African skies… closed for business?

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Have you ever wondered why flying across Africa can be so expensive, when compared to other parts of the world? Why it’s often cheaper to fly via the Middle East or Europe rather than directly between two African capitals? Why leaving the continent, only to return, is sometimes faster and cheaper than jetting across it? Richard Holmes investigates.

It’s not the oil price that’s to blame for your flying woes, nor desire on the part of many airlines. Rather, it’s down to a piece of paper that has been gathering far too much dust for the past 27 years.

That paper is the Yamoussoukro Declaration [see sidebar], which was signed in the capital of Côte d’Ivoire in 1988 and then largely left on the figurative shelf to gather dust. In 1999 politicians from 44 countries hauled out the paper, added a few clauses, renamed it the Yamoussoukro Decision, signed on the dotted line, and returned it to the shelf to gather yet more dust.

For despite the honourable intentions of liberalising skies across Africa and opening up air traffic routes to actively promote the growth of the continent’s aviation industry, the Declaration and Decision have remained little more than words on a page. Skies across Africa have, largely, remained closed to competition.

Instead, politicking, protectionism, restricted routes and higher fares have replaced the lofty goal of a vibrant aviation industry where open competition separates the wheat from the chaff and citizens benefit from a proliferation of direct routes and falling airfares.

“There has been suspicion, particularly amongst African state-owned airlines, that if you open up the markets, some of the airlines will disappear. So airlines go to the government and tell them not to open up the market, otherwise they will be competed out of business,” explains Raphael Kuuchi, Vice-President for Africa at the International Air Transport Association (IATA).

A further stumbling block has been the issue of ownership and control, with fears that open skies will lead to a flood of non-African aviation investment benefiting from liberalisation. Some countries have also claimed that their reason for not liberalising their skies is simply to allow their own national airlines sufficient time to restructure into a competitive position.

“I think it’s a very convenient excuse,” says Kuuchi. “Even today, when the markets are not liberalised, these airlines are not growing. The lack of liberalisation is making airfares expensive, and because air services are not readily available, it’s allowing other substandard aviators to set up and operate.”

“The most insidious challenge the airline industry has to deal with is regulation, which skews the competitive pitch,” says Edward Frost, Commercial Manager East and Southern Africa for British Airways, which lobbied for years to gain additional traffic rights into South Africa. “This can take the form of protective legislation to prop up otherwise unsustainable carriers, or governments regarding the industry as a cash cow and applying onerous tax burdens.”

“There are far too many airlines operating in Africa, many of which are incompetent and inefficient and only survive because of protection,” adds Rodger Foster,
Chief Executive Officer of South Africa-based carrier Airlink. “Liberalisation will enable market access and promote a free market, which will encourage the proliferation of fewer more competent and more sustainable airlines that will develop vast and efficient network air transportation systems in key strategic nodes throughout Africa.”

“I don’t think Africa was really ready for it when the Declaration was signed,” says Chris Zweigenthal, Chief Executive of the Airlines Association of Southern Africa. “There’s always drama when markets are deregulated, there are always casualties, but in Africa a lot of the smaller states with smaller airlines realised what the impact could be.”

As a result, implementation of the Declaration and Decision stalled and African airlines, many of them unprofitable and unviable, continued to limp along on the crutches of protectionism and state support.

However, the initial intentions of the Declaration and Decision were certainly sound, explains Zweigenthal:  “The idea was, strengthen African aviation in domestic and regional markets, and create a base for airlines that can compete regionally and internationally. But because we haven’t strengthened ourselves from a domestic and regional network, there’s been a need for connectivity internationally, so a lot of African states have given rights to international carriers to come into Africa.”

That’s a trend that is growing quickly, as international carriers tap into the wealth of opportunity in Africa, and the lack of African capacity. With only a handful of African airlines ­– the likes of Kenya Airways, Ethiopian Airlines, South African Airways and Royal Air Maroc – able to carry substantial long-haul traffic, international carriers currently transport a staggering 82% of travellers coming to and from Africa. While a decade ago the figures would have been close on 50/50, today African airlines carry less than one-fifth of the traffic.

By failing to open skies and allow the development of profitable African airlines with a strong regional network to feed passengers into their long-haul routes, governments have shot themselves in both feet by welcoming global airlines with open arms. While limiting flights from competing African airlines, all the while granting Fifth Freedom rights to international carriers, states have essentially created a lucrative intra-African network operated by international airline groups.

“Did you know that 23 African states have signed full open-skies agreements with the United States of America? But, not a single African country has opened up their markets to other African airlines,” says Kuuchi.

And yet, the benefits of liberalisation are many.

An IATA study released in mid-2014 noted that the liberalisation of traffic rights between South Africa and Kenya over the past decade has seen a 69% jump in passenger volumes, while intra-African routes operated by Ethiopian Airlines under more liberal bilateral agreements resulted in fares dropping by up to 21%.

The study also forecast that if just 12 African countries opened up their skies to each other, those countries would see a $1.3-billion boost in annual GDP, create 155,000 new jobs, experience a dramatic rise in direct services and connectivity, and enjoy a fall in airfares.

“Employment and economic growth are just the tip of the iceberg in terms of the benefits of connectivity. Aviation is a force for good, and plays a major role in helping to reach the African Union’s mission of an integrated, prosperous and peaceful Africa,” said Tony Tyler, IATA’s Director General and CEO.

“Air transport is a lifeline for connectivity, for business development and economic activity across the continent,” adds Kuuchi. “If Africa opens up its air transport market, the fares will fall because connectivity will increase and operators that can cover the market will extend across the continent. It also means shorter times spent in airports, which means better productivity.”

While the Yamoussoukro agreements seem destined to remain little more than good intentions, there is perhaps hope on the radar. In January 2015 leaders from 11 African countries signed a declaration agreeing to work towards the adoption of a single African sky by 2017.

“The initial lack of momentum to implement and effect the Yamoussoukro Decision was due to various factors that included, but were not limited to: protectionism, interference, change of leadership, red tape, and misalignment with regulatory authorities,” says Aaron Munetsi, South African Airways’ Regional General Manager for Africa. “All these have now been overcome, as can be witnessed by our steadfast growth on the African continent. We have been able to implement intra-Africa operations on routes such as Accra to Abidjan, Pointe Noir to Cotonou, and Libreville to Douala.”

It’s a promising start, but others in the industry are more circumspect.

“The new goal is a single African market by 2017, but a lot of proactive action is going to have to take place if that’s going to become a reality,” says Zweigenthal.

Yet Africa sorely needs growth in the aviation market. The continent lags behind the rest of the world in air traffic, and despite being home to 12% of the world’s population, it accounts for less than three percent of its air traffic.

That small slice of the pie isn’t showing stellar performance either. Passenger kilometres declined by roughly two percent over the past year as load factors continued to be a concern for many carriers, particularly in South Africa where economic performance is sluggish.

“Historically, passenger growth will track around twice the GDP growth,” explains Zweigenthal. “But when GDP growth shrinks to low single-figures, that relationship disappears, and passenger growth stagnates, or even falls. That’s why GDP growth over four percent is so important for airlines.”

That poor economic growth has certainly hit inbound long-haul traffic to Africa

“While economic growth in sub-Saharan Africa remains, it is expected to slow down in 2015.  This, combined with the effects of the Ebola crisis, has impacted demand for travel to a number of markets across Africa,” explains Jimmy Eichelgruen, Director – Sales for Africa, Middle East and Indian Sub-Continent for Delta Air Lines. From its hubs in Atlanta and New York, Delta flies to Lagos, Accra, Dakar and Johannesburg.

The falling price of oil has, perhaps surprisingly, also not been an all-out boon for airlines. While the drop in fuel price has taken considerable pressure off the operating costs for some airlines, many carriers will still have fuel hedged at higher prices per barrel.

“Over the past year the volatility of the oil price has been a major factor,” says Munetsi. “One would expect the aviation industry to breathe a sigh of relief. Yet there are other factors like fuel hedging practices, which introduce a lag in the time frame when some airlines would realise the benefits of the reduction in oil prices.”

A further issue is the resulting weak demand from corporate travellers in key oil and energy markets like Nigeria, Angola and Ghana, which have been affected by falling oil prices.

“In Ghana, the pressure on earning of the major commodities like gold, oil and cocoa has resulted in increased cost-cutting by companies in these sectors,” says Claus Becker, Lufthansa’s Managing Director for Sub-Saharan Africa. “In Nigeria the political situation due to elections was also an issue. Government is one of our top corporate customers and because of the elections everybody toned down their travels.”

Adding more fuel to the fire is the poor performance of many African currencies, in particular the South African Rand.

“The exchange rate is always going to be an issue for airlines, and the weak Rand impacts on costs such as maintenance, distribution channels and landing costs in Africa,” says Zweigenthal.

While airlines are under pressure from low demand, corporate travellers are also looking to cut travel costs. Many travellers are downgrading their class of cabin and tapping into the proliferation of low-frills budget-carriers that will get them from A to B safely.

“From a competition perspective, it’s good for the consumer, but there is an inherent risk that it will put significant pressure on the airlines,” adds Zweigenthal. “Margins are going to get tighter and tighter.”

“We have seen a shift in corporate travelling,” says Becker. “Most of the corporate clients are going towards ‘best buy’, meaning they are searching for the cheapest fares available, regardless of corporate rates and flexibility. They are willing to sacrifice their flexibility that they get from their corporate rates for lower, cheaper fares.”

The Ebola outbreak of 2014 also took its toll on the continent’s air traffic, with West African nations in particular feeling the brunt of the often-unfounded travellers’ fears.

While the health scare has all but disappeared, the concern remains and air services to the region have not yet been fully restored, no doubt due to diminished demand.

While German carrier Lufthansa didn’t cancel any routes to West Africa in the wake of the Ebola outbreak, British Airways is yet to resume its services to Sierra Leone and Liberia. Air France, however, has resumed services to Freetown in Sierra Leone from July, offering three flights per week from Paris-Charles de Gaulle Airport.

With everything from Ebola to exchange rates creating turbulence for African carriers, there is certainly no shortage of challenges facing airlines operating into and across Africa. However, the continued growth of many African economies has seen bookings growing in key markets. As a result, airlines are responding tactically to demand, tweaking routes, aircraft and onboard product to ensure profitability.

British Airways has increased the number of seats on its flights to Ghana, deploying a 747 on the route to Accra.

“We have also added capacity to Abuja, introducing larger 747 aircraft rather than the 777s previously used,” says Frost.

From August, British Airways will also give the cabins on its Boeing 747 workhorses a facelift: a new in-flight entertainment system will be fitted, along with power sockets in the World Traveller Plus (premium economy) cabins, and USB sockets in World Traveller (economy).

While cautious of the slow economic growth in parts of Africa, Atlanta-based Delta Air Lines is also improving its offering into Africa: as of 3 July, the airline has added a third weekly frequency between Senegal and New York-JFK.

“Comfort +, Delta’s premium economy cabin, is a particularly popular travel option out of Senegal, and to respond to this trend Delta has added a further 19 seats in Comfort + on flights to and from Dakar,” adds Eichelgruen. “Comfort +, which is available on all Delta’s African flights, offers customers up to four additional inches of legroom and 50% more recline than Delta’s standard international economy class seats, as well as priority boarding.”

Lufthansa also sees a strong market for its premium economy product, which is scheduled to be available from Nigeria, Ghana and most other West African routes from October 2015. The airline also expects to complete its business class retrofit across the fleet by the end of this month.

Swiss International Air Lines has seen stable passenger numbers on its key Johannesburg-Zurich route, but with the arrival of new Boeing 777 aircraft into the airline’s fleet in 2016, all eyes are on whether the new planes will be making their way to Africa.

Also upgrading its fleet is Air Mauritius, with the six Airbus A350XWB aircraft on order due to begin delivery in 2017. Meanwhile, the airline has revamped the current A340 and A330 fleet with improved economy class upholstery and a new in-flight entertainment system.

“Air Mauritius has seen more corporate travel from South Africa to Mauritius over the last 12 months, largely due to the good economic landscape in Mauritius and good tax benefits for business,” says Carla da Silva, Regional Manager: Africa and Latin America.

While Africa’s economic landscape may be filled with opportunity, its skies remain clogged with red tape and protectionism. If airlines are innovating and succeeding in carrying the continent’s business travellers, it’s largely in spite of – not thanks to – the lawmakers on the ground.

It’s been 16 years since the Yamoussoukro Decision was signed, and nearly 30 since the Declaration before that. African airlines, and corporate travellers, will be watching closely to see whether a single African sky becomes a reality by 2017.

Yamoussoukro explained

When it was signed in the capital of Côte d’Ivoire in 1988, the Yamoussoukro Declaration was seen as the first step towards the long-overdue liberalisation of African airspace. The progress towards ‘open skies’, by dropping onerous regulations surrounding air traffic rights, was seen as a brave step for a new world of African aviation. Yet in the skies, little happened.

In 1999 it was followed by the Yamoussoukro Decision, in which 44 countries – many of which had also signed the 1988 Declaration – reaffirmed the belief that the regulatory protection of national carriers stifled the growth of the aviation industry, and airline safety, on the continent. The Decision called for liberalisation of air traffic across Africa, the exercise of ‘freedom rights’ regarding the carriage of passengers between countries, fair competition, and compliance with international safety standards.

Perhaps unsurprisingly, 16 years on, Africa’s skies are still heavily regulated, with little progress made on the lofty ideals of the Yamoussoukro Declaration and Decision.

New routes, new planes, new schedules

From 30 June, Ethiopian Airlines started servicing South Africa’s second city, Cape Town, via flights from its hub in Addis Ababa. The airline is operating six flights per week, with a mix of daytime and overnight flights. Daytime flights operate with a stopover in Gaborone to collect passengers, while overnight flights stop over in Johannesburg.

FlyAfrica is growing its network of low-cost destinations in southern Africa with three new routes offered for sale. Flights between Bulawayo and Harare, and Harare and Lusaka, will take off on 27 July, while 14 September sees the inaugural service of flights between Harare and Lubumbashi.

After agreeing Fifth Freedom Rights with Ghana, from August 2015 South African Airways will offer direct services between Accra and Washington DC. SAA has also signed a bi-lateral codeshare agreement with Africa World Airlines, allowing easy connections to West African destinations such as Kumasi, Takoradi and Tamale, as well as Lagos.

Doha-based Qatar Airways continues its African expansion with additional frequencies into South Africa. From October 2015 the airline will offer a daily service between Cape Town and Doha. As of 17 December, the airlines will offer a double-daily service to Johannesburg. On the same day, the carrier will service Durban with four flights per week. All flights will be operated by the carrier’s state-of-the-art Boeing 787 Dreamliner.

Fast-growing Turkish Airlines is also growing its network in Africa with the addition of Bamako, Mali to its network. The carrier now flies to 44 destinations in 28 African countries. Bamako will be served by twice-weekly flights via Ouagadougou (Burkina Faso) and once a week via Niamey (Niger).

In a blow for furthering Asian investment in Africa, Air China has again shelved plans to operate direct flights between Beijing and Johannesburg’s O.R. Tambo International Airport. The airline had planned to introduce direct services following SAA’s withdrawal from the route. But, Air China put its plans on hold in late May, citing the recent xenophobic attacks in South Africa and the country’s harsh new visa regulations.

IATA’s take on Africa

The International Air Transport Association delivered its latest report on the state of the global airline industry at its AGM and World Air Transport Summit in Miami, USA in June. Included in the report were these thoughts.

“Net profit per passenger in Africa is almost one tenth of what it is in North America, half of what it is in Latin America, and nearly a quarter of what it is in Asia-Pacific.”

“African airlines are expected to post a collective profit of $100 million for a net margin of 0.8% ($1.59/passenger), the thinnest of all regions. Although in the black, this continues the relatively poor performance of the past few years. Last year, traffic growth for African airlines was weak because of various problems that disrupted tourism, but market share also continues to be lost. Currencies have been weak, particularly for oil exporters, so the benefits of lower fuel prices will be limited in this region. African airlines are also expected to see the slowest growth among developing markets, with capacity and demand expansion of 3.3% and 3.2% respectively this year.”