Business

Reach for the sky: How aviation can help Africa soar

Lisa Steyn

Liberalised air transport regulations on the continent would lead to lower prices, more jobs and stronger economic growth, a study has found.

Red tape around African skies has seen the continent losing out economically and the potential loss runs into millions of passengers, a recent study has found. (AFP)

Red tape around African skies has seen the continent losing out economically and the potential loss runs into millions of passengers, hundreds of thousands of jobs and billions of dollars in economic growth each year, a recent study has found.

Africa currently accounts for roughly 2% of global scheduled passenger and cargo airline traffic, but it should be far more. This is according to the recently published econometric study conducted by the Oxford-based aviation consulting company InterVistas – Transforming intra-African Air Connectivity: The Economic Benefits of Implementing the Yamoussoukro Decision.

The report was released in Sandton at last week’s Aviation Day Africa – an annual conference hosted by the International Air Transport Association (Iata), the trade association for the world’s airlines, representing some 240 airlines or 84% of total air traffic.

The report studied the economic benefits of a liberalised regulatory framework to promote greater competition and market access for African airlines in Africa. It found that if the 1999 Yamoussoukro decision were to be implemented in just 12 African states, the economic benefits would include five million extra passengers a year; 155 000 extra jobs and $1.3-billion in additional gross domestic product (GDP).

Fifteen years ago, 44 African nations signed the Yamoussoukro decision, which pledged to deregulate air services and promote regional air markets opening to transnational competition. But the implementation of this has been slow and limited and has, according to the InterVistas study, has caused the continent to miss out on substantial economic benefits.

“While many air markets between Africa and countries outside of Africa have been liberalised to a significant extent, most intra-African aviation markets remain largely closed, subject to restrictive bilateral agreements which limit the growth and development of air services. This has limited the potential for aviation to be an engine of growth and development,” the report said.

Enormous potential benefits
The study, commissioned by Iata, involved modelling the transmission mechanisms by which liberalisation leads to greater air connectivity, resulting in increased traffic volumes and ultimately generating wider economic benefits. In particular, the analysis examined the impact of liberalising air markets between 12 countries within four sub-regions of Africa.

South Africa’s passenger traffic, the study said, could gain 54% if the Yammoussoukro decision were implemented. Consumer benefits are estimated at $183-million, 14?500 additional jobs and an economic contribution of $283.9-million

In many cases, travel times would be more than halved, making both business and leisure travel more attractive, the report found. It cited other studies, which have demonstrated a link between increased air traffic and growth in employment and GDP, and said it an earlier InterVistas study estimated that each 10% increase in international air services led to a 0.07% increase in GDP, which can then translate into millions, or even billions of dollars of incremental GDP.

“Market access [in Africa] is still defined by a spaghetti-bowl of bilateral air transport agreements between individual states,” said Linden Birns, the managing director at aviation consultancy Plane Talking and publicist for Iata.

Lower costs for consumers
The Yammoussoukro decision required all signatory states to overhaul, liberalise and rewrite international air transport regulations.

“State entities would rather not have competition. The current set of bilaterals work like a bunch of cartels; they define capacity in the market and how regularly they fly,” said Birns, noting there had been some regulatory reform but nothing on a regional scale.

“The regulatory framework is protecting inefficient airlines – those state-owned airlines tend to be largely inefficient.”

He did note there were some success stories of note. “Ethiopian Airlines for example is highly efficient and highly profitable,” Birns said. The state-owned Ethiopian Airlines is ranked 63rd in the top 100 airlines worldwide in terms of revenue, and 77th in terms of traffic.

Slow reform, in protecting inefficient airlines, also tends to keep fares high. The InterVistas report noted that the that liberalisation in the European single aviation market had greatly increased competition on many routes, had resulted in many more new routes operating, and had led to a 34% decline in discount fares in real terms.

In Africa, allowing the operation of a low cost carrier service between South Africa and Zambia (Johannesburg-Lusaka) resulted in a 38% reduction in discount fares and 38% increase in passenger traffic, the report said.

Rise in traffic
The 2006 Morocco-European Union open skies agreement led to a 160% rise in traffic, and the number of routes operating between points in Europe and points in Morocco increased from 83 in 2005 to 309 in 2013.

Based on its modelling, the report found passengers travelling between the 12 African countries are expected to benefit from fare reductions of 25% to 35%, providing a saving of over $500-million per annum.

Speaking at the conference, Raphael Kuuchi, Iata’s vice-president for Africa, said African airlines are expected to return a profit of just $100-million in 2014, on a net profit margin of 0.8%, the lowest of all aviation regions.

“Aviation in Africa supports nearly seven-million jobs and $80-billion in GDP, but it faces challenges in terms of liberalisation of markets, safety, costs, infrastructure and regulation.

“Only through industry and governments working hand-in-hand can these challenges be overcome, to the benefit of everyone across Africa,” said Kuuchi.

“Aviation is ready to play a much more prominent role in the African economy, provided it is able to operate in a policy framework that values its contribution,” he added.

“If you make Intra-African travel more affordable and more available you are making it easier for people to trade. The entrepreneurial class who thrive on business and trading can’t move around as they should,” said Birns.

“It’s about needing to change the mind-set and perception of air travel being a luxury.”


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