African airlines are at risk of losing out to international carriers and should move quickly to take advantage of growing opportunities.
This was one a key messages at this week’s Aviation Festival Africa and Airports Show Africa in Sandton. The Festival brought together airline and airport operators, as well other industry participants from South Africa and across the continent.
Keith Green from air route development consultants ASM warned African countries were failing to take advantage of growth in the market due to excessive regulation and a failure to develop international hubs on the continent.
According to the International Air Traffic Transport Association (IATA) the top 10 fastest growing world markets, in percentage terms, over the next 20 years will be in Africa. IATA’s Top 10 fastest growing markets are: Benin, Central African Republic, Guinea, Madagascar, Mali, Rwanda, Sierra Leone, Togo, Uganda and Zambia.
Helping push this growth is the rise in Africa’s middle class and rapid urbanisation across the continent. Improved safety standards are also helping the industry grow and newer aircraft technologies with improved fuel efficiencies will increasingly give low cost carriers a boost.
However, IATA said in its revised 2017 outlook for the industry the African airline industry continues to be burdened by high taxes, having to pay fuel prices higher than the global average, competition from the Gulf and limited intra-continental liberalisation, resulting in continued financial losses.
The growth of African carriers could be hampered by the big three Gulf carriers – Qatar Airways, Emirates and Etihad, as well as Turkish, all of who are significantly growing their presence in the African market. These airlines have a large number of aircraft on order and have plans to further develop African routes. Green said there is also a potential threat to African carriers from Chinese carriers.
Without large and successful hubs, African carriers will not be able to compete with the big foreign carriers. Currently there are three African hubs – Addis Ababa, Johannesburg and Nairobi, all of which could face the problem of being bypassed by foreign competitors operating on the continent.
Green said that the growth of low cost carriers across the continent could offer a big boost to the industry, but this was dependent on deregulation and development of secondary airports.
At the moment growth of low cost carriers is restricted by the lack of secondary airports in major cities and the absence of continent wide airline regulation. Major airports tend to be government owned, often offer the state owned carrier protection and thus put up barriers to competitors. Another constraint on airline carrier growth particularly low cost carriers, is a high proportion of ticket sales are in cash due to low banking penetration. With the absence of alternate payment mechanisms, airlines must rely on agents that cut into their margins.
There are only five low cost operators across the continent three of which are in South Africa – Mango, Kulula, and FlySafair – Kenyan owned, JamboJet and the Tanzanian/Kenyan/Zimbabwean venture, Fastjet.
Despite passenger growth, African airlines continue to lose money, according to IATA’s 2017 outlook for the global industry. The report forecasts African airlines are expected to lose $100 million, about the same as last year. Passenger demand across the continent is expected to grow by 7.5%, slightly behind airline capacity growth across the continent of 7.9%.
The financial losses of African airlines, as a group, stand in contrast to those in the rest of the world. North American airlines as a group generated half of worldwide profits, while carriers in Europe, Asia, Latin America, and the Middle East were also in profit.