At a Glance
- Fleets across the region are being rejuvenated, with new equipment purchases growing across the continent while demand for pre-owned aircraft is still high.
- A mismatched gulf between high aircraft capacity and low market demand in some areas indicates a need for right-sized aircraft.
- Chinese economic interest is growing in the area, potentially fostering greater traffic and indicating a prosperous future.
- Connectivity is still poor, with air travel hindered for many Africans until the impact of 2012’s Yamoussoukro Decision eliminates many of the barriers, although the legislation is yet to be applied.
The Rise of Smaller Airlines
Africa’s significance has continued to grow on the global airline industry stage, with focus now shifting away from being solely on the major carriers. Smaller airlines, particularly regional, are becoming more prominent, whether as independent standalones, multinational operations, or ACMI (Aircraft, Crew, Maintenance and Insurance) providers to bigger brands.
Compared to other regions, profitability may seem somewhat elusive for most African airlines, though compared to 10 years ago – even five –, huge strides have been made to connect the region and are likely to continue. According to IATA, the region is expected to report a US$ 800 million net post-tax loss for 2017, however improving connectivity in such a vast continent, as well as economic survival, must be seen as the primary goals.
Despite this, profitability – or economic sustainability – is increasingly high on the agenda for African airlines, most of which are also vulnerable to external shocks such as oil and other commodity price fluctuations, geopolitical unrest, and currency devaluations. To mitigate the risk, the right capacity strategy is instrumental.
Another available risk mitigation strategy is hub development – geopolitical unrest tends to reduce local demand, but connecting traffic is usually unaffected and can even grow if schedules and capacity are adjusted accordingly.
Refreshing Legacy Fleets
In recent years, one of the most positive developments in Africa has been region-wide fleet rejuvenation – and not just restricted to the major carriers, with newfound purchasing power for smaller operators. Demand for pre-owned aircraft remains vast, though age restrictions in many places ensure that younger aircraft are being imported more than in the past. Ten years ago, 20% of jets in the 70-130 seat segment were older than 15 years, this has now doubled to 40%.
Fleet Profile – 70 to 130-Seat Jet SegmentSource: Ascend
Regional Jets to Open Virgin Markets
Notably, the importing of 50-seat RJs has risen to prominence with low capital cost being a major factor in their popularity. In addition, 50-seaters are the perfect tool for opening up new, thin markets and later facilitating the evolution into larger capacity jets as said markets mature. Some 65% of city pairs have traffic volumes of up to 100 daily passengers, yet the current fleet is comprised of large capacity aircraft – around 70% of the aircraft in the single-aisle jet fleet have more than 130 seats. This clearly indicates not only the inability to expand air service, but also of mismatched capacity and demand.
Market Density ProfileSource: Sabre
Growing Chinese Interest
Africa is far from immune to consolidation, and the growth and strengthening of certain airlines will come to the detriment of smaller and/or less well-managed competitors. The growing Chinese economic interest in the region might serve as a boost to certain airlines’ survival. As China does more business in Africa, traffic will grow, and in parallel the prospect of China investing in African airlines can indicate a bright future.
An Axis Shift
Historically, most of Africa’s imports and exports came through hubs along the continent’s north, however increased trade and links with China mean that this has shifted east – drawing some traffic and commerce away from the Persian Gulf. These new markets are primarily thin and/or lower yield. As we see around the world, growing hubs require smaller aircraft to feed them, especially where ground infrastructure is lacking and urban areas can be very far apart.
The Arrival of the LCC Revolution?
South Africa has shown the greatest promise for an LCC revolution, but in a vast continent where air travel is much more a necessity than a luxury, potential in other markets remains largely untapped. The primary obstacles remain operational costs, including fuel, insurance and airport charges – which across Africa are uniformly high – as well as regulations.
The Status of the Yamoussoukro Decision
The concept of the ‘African Passport’ would likely eliminate many of the existing barriers that hinder air travel for many Africans. Although the timeframe in which this could be achieved remains unclear, the agreement is a crucial part of establishing and promoting a single African regional air transport market – unlocking the true potential of Africa.