In a July update, the International Air Transport Association (IATA) gave some dismal figures for Africa in the wake of the Covid-19 pandemic. African airlines’ traffic sank 98.2% in May 2020, fractionally improved from a 98.7% decline in April. Capacity contracted 77.8%, which was the smallest supply reduction among the regions, and load factor dived 61.8 percentage points to just 5.3% of seats filled, which was the lowest of all regions.
Although alarming and add to the fact that one of former biggest carriers, South African Airways is practically no more, this picture only reinforces the view that the continent’s airlines continue to fly blind due to barriers that worsen an already poor operating environment. Covid-19 may just be the catalyst to force a change for the better.
Long before the Coronavirus outbreak, the second biggest continent in the world had the fewest number of commercial aircraft flying between its major cities even as several countries in the region were ranking in the top 10 globally as the fastest growing economies.
This year, a joint World Bank/IMF projection had cited Benin, Burkina Faso, Cote D’Ivoire, Ethiopia, Kenya, Mozambique, Niger, Rwanda, Senegal and Uganda as pacesetters with GDP growth rates expected to top 6%. That was before the Pandemic Covid-19 has inevitably dampened growth, but there are already signs of a rebound in Ethiopia, Nigeria and Uganda albeit slowly. Air transport is going to play a crucial role in this recovery. Without a doubt Africa is big, resource-rich, diverse and beautiful. But getting around by air poses several challenges including limited intra-Africa trade, dilapidated infrastructure, constricting regulatory policies, dodgy equipment, visa restrictions and a widespread lack of affordability due to low incomes.
Due to these conditions, air travel across Africa remains expensive compared to other regions of the world. Africa’s commercial airlines industry is still largely constrained by fearful governments which have been slow to liberalise the skies. These same governments also continue to heavily tax carriers who have no choice but pass on the costs to travellers through high ticket fares.
Admittedly, over the past decade, there has been a flurry of activity in the aviation industry. In August 2019, Uganda revived its national carrier by buying four Bombardier CRJ 900 ER aircraft while two Airbus A330-800neos were ordered. However, Africa’s aviation industry remains largely marred in inconsistencies.
Air Tanzania is equipping itself with Boeing 787s while Kenya Airways already has slot at New York City’s JFK International. Just before the Coronavirus pandemic struck, South African Airways took delivery of a brand new Airbus A350-900 for its trans-Atlantic route. But at the end of September all SAA operations were reportedly halted reportedly due to lack of working capital.
Meanwhile, excitement over plans for setting up Nigeria Air turned into disappointment, mostly because the government could not agree on the terms with private sector partners. However, Qatar Air and Rwandair have gone into a strategic arrangement that may see Rwanda operate one of the biggest airports in the region.
ICAO says currently, 19 African states have no international airlines, 22 states have only one international airline and four states have more than three international airlines.
Ethiopian Airlines is an exceptional case. Management reported an operating profit of US$260 million in financial year 2018/19. Due to Covid-19, the carrier is unlikely to generate such earnings in fiscal year 2020. In many parts of the region, the concept of the low-cost airline has struggled to find traction because aviation authorities see them as cash cows rather than a means to expand trade and investment. This attitude has to change.
An International Air Transport Association survey carried out by consultancy firm, Intervista, shows that if just 12 key Africa countries opened their markets and increased connectivity, an extra 155,000 jobs and US$1.3 billion in annual GDP would be created in those countries. Three years ago, Akinwumi Adesina, the President of the African Development Bank, told delegates at the Third International Civil Aviation Organisation Forum in Abuja, “Aircraft departure fees alone in Africa are 30% above the global average, while taxes, fees and charges are 8% higher. Given lower per capita incomes in Africa, high fares essentially tax the poor out of the air! We may have an open sky policy, but then end up with empty skies!”
Intervista also notes in the survey that in the EU single aviation market, it was found that liberalisation increased competition on many routes, and resulted in many more new routes and a 34% reduction in fares in real terms. Adesina told the ICAO forum, “Rigid bilateral air service agreements have made it difficult to liberalize the regional aviation markets. We must make regional aviation markets competitive and drive down costs, raise efficiencies and improve connectivity and convenience.”
In 2018, there was another attempt to throw out the old mindset and usher in a transformation by launching the Single African Air Transport Market agreement (SAATM), more ambitious than the Yamoussoukro Decision of 1999.
The Yamoussoukro Decision laid out some lofty goals. Beginning with a move towards open skies and allowing for fifth freedom transit rights between all signatories. It was also agreed to eliminate restrictions on ownership of airlines and frequency limits on international routes between signatory states. Most important was the acceptance to get rid of separate bilateral air service agreements between individual countries.
It is notable that three quarters of the national carriers flying in 1999, no longer exist today. Clear evidence that the Yamoussoukro Decision was much tougher to implement than the signatories first thought. On the other hand, to date 28 countries have signed up for SAATM. These are Benin, Burkina Faso, Botswana, Cameroon, Cape Verde, Central African Republic, Chad, Congo, Côte D’Ivoire, Egypt, Ethiopia, Gabon, Gambia, Ghana, Guinea Conakry, Kenya, Lesotho, Liberia, Mali, Mozambique, Niger, Nigeria, Rwanda, Sierra Leone, South Africa, Swaziland, Togo and Zimbabwe.
SAATM is a flagship project of the African Union Agenda 2063, an initiative of the African Union to create a single unified air transport market in Africa. It also seeks to advance the liberalization of civil aviation and act as an impetus to the continent’s economic integration agenda. Between 2009 and 2019, air passenger revenue in the global aviation industry grew from about US$374 billion to around US$561 billion. The World Bank estimates the region’s share of this as less than 2%. Although Africa in 2018 recorded the fastest growth at 9%, followed by the Asia-Pacific region at 6%, this figure is deceptive because it is coming from a very low base. However, IATA remains optimistic once the continent’s aviation industry improves in four main areas. These are safety, cost competitiveness, opening up to more travel and trade along with encouraging greater gender diversity.
The continent’s ability to recover from Covid-19 will define the development rhythm of the industry. With the right tax and regulatory framework, the opportunities aviation can create to improve people’s lives are tremendous.” When it comes to connectivity in air transport as defined by ICAO, Africa falls pretty short. ICAO says trips should be as short as possible between two points; provide optimal user satisfaction and at the minimum price. In Africa, negotiating for bilateral air service agreements and new routes can take forever. According to Official Airline Guide, (OAG), flights between African countries decreased by 9% in 2018.
The AfDB believes the continent’s aviation industry could grow by 5% annually for the next 20 years. What impact Covid-19 will have on this projection is yet to be seen. But AfDB thinks from serving 120 million passengers in 2015, the industry will triple and serve over 300 million passengers by 2035 depending on how fast some governments buy into liberalization. Boeing thinks it can sell 1000 planes to Africa in the next two decades. Again, Covid-19 may cut these figure substantially to lower than that.
The Intervista survey states that there is always a great concern that liberalisation will harm the profitability and viability of existing carriers. Indeed, a common result is that liberalisation leads to loss of market share as new competitors enter the market.
However, the stimulatory impact of liberalisation also means that the incumbent home carrier will still experience growth in traffic volumes despite loss of market share. Liberalisation offers efficient, competitive carriers an opportunity to enhance profitability by expanding into new markets, accessing a wider pool of investment and through consolidation.