to fragmented aviation investment strategies employed across the continent which disables connectivity. In 2019, 35% of passengers who touched down in Africa were on international travel, 25% intra-Africa and 40% domestic. These percentages vary: Morocco had 77% intercontinental, Angola 38%, and Kenya 25% with South Africa and Nigeria at 17% and 18%. Domestic travel for South Africa and Nigeria is much higher at 70%, as well as Kenya at 46%. This is due to the maturity of their aviation industry. Udjo mentions that this will have varying effects on recovery.
In a continent where most airlines are state-owned, there have been mixed responses by airlines to the market changes that COVID-19 brought. African airlines could lose $6-8 billion in passenger revenue compared to 2019. The usual contribution to African GDP of $56 billion per annum is expected to drop by $35 billion, according to the International Air Transport Association (IATA). Udjo said that regarding COVID-19 restrictions, most state/airline responses were very progressive, with heavy restrictions imposed in March. Easing started domestically around June/July, with several borders opening in October for international travel. Government relief has been mixed, with some states addressing the tourism and aviation industry while others have been ignored. Udjo said about ten African countries have been provided with targeted relief. Airline decision-makers in Africa are now having to deal with issues of stabilization, emergence and resurgence from relatively weak positions.
In terms of possible recovery in the African aviation industry, Udjo said most analyses forecast recovery to be negatively impacted by a lagged economic recession, with traffic returning to 2019 levels in the first quarter of 2024. Recovery looks to be bolstered where there is a strong domestic aviation industry. On the impact on supply in the South African aviation industry, the Airports Company South Africa (ACSA) said there will be a reduction of capital expenditure by $820 million between 2021 – 2023 with airlines and support services in restructure.
On the demand side, there is a reduction of corporate and government travel budgets as well as less household disposable income and less customer confidence. Udjo’s ZA Logics stated, “We must highlight that looking at the facts, COVID-19 was not the cause of these restructurings but rather an aggravating factor.”
Business Rescue is not necessarily a ‘silver bullet’ but the success of Business Rescue can come down to several factor: market fitness, business model sustainability and/or comprehensive stakeholder engagement. The supply and demand of seats to passengers in 2019 saw Fly Safair leading in South Africa with 21% of seats to 22% of passengers, followed by Mango with 21% to 21% and Kulula.com with 17% of seats to 19% of passengers. SA Airways was at 10% of seats to 9% of passengers.
Udjo’s final point was that in recovery and structuring, airlines need to be strong in customer experience, internal processes and cooperation. Airlines need to have a behavioural understanding of customers during and post COVID-19 so the airline can take the right measures in ensuring customer confidence. The internal processes of how to operate at a baseline in economic terms are still fundamental, however, and are now layered with COVID-19 spread, travel restrictions, customer confidence indices and cargo demand. Cooperation with active stakeholder management is needed along with a harmonisation of safety protocols including testing and costs.