Aviation festival promotes togetherness
Airline partnerships, profitability and developing airport capacity were high on the agenda at the Aviation Festival Africa in Johannesburg, South Africa. Keith Mwanalushi gives a round-up of the issues discussed.
Earlier this year, the International Air Transport Association (IATA) revealed that, despite the 2016 financial outlook for global airlines looking upwards, African airlines were expected to post a $500 million loss this year.
It was a slight improvement on the $700 million that the region’s carriers lost in 2015.
The IATA report indicated that capacity growth (5.3%) is anticipated to outpace demand growth of 4.5%.
African carriers continue to confront a plethora of challenges, including intense competition on long-haul routes, political barriers to growing intra-Africa traffic, high costs and infrastructure deficiencies. In addition, many major economies in the continent have been hit hard by the collapse of commodity prices and the impact that has had on revenues and the inflow of hard currencies.
Unresolved foreign exchange crises are adding to the economic difficulties facing some airlines in the region.
Speaking at the Aviation Festival Africa, Abel Alemu, Ethiopian Airlines (ET) regional manager for South Africa, confirmed that the outlook was negative. “The major challenge for business in Africa is increased competition from non-African airlines,” he said.
Alemu’s presentation revealed that non-African airlines carry 82% of African traffic. Four of the global carriers – Emirates, Etihad, Qatar and Turkish ¬– collectively operate 745 flights a week and the combined destinations into Africa now stands at 105.
This total is rising. Qatar Airways, for instance, is preparing to launch new services to Lusaka in Zambia next year and will compete with Emirates on the route.
Turkish has 43 destinations in Africa behind ET. “It’s a pity that the second airline following us is not an African airline. This has been a major challenge and the profitability has declined for major African airlines. This is mainly because of the heavy competition,” Alemu noted.
Currently, only 18% of the African market share is covered by carriers on the continent and, once again, the importance of a liberalised African market sprang up. “One of the big problems is the regulatory frameworks for different countries. There are various political reasons that have really impeded the air transport industry,” said Alemu.
He continued by stressing the necessity of a single African air service system to promote interaction between African countries, aviation authorities and airlines. “A single market will definitely develop the inter-Africa relationships and growth in order to develop infrastructure, trade and other activities between these countries.”
Better cooperation between African airlines, developing joint ventures and other partnerships were highlighted as critically necessary for the region. Start-up airlines face considerable capital investment, let alone competing with the big players such as Ethiopian.
Alemu said having the proper manpower, equipment, infrastructure and competition were major issues for smaller carriers, and forming joint ventures would help them develop some foundation. “Unity is strength. Especially for these African carriers having a joint venture arrangement with others in the continent will help them to develop their own capabilities and share knowledge and expertise.”
With this strategy in mind, ET has been engaging with various countries in Africa mainly to form new start-ups following similar arrangements with Asky and Malawian Airlines.
ET partnered with Asky in 2011 and now has a 40% stake in the Togolese carrier. “This partnership is now one of the strongest in western Africa. Both management and financial assistance were there right from the beginning,” said Alemu.
“We also established contact with Malawian Airlines in 2014 and they [Malawian] are flying to eight destinations in the region. We are doing this in order to stay competitive because it would be very difficult for us to cover the entire skies of Africa.”
Ethiopian is now in discussions with RwandAir. “They have been doing very well in the past few years and discussions are going on in order to have a similar arrangement,” he continued.
Alemu also confirmed that ET is in talks with the authorities in Kinshasa, Congo in order to have a better relationship and possibly establish a start-up airline there too.
However, not all countries have embraced Ethiopian’s ambitious plans, Zambia being one of them. “The Zambian Government was involved in discussions,” said Alemu. “But, as we speak currently, we are not any closer to any deal. Instead, we are closer to having something in Congo.”
If seems that Zambia’s lukewarm reception has protectionism splashed all around it and Alemu acknowledged that even the larger carriers still face regulatory obstacles. “Yes, we do face this in Africa. Getting a permit to operate in different parts of the continent is a challenge, even for us after flying for 70 years. It is always difficult.”
Several African countries are currently undertaking major airport development work. In east and central Africa, Ethiopia, Kenya and Zambia are all involved in new airport projects. “In Ethiopia the government is spending a huge amount of money to expand the current airport but also to build a new airport,” Alemu said
Details of the new Ethiopian airport project were made available at the festival for the first time, indicating the need to build a facility that will cater for 120 million passengers to come online in about a decade’s time.
“Alemu added: “By then it will be the largest airport in the region but we will not be waiting for 10 years. The current airport we have in Addis Ababa is going through an expansion programme to handle 22 million passengers per year in line with our vision 2025.
“So, by 2018, the expansion project will be completed and we will be able to support our operations with an expanded airport.”
Speaking on fleet deployment, Joao Miguel Santos, VP at Boeing International – Africa identified that some 1,170 new aircraft will be required by African operators in the next several years.
“Some people don’t believe that but it can be done,” Santos said.
Further, he dismissed the argument that Africa was a dumping ground for old inefficient planes. “Yes, it used to be, but not any more.”
Santos drew special attention to the several airlines that are currently in the process of fleet modernisation programmes. Boeing recently delivered 787s to Royal Air Maroc, Comair/Kulula have taken eight 737-800s with another expected in October. ET continues to take delivery of 787s and TAAG Angola will now have eight new 777s in the fleet, which Santos referred to as “quite amazing” – especially coming from an airline that, until recently, was on the European Union (EU) banned list.
Santos commented: “There is an enormous amount of in-production aircraft coming into Africa. An airline like Comair, for example, has found out that there is a fine line between a used aircraft that is cheap and a new aircraft that is expensive but benefits from low fuel burn and efficiency.”
Sub-Saharan Africa remains the last region to see the low-cost airline sector flourish outside of South Africa.
Operating conditions for budget carriers have proved extremely onerous. However, the general consensus at Aviation Festival Africa was that the low-cost model remains the most ideal for African start-up and regional carriers.
Following a presentation, Richard Kyereh, head of commercial at Africa World Airlines (AWA) discussed the airline’s low-cost operation from Ghana.
“Since 2012 we are now flying on four domestic routes and to Lagos in Nigeria,” said Kyereh.
AWA currently has the largest market share on its routes. “Lagos was struggling but now Aero Contractors has moved off the Accra-Lagos route, Medview Airlines is also reducing its schedules and we have a carrier like Dana Air also exiting. So we are only flying the route with Arik Air,” explained Kyereh.
In the near term, according to Kyereh, AWA hopes to expand to other west coast destinations. “Domestic is where we are making money now but we are looking at untapped regional and west coast markets, which have higher yields.”
The Accra-based airline has no plans at present to enter the long-haul market and Kyereh frowned at the thought. “Domestically, we are only competing with Starbow. We used to be four players but two have since folded. Even then, Starbow is using just one aircraft now and we are using three.”
A question often raised at conferences is how budget carriers operate in Africa compared to other world regions, where the business model is more mature. Kyereh stated that AWA was operating as a low-cost carrier in its purest form.
“We are low-cost. We are operating point-to-point using the same equipment. We have very short turnarounds and we don’t have complexities and don’t offer transfer or connection systems. That is what AWA is about,” he explained.
The fleet is made up of three Embraer ERJ-145s, which are owned by the HNA Group. It, in turn, has a 70% stake in AWA.
“Because our sister company owns them, ultimately, they are our own aircraft but then again you need to treat them in your books as a lease,” explained Kyereh, who shrugged off speculation that A319s are tipped to replace the ERJs in future. “We want to keep a similar kind of equipment so, instead of the A319s, we are trying to go with the Embraer 190s.”
AWA is already in high-level negotiations with Embraer, according to Kyereh. “I don’t see the A319s happening but I do see the Embraers,” he confirmed.
IATA has asked African airports to review their charges and other taxes that constrain the growth of airlines and west Africa is high on the list of areas with high operating costs.
AWA has engaged with the Ghanaian authorities and Kyereh is hopeful that this year, being an election year, the spotlight will shine on these issues. “We are hoping the government responds to our plight,” he said.
“One problem is domestic carriers paying VAT on every ticket. It is very abnormal so the ticket price has gone up. This has actually reduced our passenger throughput in the past year by close to 20%,” he said.
No other airline in Africa has been tested more than EgyptAir following a string of incidents and threats in recent times.
Despite these problems, Ashraf Hakim Alsayad, regional general manager for EgyptAir in South Africa, said the airline is resilient and will soldier on. “We have about 5% annual growth for the whole company.”
In South Africa, specifically, the airline has increased capacity on the Cairo-South Africa sector by swapping A330-200s with the larger A330-300s.
“In terms of fleet growth, we expect to receive eight new aircraft – 737-800s. We will take delivery of the first one by the end of this year,” said Alsayad.
All eight 737s are coming on lease and they will be used as replacement aircraft, Alsayad specified. “As soon as we receive the eight aircraft, we have to release the old planes.”
Sticking within the region, EgyptAir discontinued its operations from Cairo to Lusaka. Alsayad explained that the reason simply boiled down to low revenues. “When the load factor is low so is the revenue. We have to look for places where we can generate more revenue.”
In the midst of all the external pressures facing the carrier, EgyptAir hired Sabre to undertake a full restructuring of the whole company. The process ran for almost two years looking at how to enhance the fleet, utilisation and productivity. “We will start implementing some of the recommendations that came from that. We are in the process of following up,” Alsayad concluded.