A Key topic at the African Airlines Association (AFRAA) annual general assembly in November was how the continents airlines could compete against bigger foreign operators within their own airspace.

What strategies could be implemented in response to the larger and more dominant overseas carriers?

Industry figures show that intercontinental capacity to and from Africa by African airlines stands at around 20% -the remainder with airlines mainly from Europe, the Middle East and lately North America. As a result of this intense competition on the intercontinental routes, the best opportunities for growth and expansion for African airlines lie in the under-served regional and domestic markets.

“In my view there are two aspects to this,” said DR Elijah Chingosho, secretary general of AFRAA.”Firstly, what can the African airlines do for themselves and, secondly, what can the African governments do to facilitate the growth and development of African airlines?

“Let’s start with governments. In Africa the charges, taxes and levies on passengers and on fuel are very high-much higher than the world average rates.”

In terms of passenger charges, particularly in Central and western Africa, he said some places were charging between $60 to $80 per passenger.”So you can see that it puts African aviation at a disadvantage because, for the larger airlines to grow, we need those feeder airlines coming from domestic and regional operators that also face these high charges. We need to grow the intra-African market,” said Chingosho.

He emphasized that governments need to reduce such excessive charges. Considering the high cost of fuel around the world.Chingosho indicated that worldwide fuel constitutes about 36% of operational costs for airlines globally.

“In Africa, on average, its 45 to 55% because of these various charges, taxes and levies on fuel,” he added.

The second point he raised was that of the Yamoussoukro Declaration, designed to accelerate the implementation and liberalization of the air transport industry in Africa; an issue that has dragged its feet over time.

Chingosho said it was critical to fully liberalize Africa for African operators, thus making it possible to get entrepreneurs from one country to invest in another.

“So, basically, what we are saying is we need the full implementation of the Yamoussoukro Declaration because what you often find is that African governments give preferential treatment to some foreign carriers, say from the Gulf or Europe.

“For example, they allow more frequency of services by literally giving fifth-freedom traffic to foreign carriers, yet the same is denied to African carriers. If our governments are able to create a level playing field than I believe that our airlines should be able to compete effectively,” he explained.

One of the main challenges facing airlines on the continent is that they are very small.”We need to consolidate, we need to form partnerships and we need to forge joint ventures. We encourage such arrangements,” he stressed.

He noted the example of Kenya Airways and its partnership with Tanzanian carrier Precision Air and that between Ethiopian Airlines and ASKY in Togo-basically, larger airlines buying equity in smaller partners.” This way, both are able to grow,” he said.”It’s the only way we will be able to form bigger operating entities to compete against the foreign carriers.”

According to a report by the Centre for Asia Pacific Aviation (CAPA) Precision CEO Alphonse Kioko said Kenya Airways involvement in the company has allowed the carrier to access financing from banks to grow the airline in away that was not previously available. It has also benefited from staff exchanges with Kenya Airways-allowing employees to gain experience in a bigger organization .Also, an association with Kenya Airways maintenance has made it easier for Precision to lease aircraft.

ASKY gives Ethiopian a hub in the huge and fast growing West African market, rich in oil and mineral exports, not easily accessed from its home base at Addis Ababa.

Establishing the hub in Togo, a small market with little traffic of its own, was challenging and restrictions on night services meant aircraft utilization was not optimal, increasing costs. Nevertheless, ASKY has performed well, establishing good traffic volumes and load factors.

The inability to benefit from scale is a major drawback: Africa is littered with several small carriers that are crippled by their size.

Chingosho continued to stress on the fact that they must attract interest of the larger carriers.

Equity Participation

He said: “I’m aware that Air Malawi, which a very small airline, is in discussions with airlines to try and get them to buy equity participation in the company. I think that is the way to go, otherwise the smaller carriers, because of the lack of economies of scale, will go out of the market one after the other.”

Outside of South Africa,(and possibly Namibia) ,airlines in the sub-Saharan region are relatively small operations with no significant operational credibility ,many of them featuring on the European Union list of banned airlines.

However, Chingosho warned that consolidation among these small carriers might not be the answer.”If we ask why the small carriers don’t consolidate, the thing is that they don’t have much to gain from each other because they suffer from the same basic problems.”

He listed problems such as under-capitalization, lack of management depth, and the lack of capacity to basically achieve industry best practice in quality, efficiency and in terms of economies.

“That’s why, in my view, you need that investment especially from the bigger airlines. Apart from benefiting from feeder traffic, the larger carriers might also benefit from the traffic rights which may be granted more easily under such forms of participation.”

He noted that ASKY is now viewed as a regional airline rather than a Togolese airline, which as a result has much more fifth-freedom traffic rights than most other airlines on the continent-much to the benefit of Ethiopian Airlines.

” I think its the way to go. Remove the national flag from the tail .For the countries in the Southern African Development Community (SADC), there could e an entity in Zambia, for instance, where you have people from Namibia, Zimbabwe, Malawi, Tanzania and so on. They can all get equity into that airline, get the shareholding traded at the various stock exchanges and this way you can mobilize much more capital from the region,” he said.

The SADC states are still heavily dependent on foreign airlines from the Middle East and Europe .This situation makes travel to the Southern African stopovers and delays caused through connections outside Africa.

Of concern to some domestic and regional carriers on the continent, however ,is the fear than greater liberalization of intra-African skies will benefit the four largest players-Kenya Airways ,Ethiopian ,SAA and Egypt Air-which,given their comparatively vast resources ,can quickly take the lions share of a freed-up market to the detriment of smaller airlines. As a result they perceive the big carriers as a threat to their futures rather than as protectors with a common interest of collectively building Africa’s Aviation system.

Raise Concerns

What, then, is AFRAA doing to raise concerns over high charges?

“We have collected the statistics and published them because we realized that some of the governments and airport authorities were not aware that their charges are much higher than elsewhere,” said Chingosho .”They can now try and work on it.”

An example of this is in Angola where, according to Chingosho, AFRAA was able to get the fuel company to reduce the price by 20% .He said, as a whole; the African airline industry could save up to $ 60 million per year just by reducing some of the charges, taxes and levies on fuel.

“Also ,we are lobbying against monopoly service providers such as fuel, ground handling and catering companies, so that by stimulating competition this should eliminate monopoly pricing,” he added.

Despite the slow progress implementing the Yamoussoukro Declaration, Chingosho believes it’s important to highlight that there are parts of the continent seeing growing implementation.”You will find that more and more countries in Central and Western Africa. Some in East Africa, too, are willing to open up their markets fully, and even to provide fifth-freedom traffic rights to those who intend to fly in their areas-so there is some progress.”

He noted that the missing link with the Yamoussoukro Declaration had been the lack of an executing agency. This is now in place.

“The African Civil Aviation Commission has been mandated as the executing agency, so I believe it will be now be easier to accelerate the full implementation,” he said.

The Middle East leads the expansion into Africa .In October 2012, Mozambique became the latest foray on the African continent for Qatar Airways. The Doha-based carrier inaugurated three weekly services to the country’s capital, Maputo. With the discovery of large reserves of natural gas, Mozambique is today emerging to be one of the fastest growing economies in the region.

Qatar Airways operates to some 19 cities in Africa. Within just two years the airline opened up a number of routes across the continent, including Entebbe, Benghazi, Kigali, Maputo and Kilimanjaro in Tanzania. Similarly, Emirates serves to Lusaka and Harare in February 2012.

“What we see is that worldwide, the perception of Africa is changing,” observed Chingosho.”People are seeing Africa as the future growth market, the economies of Africa are rising well above world average rates and the Middle class on the continent is rapidly growing-a number that’s estimated to be around 300 million people.

“Even the poverty level within the continent is decreasing .This is creating quite a big market and that is why many parts of the world, such as the Middle East ,Europe, America and Canada ,are seeing opportunities here. I can see more of them getting into the market in Africa,” he said.

However, he noted the situation with Asia as different .Currently; African airlines operate more services to and from Asia than Asia carriers to Africa. Trade between Africa and Asia continues to grow: China is already the largest trading partner with Africa, surpassing trade with the US by significant margins.

Our Concern

Chingosho urged African carriers to increase presence in Asia.”Our concern is that the Asian carriers will ultimately move into the African market and, unless we start going into Asia in a big way, when they come into Africa we might not be able to beat the competition from that part of the world.”

At the 44th AFRAA annual assembly in Johannesburg, Kenya Airways CEO Titus Naikuni suggested that a potential offensive could be a tie up between the top three largest carriers in Sub-Sahara Africa -Kenya Airways, Ethiopian Airlines and SAA-to create a pan-African mega carrier.

Such consolidation in the airline industry is now common practice .Europe has consolidated to three major airline group-Lufthansa,Air France -KLM and British Airways /Iberia Parent IAG -in a region of 27 countries .In us ,United and Continental have come together along with Delta and Northwest. In Latin America there have been mega mergers in recent years with LAN and TAM and with Avianca and TACA.

African Airlines Association (AFRAA) is striving to ensure an intra-African airline is given birth to and airlines form mergers, partnerships and joint ventures to be able to purchase fuel, oils, spare-parts, aircraft as a group to enable them save on costs to be able to operate profitably and also be able to lower their airfares to be able to compete with foreign carriers. It has been seen that there is progress is implementing the Yamoussoukro Declaration in phases and this will liberalize the air service traffic rights and enable other airlines to operate freely within African skies. Consolidation of airlines to come up with a mega airline will also make African airlines compete with the foreign carriers both domestically, regionally and internationally. With the merger small airlines will benefit and also be able to access bank loans to expand the domestic routes by introducing modern aircraft into their fleet and phase out the ageing ones which consume a lot of fuel and high costs of maintenance.

Anthony A Juma is the Editor and Director Commercial & Flights Operations at Wings Over Africa Aviation Limited. This is an Air Charter Company that specializes on Scheduled Air Flights Africa & Globally. The website has guided thousands of travelers to achieve their dream holiday. For more information and guidance, visit the site at http://www.wingsoverafrica-aviation.com/index.php/sheduled-flights.html

Anthony A Juma is the Editor and Director Commercial & Flights Operations at Wings Over Africa Aviation Limited. This is an Air Charter Company that specializes on Scheduled Air Flights Africa & Globally. The website has guided thousands of travelers to achieve their dream holiday. For more information and guidance, visit the site at http://www.wingsoverafrica-aviation.com/index.php/sheduled-flights.html

Author Bio: Anthony A Juma is the Editor and Director Commercial & Flights Operations at Wings Over Africa Aviation Limited. This is an Air Charter Company that specializes on Scheduled Air Flights Africa & Globally. The website has guided thousands of travelers to achieve their dream holiday. For more information and guidance, visit the site at http://www.wingsoverafrica-aviation.com/index.php/sheduled-flights.html

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