FROM MAGAZINE: In search of Profitability

There is a stronger forecast for Africa's economic growth which is expected to support the continent's aviation sector. However, African airlines are seeking sustainable profitability amidst growth expectations, Roy Ezzee reports.

When President Paul Kagame of Rwanda opened the African Airlines Association’s (AFRAA) 49th Annual General Assembly (AGA) in Kigali, Rwanda, early November 2017, it became clearer how resolute Rwanda has become to strengthen its growing popularity as the new events, business and tourism capital in East Africa, if not the whole continent. But what was not clear was when African airlines would exit the realm of asphyxiating losses, fragmented efforts and limited cooperation, collaboration and coordination that has been the bane of these airlines for decades now.

But President Kagame’s words, spoken through Edouard Ngirente, the Prime Minister of Rwanda, on the need for stronger cooperation and commitment to the implementation of Single African Air Transport Market (SAATM), is unarguably a strong motivation to airlines and African States alike to strive to improve the air transport ecosystem in Africa.

Even as the AGA focused on strategies to achieve profitability for African airlines, these airlines have much work to do to turn around their own fortunes. The industry looks to a year of another N100 million losses for African airlines in 2018, amidst “stronger forecast for Africa’s economic growth which will support demand growth of 8 percent.”

Currently, few African airlines are making profit. According to AFRAA, these include Astral Aviation, Air Mauritius, Ethiopian Airlines and Royal Air Maroc. Airlines like Air Tanzania, and Camair-Co say they have experienced improvements following a period of losses in their operations. Specifically, Ernest Dikoum, CEO of Camair-Co, says the airline has improved its monthly deficit from 2 billion to 62 million FCFA in the last one year.

RwandAir CEO, Col. Chance Ndagano, and Air Tranzania CEO, Ladislaus Matindi, both reveal the positive growth trajectory of the airlines, which reassures of their focus on reaching profitability overtime. Ahmed Aly, CEO of Nile Air, which received its one millionth passenger in the first nine months of 2017, says the airline is intent on maintaining its profitable operations. In this regard also, Ethiopian’s Vice-President for Strategic Planning and Alliances, Henok Tefera, emphasizes the need for African airlines to work more cooperatively.

According to the International Air Transport Association (IATA), “African carriers are expected to continue to make small losses of $100 million in 2018 following a collective net loss of $100 million in 2017. Stronger forecast of economic growth in the region is expected to support demand growth of 8 percent in 2018, slightly outpacing the announced capacity expansion of 7.5 percent.”

Much hope is hinged on the ability of recovering economies in Nigeria and South Africa, and stronger growth in several other African economies to drive demand and improve the performance of African airlines in 2018 and beyond. IATA explains this further: “While traffic is growing, passenger load factors for African airlines are just over 70 percent which is over 10 percentage points lower than the industry average. With high fixed costs this low utilization makes it very difficult to make a profit. Stronger economic growth will help in 2018, but the continent’s governments need a concerted effort to further liberalize to promote growth of intra-Africa connectivity.”

Cargo airline services is one vital sub-sector that appears neglected even though it is another fulcrum for economic growth. Africa still has less than 2 percent of global air cargo market, which reflects the limited exploitation of the cargo potentials in Africa, and the poor engagement of African airlines in air cargo operations. In fact, cargo airlines are generally seen as a service reserved for old, disused aircraft.

Currently, however, airlines like Ethiopian are changing this perception by building efficient technology-based cargo fleets. It is noteworthy, also that though several airlines are expanding to new routes in West Africa like Air Peace, Medview and Overland Airways, and Africa World Airlines. However, there are hardly dedicated cargo airlines among those expanding in the region, which raises a big question mark over the readiness of African airlines to venture into dedicated air cargo services. But quite interestingly, the profit-making status of Astral Aviation, a cargo-only airline based in Kenya, indeed makes a strong statement of hope about the potential of cargo airlines in Africa.

Although cargo infrastructure is picking up in some African airports like Johannesburg, Addis Ababa and Nairobi, among few others, generally, cargo and aviation infrastructure in Africa are in a deplorable condition that repels airlines expansion and other investors, which makes airports not to become regional transit hubs or destination airports from airlines.

While the Lome Airport has undergone remarkable upgrade to meet the upsurge brought on by the activities of Ethiopian and other airlines, there is need to pay particular attention to cargo facilities at airports in the surrounding region. This will aid the exchange of agricultural, horticultural and other perishable products produced in Africa especially between West Africa and East, and other regions.

The out-going Secretary General of AFRAA, Elijah Chingosho, while soliciting support from industry stakeholders to AFRAA’s efforts to drive the development of African airlines, makes a strong call for the improvement of airports facilities in Africa. He also says more African airports should be stepped up to 24 hours operation to enable more passengers travel with greater convenience.

“Travellers will be attracted to airports with good facilities,” says Chingosho. In line with the view of most African airlines, he also calls for the removal of visa restrictions and other non-physical barriers that prevent the easy movement of African airlines, tourists and traders within the continent. This, of course, complements the fervent call for the free movement of cargo among Africa’s economies. In this regard, Sanjeev Ghadia, founder and CEO of Astral Aviation, calls for the establishment of free trade areas to enhance the production and exportation of air cargo within Africa. This, he says, will address the challenge of flying empty legs when cargo airlines operate intra-Africa routes.

This is also the mind of Ato Girma Wake, veteran airline and aviation expert, who served previously as CEO of Ethiopian and Chairman of RwandAir. He says African airlines must have shared vision in developing connectivity within Africa. This indeed requires a lot of discipline to achieve. But can African airlines think big and be realistic in taking over the future as Girma Wake wants them to?

There is much to hope for Africa’s cargo and passenger airlines in 2018 and beyond. Safety must continue to be the number priority for African airlines while these airlines pursue the opportunities ahead. IATA’s Director-General and CEO, Alexandre de Juniac, also emphasizes the essence of using IATA’s operational safety audits (IOSA) to enhance safety in Africa, and the need to cut sundry costs. Therefore, African governments, who plan to launch the Single African Air Transport Market (SAATM) in January 2018, must become more realistic and cut down costs facing African airlines in all aspects such as fuel, taxes, fees and charges.

While airlines and states must push more vigorously in 2018, AFRAA’s new Secretary-General, Abderahmane Berthe, must hit the ground running as he is now expected to drive stronger advocacy for government’s increased support to airlines and aviation infrastructure development. African airlines most importantly should increase their appetite for cooperation, collaboration and coordination in the face of emerging passenger and cargo opportunities.

When AFRAA meets again in Morocco in 2018, African airlines should have a new success story to tell.