African Promise

The future of African aviation is a topic of heated debates, increasingly also on the continent itself where airlines, industry associations and authorities agree they need to address safety issues, upgrade infrastructure and widen liberalization. The fact that these and other issues are overtly recognized and are more than an idle chitchat over a Dawa, the famous African cocktail which is said to be so potent that it will cure almost everything (Dawa means “medicine” or “magic potion” in Swahili), is a cautious indication that air transport in Africa might be entering a new and more mature phase of development.

 “The picture is positive and bright,” Mathieu Duquesnoy, Embraer’s VP airline market, Middle East and Africa said at the Connectivity in Africa seminar in Nairobi in July, which was organized by Embraer and was the company’s first event of its kind on the continent after similar gatherings in other emerging regions like Latin America and the Middle East. 

“African carriers should register a strong performance in passenger demand of 5.4% [expressed in RPKs] annually over the 2011-2030 period and their fleets in service will double, from 655 to 1,325 aircraft,” Duquesnoy said, citing improving economic conditions as the main reason for the high traffic growth levels.  African gross domestic product (GDP) is forecast to grow 4.4% per year over the next 20 years and the population is forecast to grow annually 1.9%, from around 930 million to 1.36 billion.

Embraer’s long-term market outlook for the region is in line with the expectations of Boeing, which forecasts a 5.1% annual rise in RPKs and a 5.2% annual growth in RTKs for 2011-2030. 

“The above-world average GDP growth of the African economies and continued increased world trade with countries like China, India and the US are really driving more direct air services and boosting the demand for new airplanes,” Boeing Commercial Airplanes head of market analysis Mike Warner said, noting that the International Monetary Fund predicts that over the next five years, seven of the world’s 10 fastest growing economies will be in Africa. Boeing forecasts that African airlines will need some 800 new aircraft over the next 20 years, with slightly more deliveries in the second decade as growth progresses, equating to a market value of about $100 billion. “Our Africa forecast has certainly increased over the last five to ten years,” Warner said. “In our 2000 forecast, we estimated 480 deliveries for the time period [2000-2019] and about half, or 240 deliveries, were for the first decade [2000-2010]. As a comparison, over the last 10 years, actual jet deliveries into Africa have been 255.”

Almost two-thirds of new deliveries will be in the narrowbody segment and will serve essentially intra-African routes.

“But we also see strong growth in longer-range products; about 30% of our unit forecast is going into widebodies to connect Africa with Europe, China, India, South-East Asia and also North America.  The 787 will be an ideal tool for allowing African carriers to operate efficiently in smaller long-haul markets,” Warner said.

Boeing’s backlog with African airlines stood at 85 aircraft by the end of August, including a 737-800 with the new Boeing Sky Interior to RwandAir delivered that month. The Kigali International Airport-based carrier became the first African carrier to own and operate Boeing’s Sky Interior.

“This new interior will set RwandAir apart from our competition by bringing a new, unmatched flying experience to our valued customers,” RwandAir CEO John Mirenge said. RwandAir, which is an IATA member and is therefore IOSA certified, placed an order for two -800s in May last year. It secured a $60 million financing facility from the Export-Import Bank of the US for its two new narrowbodies.

RwandAir, which began operations in December 2002, belongs to the growing group of African airlines that comply with international standards and procedures in their operations. They see this as a good strategy for enhancing shareholder value through profitability and providing better service levels against competitors.

“I benchmark permanently against more than 200 carriers in the world on all aspects of the business,” Kenya Airways (KQ) Group managing director and CEO Titus Naikuni told ATWlast year (ATW,Nov. 2010, p. 28). Naikuni said that the Plimsoll World 300 Global Top Passenger Airlines Industry Analysis is his daily tool for comparing KQ with peers on liquidity, profitability, revenue, employee performance, trading stability and gearing ratios. KQ, which is one of the few publicly listed and consistently profitable carriers in Africa, was the world’s first airline to operate a 737-700 with blended winglets, in 2002, and it has a firm order for nine 787-8s plus four options, as part of its strategy to operate a young fleet. It recently topped up its order book with ten firm E-190s, plus purchase rights for a further 16 E-jets. Royal Air Maroc in August recorded another “first” for the continent when it took delivery of ATR’s first ATR 72-600, for which it was the global launch customer. 

African operators had a backlog order of 215 aircraft by the end of 2010, comprised of 190 jets and 25 turboprops. The total operational fleet in Africa last year was 1,141 (of which 65 aircraft were Eastern-built), according to Association of African Airlines (AFRAA) data. Embraer statistics show that 655 aircraft (500 jets and 155 turboprops) were operating scheduled passenger flights. The average age of the region’s fleet operating on scheduled passenger flights was 14 years. Aircraft in the 91-to-120 seat range are the oldest in Africa, comprising 80 aircraft with an average age of 21 years. 

According to Boeing’s market outlook, one third of projected new deliveries to African carriers will be for the replacement of older airplanes and about two thirds will be to support growing African traffic.

 “One of the dynamics in Africa is the aging fleet. To be competitive with their European rivals and with the emerging Middle Eastern rivals, certainly in an era of high fuel prices, African operators need to replace the older airplanes with newer-generation models,” Warner said.

 “Airlines realize this and they know that to remain competitive, especially against some of the emerging threats, they need to have the right planes, the right tools to help them do that.”

Foreign Competition

The intercontinental competitive landscape is a sore spot with AFRAA, which represents 33 airlines that provide 83% of total international traffic carried by all African airlines.

“Africa is being invaded by operators from outside the continent. The [intercontinental] sky is mostly dominated by European and Middle East carriers and new airlines from Asia, North America are entering African markets,” AFRAA secretary general Elijah Chingosho said.

Data from AFRAA and Innovata for July show that African airlines on average were responsible for 43% of capacity, or 244,550 seats per week, on Europe-Africa routes, compared to 57% or 328,974 seats provided by foreign operators. On Middle East-Africa routes, Africa’s second-largest intercontinental market, the equation is even more unbalanced, with African airlines operating 38% of the weekly seat capacity and non-African carriers operating 62% (Emirates, for example, last year operated to 19 destinations in Africa with a 1.2 average daily, according to OAG data). Conversely, on routes to North America and Asia, which are relatively small markets, African airlines supplied the majority of weekly seats, 68% and 76% respectively. 

While African airlines face huge competition on intercontinental routes, the situation is radically different on intracontinental routes. Some 71% of all intra-African routes (there are about 1,800) are served by just one airline and only 29% have two or more carriers, OAG data 2010 show (see pie chart, this page). Just six airports can be considered as “high” connectivity platforms offering flights to more than 25 African destinations—Johannesburg, Nairobi, Addis Ababa, Casablanca, Algiers and Lagos—and only seven airports offer more than 40 intra-African daily flights.

 “Regional aviation in Africa is not yet as developed as in some other parts of the world,” Duquesnoy said.  “One way for African carriers to be more competitive on intercontinental routes may be to establish a stronger intra-Africa network that would feed passengers to gateway cities and facilitate better connections.”

Several African carriers, including EgyptAir Express, LAM Mozambique, Kenya Airways, Nigerian Eagle Airlines (formerly called Virgin Nigeria) and LAM Mozambique, operate Embraer ERJs and E-jets and the Brazilian manufacturer is confident it will make further inroads into the African aviation market. The Embraer 30-120 seat range of aircraft is the “right-sized aircraft to help increase connectivity with low- and mid-density markets. Equipment with optimized capacity will also improve efficiency and reduce operating costs,” Duquesnoy said, pointing out that some 45% of flights within Africa use aircraft with more than 120 seats, yet 87% of those departures carry, on average, fewer than 110 passengers. According to IATA, African airlines recorded a 69.1% passenger load factor in 2010, the lowest in the world and far below the industry average of 78.4%

Over the last decade, according to ICAO data, African air transport demand has increased on average 6.4% annually in terms of passenger-kilometers performed, making it the second most-rapid growth region after the Middle East and ahead of the Asia Pacific region. The region’s growth rate was almost two points above the average world growth rate of 4.5% and in 2010 there was a 15% hike in TKPs over the previous year, almost five points above the global average.

But while growth rates are significant, the size of Africa’s air transport industry represents just a fraction of the global market: 1.2% to 3.9% depending on the benchmark. This is an intriguing reality given that Africa is the world’s second-largest and second most-populous continent and that its land and water infrastructure does not make mobility easy. According to ICAO statistics, African carriers traveled 123 billion passenger kilometers last year compared to global of traffic of 4,687 billion kilometers. AFRAA carriers transported just 60.9 million passengers and not one African name featured in ACI’s top 30 of busiest airports. Although traffic in the first-half contracted owing to the political disturbances in North Africa, the region posted a breakeven result this year according to IATA’s most recent forecast.

“Africa is a fast-growing market with enormous opportunities for air transport. Unfortunately, the existing players in the market are confronted with many challenges on all fronts that are impeding their ability to take advantage of the opportunities,” Chingosho said. The airline industry particularly in Africa is “over-taxed,” he said, existing airport handling and ATNS infrastructure in many African airports “are dilapidated and inadequate” and there is a lack of management stability and autonomy owing to government interference in day-to-day operations. Six African airlines had five different CEOs/MDs since 2001, three had six top management changes and two airlines had seven different CEOs/MDs.

Chingosho added that there has been “too much talk not matched by equal measure of action” on the implementation of the Yamoussoukro Decision. All African states signed the legally binding Yamoussoukro agreement in 1999, calling for the liberalization of intra-African air transport within a two-year time frame. Fed up with the protectionist approach of some members and their governments, AFRAA is now working with and lobbying for the so-called CREW—club of the ready and willing states—to move ahead with liberalization on a more regional scale and “show the protectionist countries the benefits of opening up the market.”

The AFRAA secretary general also pointed to safety (see sidebar) being a priority concern to be addressed. “Above all, safety in Africa must be improved and this should not be seen the sole responsibility of airlines, but of all stakeholders especially the states,” he stressed.

SAFETY CONCERNS

Africa once again had the worst safety performance in the world in 2010, according to IATA, which pointed out that African carriers are 2% of global traffic but 23% of global western-built jet hull losses. Expressed in the standard accident rate, Africa recorded 7.41 hull losses per million flights on Western-built jet aircraft,
or 12 times the global average of 0.61 hull losses per million flights on Western-built jet aircraft.  IATA African members performed better. Both IATA and AFRAA mandate IOSA certification for membership.