As with the rest of the world, the Covid-19 pandemic has not been kind to African aviation industry stakeholders. To paint a broad picture of market performance, the African Airlines Association’s (AFRAA) recent report noted a 50% drop in capacity since April 2019 with the continent facing greater declines in 2020 in passenger numbers, seats offered and aviation-related jobs than the worldwide average. The continent also faces the twin challenges of limited financing options and difficulties with current policies. However, despite these challenges, there are positive aspects to the market’s recovery and opportunities for sustainable growth. There are several initiatives available to market participants and governments to counter the difficulties in the current operating environment, if these are adopted. Opportunities also abound in this unsaturated market for regional growth and in air cargo.
The African aviation industry faces the same global challenges as others such as intense competition, high overheads, and narrow profits margins. It also faces several unique challenges exacerbated by the pandemic; reduced regulatory oversight, older average fleet ages, infrastructure capacity limitations at airports and capacity limitations with air navigation services. These all contribute further to the operational challenges and higher costs faced by the continent’s aviation industry. However, there are two additional major challenges that increase operational costs significantly and act as additional barriers to expansion and growth: higher financing costs and obstructive policies.
Firstly, African carriers, whether passenger or freighter, have limited access to the same types of financing available in other markets. They face challenges in accessing competitive financing for acquisitions and leasing equipment, with capital market access restricted to a few larger market participants. The history of financial difficulties at certain national carriers, a higher perceived risk profile, and concern about operational environments have resulted in higher lease rates, more stringent financial covenants and ongoing undertakings, and additional risk premiums factored in where investors do engage. In turn, lessors also face difficulties convincing financiers to invest in markets that are sometimes a financier’s first experience with the continent. Operators are constrained, therefore, in their ability to modernise and expand their fleets, precisely at the time when introducing more fuel efficient equipment is critical.
Secondly, government policy on taxation, market access, and airspace hold the industry back generally. Understandably, African governments have prioritised spending in other areas during the pandemic so financial support for airlines has been limited, but operators continue to face taxes, charges, and fees that are 8% above world averages and jet fuel prices that are 3% higher than other regions. Instances of foreign currency remittance restrictions inhibit group profit sharing and are an additional financial planning hurdle to overcome. High levels of protectionism and distrust, coupled with the costs noted above, inhibit greater connectivity. Uncompetitive state owned airlines are often propped up to the detriment of new entrants and enhanced competition.
The loss of momentum of one of the African Union’s 2063 flagship projects, the Single African Air Transport Market (SAATM) illustrates this best. Despite the significant benefits that open skies would present (particularly in conjunction with the Africa Continental Free Trade Area initiative), support for the SAATM is waning privately notwithstanding public backing from governments and industry bodies. Bilateral air service agreements remain the de facto approach with monopoly routes protected fiercely, contributing to low intra-Africa connectivity and market access. The unique threat of strong foreign competitors, with active hubs and the ability to offer lower prices, compounds this challenge. With the exception of the growing hub in Addis Ababa, there is a dependence on non-African hubs to funnel passengers onto the continent, leaving the market in a particularly vulnerable position when travel restrictions are imposed.
Despite these challenges and the continuing effects of the pandemic, there are several initiatives available to market participants and governments to mitigate the continent’s operational difficulties to ensure the industry emerges from the current crisis more resilient, sustainable and profitable.
Mitigation and initiatives
As with other regions, the first step to the recovery will be the safe reopening of borders. Government partnership with the industry is central to harmonising health protocols and a streamlined reopening; this includes accelerating vaccine access and reducing the costs of PCR tests. Government support for economic stimulation is key to the growth of the industry and this manifests itself in several ways. Travel subsidies and streamlined visa application processes could boost demand while investments in human capital support the industry long-term. Central to these efforts however, is the reduction or suspension of the high taxes and airport charges noted above to facilitate reductions in overheads and improve the affordability of travel. This necessitates a shift in perspective to see imports, exports and tourism as greater generators of income than taxing airlines and passengers.
Cooperation and alliances
The pandemic has presented the African aviation market with new opportunities for cooperation and collaboration within and across the industry. Available tools include increasing codeshare flights, creating capacity and connectivity portals, and route network coordination to reduce isolation and increase intra-Africa connectivity. Where permitted by financing and leasing arrangements, pooling of spare parts and sharing maintenance facilities also contribute to collective recovery efforts.
Creating strategic alliances to ensure seamless connectivity to customers within and outside of the continent will also go some way to mitigating the threat posed by non-African airlines. There is no other region where non-native airlines have such a prominent position and with a clear strategic focus, alliances and cooperation, African carriers can put up a united front to this competition.
Specialist leasing products
In November 2020, the African Development Bank (ADB) announced a study into the possibility of establishing a dedicated leasing platform for use by African airlines. The initiative has been on hold for internal reasons but is expected to resume this summer. The latest commentary suggests that ADB will, initially, make a guaranteed product available to African airlines to assist with reducing risk on leasing transactions. There will be a continued focus on narrow-body aircraft to support regional connectivity but the bank hopes the product will help bring down costs for operators. In addition, ADB has not ruled out providing support for an existing leasing company to expand into Africa to support the continent’s carriers and again reduce financing costs, which presents a significant opportunity for existing lessors and new investors.
Digitalisation and data
The upheaval caused by the pandemic has refocused airlines’ attention on the importance of the digital experience and the strategic use of data for enhanced operational decision-making. This goes hand in hand with a greater awareness of data protection issues and accompanying regulatory compliance. As the market recovers, the new differentiator for customers and cost management will be the efficient and effective use of bio-safety measures (including contactless travel and vaccine passports) to complement global health protocols. This is therefore the time to overhaul processes and technology, and to embrace changes in consumer expectations and supply chain management.
Making better use of data will also permit enhanced demand forecasting and dynamic pricing allowing operators to remain flexible and adaptable, key to their role in supply chains. To improve cash flow, priority should be given to payment strategies by adding more forms of payment, reducing associated costs, and enhancing security features. This is applicable for both the domestic market and to international travellers, creating global coverage with local reach. Bringing down barriers to the use of real time payment and by capitalising on existing world-leading Africa-focused mobile money platforms will also enhance the consumer experience.
Regional carriers and aircraft
AFRAA statistics note that domestic traffic has remained buoyant with an increased focus on intra-Africa connectivity. The continent continues to be an attractive market for regional aircraft for a variety of reasons, from their use in supporting commodity enterprises to their adaptability to the operating environment. There are real opportunities for existing and new regional carriers, particularly when coupled with support from governments and international lessors. This might include the use of domestic route subsidies during the recovery period to allow airlines to operate routes even though these might not always be on commercial terms. PSO routes are another alternative to enhance accessibility and connectivity and financial incentives based on certain criteria such as load factors may also encourage operators to explore new routes. This operational flexibility goes hand in hand with making air cargo operations a priority as well.
Cargo and freighter market
According to IATA, African airlines’ cargo demand in April was the strongest of all regions and represented a fourth consecutive month of growth at or above 25% when compared with 2019 levels. The expanding Asia-Africa trade lanes have contributed to this strong growth significantly. However, many African carriers often overlook the importance of having air cargo capabilities as part of their service offering. The pandemic has made it clear that cargo needs to be treated as part of an airline’s core business and that it should be represented at all levels of the business. There is therefore a pressing need to diversify current business models to include freight.
Of course, meeting this demand and enhancing operators’ structural agility must be supported by the right physical infrastructure required for freight, which is all the more important given the cold storage requirements of most medical freight. Airports and customs policies should also recognise the record growth in ecommerce and the need to keep it moving quickly using fast track lanes or specialist warehouses. For national carriers, the flexibility and diversification that accompanies air cargo operations needs to be coupled with independent decision making to avoid undue delays to operations.
Resilience and sustainability
As the smallest region for air services, investors often overlook Africa. Operational and policy challenges add to higher perceptions of risk and running costs. However, as the world slowly emerges from the pandemic, there are several initiatives available to mitigate these challenges and to support the recovery of a more resilient and sustainable industry. These will take patience and discipline to implement but the unsaturated market on the continent provides significant opportunities for investment and growth, particularly in the regional and air cargo sectors.
 AFRAA Air Transport Report 2020 – https://afraa.org/our-work/statistics/
 https://www.afdb.org › default › files › 2020/12/07
 AFRAA Air Transport Report 2020 – https://afraa.org/our-work/statistics/