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Is the African Airline Industry Ready for Market Recovery?

Is the African Airline Industry Ready for Market Recovery?

In past editions of Airline Profits we covered some specific issues pertaining to the African airline industry. In this article, we are revisiting these issues and also highlighting additional challenges which African air carriers will have to deal with effectively in order to sustain their existence over the long run.

Just a few months ago, in November 2016, the African Airlines Association (AFRAA) held its 48th Annual General Assembly and Summit in Victoria Falls, Zimbabwe. The focus of the three-day event was the survival and recovery of African airlines.

This theme was right to the point, considering that the African airline industry faces many challenges. For instance, with very few exceptions, African airlines have been posting huge losses over the past 12 years. What is more troubling is the fact that on one hand, Africa has not only posted the weakest airline financial performance year in and year out. On the other hand, African airlines have not been able to take advantage of the lower oil prices which have boosted airline profits to record levels for the past three years. Thus, as pointed out in a previous edition, what can one expect in terms of future financial performance, especially now that oil prices are rising again? Based on the recent report released by IATA, it appears that while the global airline industry has been posting higher and higher profits, the African region alone has been reporting bigger and bigger losses. In fact, the last time the African airline industry reported any profits was in 2010 with a meager 100 million US dollars representing only 0,5% of the collective 17,3 billion, which the global airline industry posted that year. Since then African air carriers have collectively lost a 5-year US$2.3 billion. That does not include the anticipated 1.7 billion combined for 2016 and 2017 nor the cumulative 1.3 billion lost between 2004 and 2009.

The recent forecast posted by IATA indicated that operating costs have skyrocketed since 2011. In terms of operating margins, African air carriers are well below the break-even point. Similar to net profits, operating margins have been declining for the last 5 years.

Beyond the factual look, at Africa’s airline financial performance, one cannot but look also at the potential of the African region interns of air transport. Different economic indicators point to Africa as a growing market. Furthermore, demand for air travel is also expected to increase substantially over the next few decades. Besides, when one considers transportation infrastructure in Africa, one cannot but conclude that aviation is by far the most needed means of transportation to tap the huge potential of the continent. Unfortunately, it clearly appears that the African airline industry is financially and structurally weak to run as the powerful economic engine it ought to be. Moreover, the industry is also not well prepared to take advantage of opportunities either locally, regionally or globally.

The last AFRAA AGA was another wake-up call. Well beyond the much needed African Open skies, there should also be a much stronger tie between African airlines themselves. Survival and market recovery are possible but not until all key stakeholders reach a basic understanding and a true commitment to building a more united,  stronger and thriving African airline industry. Until such a time, one can expect the following. On one hand, foreign and better-funded air carriers will continue to milk the African skies, while African airlines themselves will continue their financial struggles and grow weaker and weaker.

In summary, we do hope that African aviation industry stakeholders will clearly see that current times and circumstances would not tolerate the status quo of isolation and mutual exclusion for longer. We also hope that African governments will come to the realization sooner than later that their national air carriers are just too small to compete against well-funded, mega international airlines, which are already carrying some 70% of the international traffic originating from Africa. After nearly 60 years of independence, it is high time to acknowledge the fact that the so-called national pride has stifled and harmed in many ways the development of a sustainable African aviation industry. Perhaps, it is high time to cast out that harmful “national pride” and to try something else. It may be worth it to pursue true and genuine African unity and pride, instead.

Finally, we hope that African airlines will understand that some type of consolidation or a pan-African airline alliance is the key to their effective survival and market recovery.

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Kofi Sonokpon

Kofi Sonokpon

Managing Editor of Airline Profits, the first aviation magazine devoted to improving airline effectiveness and profitability, Kofi Sonokpon has more than 20 years of international experience in aviation. Kofi holds an IATA sponsored Master of Business Administration (MBA) in Air Transport Management from the John Molson School of Business at Concordia University in Montreal. Kofi Sonokpon is a speaker, an airline business thought-leader, and author an innovative book series intended for the 21st century airline, namely Airlines for Business and Airlines for Technology.