Africa’s limited skies

South Africa’s airline industry is going through tough times — the largest aviation market on the continent faces significant challenges around declining international passenger numbers, difficulty filling increased domestic passenger capacity and the slow liberalisation of the African aviation market. The aging cargo infrastructure at most airports is also cause for concern.

According to the Airlines Association of Southern Africa (AASA), Africa’s biggest aviation market, South Africa, is only expected to grow by a modest 3% this year.  

While this is an improvement over the country’s 2.4% growth in the airline passenger market in 2014, and the 2.9% and 0.2% declines of 2012 and 2013 respectively, it is failing to keep pace with both the global and broader African markets, which are predicted to grow 6% overall in 2015.

Says the association’s chief executive Chris Zweigenthal: “There has also been a significant swing between international and domestic traffic in South Africa. International growth slowed from 3.8 % in 2013 to 1.5% in 2014 and continues to decline. 

Domestic airline market

“Domestic travel, on the other hand, has turned around from declines of -4.6% and -2.2% in 2012 and 2013 respectively, to a growth of 2.9% in 2014.”

He says while South African travellers have more choice following the entry of Flysafair and Skywise to the local market, passenger numbers are not growing at a

sufficient pace to fill the additional 5% capacity the new airlines provide. That’s despite the Cape Town-Johannesburg route being one of the top 10 busiest in the world.

“Given the region’s high-cost environment, the additional capacity the new low-cost airlines provide will see increased passenger numbers, while putting airline margins under significant pressure,” he says.

Historically, new entrants into the domestic airline market have had a rough time of it. Over the years casualties have included Flitestar, Phoenix, Nationwide, 1Time and Velvet Sky. 

Sustainable operations are only possible with the right aircraft, financial models, booking systems and routes. Tight margins make it a risky business.

The International Air Transport Association has a bullish global outlook for the airline industry and predicts a $29.3-billion profit (representing a 4% net margin) for its members, but it says Africa will be fortunate to achieve a $100-million profit. Southern Africa, hampered by South Africa’s economic slowdown, is more likely to just break even.

Zweigenthal says the full impact of South Africa’s new stringent immigration regulations will be felt in 2016. “The performance of the airline industry, particularly from an international perspective, reflects the performance of the tourism industry, one of the South African’s government’s six imperatives for growth.”

Tourism saw good annual average growth close to 10% in 2012 and 2013, but this began to decline last year. 

Although the new visa regime was devised with good intentions, the requirements are unlikely to achieve their stated goals of significantly curbing child trafficking and instead are driving away business and leisure travellers from South Africa.

Government’s infrastructure

It’s indicative of a wider disconnect between government departments, as well as the public and private sector. 

The new regulations clash with the government’s policies on infrastructure, trade, industrial, tourism, employment and broad economic growth. The department of transport is aiming for the creation of a single African Aviation Market by 2017, which should boost growth in the sector and in the continent’s economies.

Regional flights in Africa are hamstrung by some bilateral air traffic agreements that are more than half a century old. Under those old agreements, for example, South African airlines cannot fly directly between African countries — they have to go via a South African destination.

 Open skies policies and deregulation offer the greatest opportunity for African operators to grow their business on the continent.

In January this year, AU ministers of transport committed to the creation of a programme for a Single African Aviation Market by 2017.

Says Zweigenthal: “It’s a welcome commitment, but it must be backed up by action. A great deal of work needs to be done within the African Union and aviation organisations to encourage additional states — beyond the 11 which have signed up so far — to complete the administrative requirements and implement the initiative.

“It’s unfortunate that the development and growth of African aviation has been held hostage by the inability of African states to work together to ensure the development of an effective network.”

By contrast, foreign airlines have continued to grow their networks throughout Africa and now carry around 82% of international traffic to and from Africa, compared to the 18% carried by African airlines.

Freight poised for growth

Freight traffic, however, is poised for massive growth in Africa. Speaking at the biennial Air Cargo Africa event in Johannesburg earlier this year, Boeing Commercial Airplanes’ regional director for market analysis, Tom Crabtree, said African air trade with Europe, Asia and the US is set to grow 4.3%, 6.6% and 5.2% respectively per year until 2033.

“In line with this, air cargo traffic on Africa-domiciled airlines — both passenger and cargo aircraft operators — is forecast to be the fastest growing of any regional block, at 6.1% per year until 2033. African airlines will acquire over 100 freighters up to then, mostly standard-body-sized freighters (up to 45 metric tonnes capacity), to tap into these fast-growing intra-regional markets.”

Infrastructure charges and the imposition of taxes and other charges are of great concern to airlines.

“Airport charges have historically been criticised because of significant increases — particularly over the last five years,” says Zweigenthal. The past two years have seen more constructive engagement with associations and airlines in consultation with the Airports Company of South Africa (ACSA) and Air Traffic and Navigation Services.

Christa Soltau, cargo manager at ACSA, says approximately 470 000 tonnes of airfreight was moved through the organisation’s South African airports in 2014.

“This traffic is growing, on average, 4% per annum,” she says.

“Generally, the airport assets supporting cargo at ACSA are largely ageing facilities, with the exception of Durban’s King Shaka International, where the facilities are contemporary. There is an opportunity for changes to improve the efficiency of the cargo environment and these form part of our immediate short-term plans.

“At OR Tambo International Airport especially, there is a high demand for additional facilities and opportunities for growth. The airport is the main cargo hub in Africa and we believe it will continue to be so in the future. We’re working closely with stakeholders to improve the existing facilities and the development of a true cargo city. This initiative falls in line with the Aerotropolis concept of Ekurhuleni Municipality.”

Tech to the rescue

Expect airports to become a great deal more automated as the Internet of Things (IoT) goes mainstream. Already in advanced development is a pair of devices that let passengers check in their bags before they even leave home, as well as track them at every step on their journey.

The eTag and eTrack devices can’t come too soon — every year about 30 million check-in bags are misplaced or lost and this costs the industry an eye-watering $3-billion (R36-billion) a year.

A group of companies, including Samsonite, KLM and Air France have developed the tagging system that uses GSM, GPS and Bluetooth to track bags wherever they happen to be in the world.

So if you’re in Paris and your bags are in Cancun, by using your smartphone at least you’ll know where they are and how long it’s likely to be before you’re reuinited with them. The airline industry and Airports Company of South Africa are also working to improve passenger self-service like check-in via the web and mobile travel management apps.

Fuelling concern

One of the largest  operating costs facing airlines is jet fuel. A year ago crude oil prices dropped from more than US$100 a barrel to less than $50 and are currently trading in the $60-70 band. Fuels costs have come down but these have been largely offset by the strengthening of the US dollar against most major currencies, including softer currencies like the rand. Costs for fuel and maintenance will continue to rise as the dollar strengthens.

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Greg Gordon
Guest Author

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