How can African airlines remain afloat, in business?

Girma Wake Dr Elijah Chingosho For two days, last week, Kigali hosted a continental aviation forum that brought together over 500 delegates from over 50 institutions and firms with multiple conversations about the industry’s growth on the continent. As participants noted the growth potential of the industry on the continent, most had concerns of multiple bottlenecks that need to be addressed. The gathering came at a time when national carrier RwandAir is working on an expansion drive that has seen the airline acquire new fleet and enter new markets. With most countries registering economic growth in recent years and consequently expanding their middle classes, experts say that presents chances for airlines growth due to an increase in disposable incomes. For the airlines to grow, however, African countries ought to liberalise and deregulate their airspace to make it more attractive for operators within the continent. At the moment, only about 17 countries have opened up their skies, which limits the expansion of regional carriers across the continent, the experts noted. Dr Elijah Chingosho, the secretary general of African Airlines Association, said liberalisation of airspaces will see African airlines serve more destinations as they will not be hindered by national barriers. A number of countries prefer to open up their skies to non-African countries as opposed to African countries which has seen the African aviation market taken up by European and Asian players. For example, Turkish Airlines serves 51 African destinations, which is far beyond any African airline. This hesitance to open up airspace, Chingosho said, saw African airlines report a loss of about $800 million against a global profit of $35.6 billion. “If we open up our airspaces, African airlines will be able to serve more destinations, increase competition against the international airlines. We will no longer see cases where one has to travel outside the continent to connect to another African country as is the case now,” he said. At the moment, travellers on the continent often have to connect to African destinations via Paris, Dubai and Qatar. Another factor that could see the growth of African airlines, according to the experts, is visa regimes that allow for easy movement of Africans across the continent. This easier movement of people across Africa they say would create demand for travel across the continent, putting airlines in business. Free trade area Chingosho noted that the operationalisation of the continental free trade area would create demand for air travel as Africans do business with each other. “If we walk the talk by implementing the continental free trade area and create a larger trading bloc, there would be a necessity for people on the continent to travel, meaning more business for airlines,” he said. To increase their profitability, experienced industry players say that the airlines also ought to have multiple revenue streams beyond passenger travel. Girma Wake, the chairperson of Board of Directors of RwandAir, and former chief executive of Ethiopian Airlines, said the airline business being a costly venture often has very small profit margins. This, he said, requires airlines to mull multiple avenues of income generation with options such as aviation training, catering among others. This would supplement their incomes and keep them profitable in the long run. Wake also observed that emerging airlines ought to have cost discipline as they go about their expansion plans so as to save and avoid unnecessary expenditure. The former Ethiopian Airlines chief executive expressed concern in the business models of a number of airlines, saying a number of operators on the continent were not worth the name ‘airline’. “The problem is that most carriers are started by people who do not understand aviation, simply because they have money they start an airline. The airline business is for somebody who has long term view. Any airline that has under 10 aircraft, most of them small airline is similar to a taxi business. Just because they are not worth the name airlines,” he said. To remedy this, Wake said it was time to consolidate small airlines through mergers and acquisitions which would guarantee African airlines a place in the market. “Gradually they should be forced to consolidate, buy into one another, they should work with each other and consolidate for the future. If they do not do that, carriers from outside will take the whole market as the African operators die one by one,” Wake explained. Raphael Kuuchi, the vice-president of the International Air Transport Association (IATA) for Africa, said as the operators seek to grow, they ought to conduct due diligence including during acquisition of planes and other investments. Kuuchi said that investments ought to reflect long term ambitions of the airlines and take into account the findings of comprehensive assessments. “The airlines ought to look at their markets and ambitions. It’s never a decision about today, it’s about the future,” he said. Citing an example of national carrier RwandAir, he said the airline seemed to be making calculated investments as it seeks to go from a regional airline to serving intercontinental operations. “RwandAir began as a regional airline then expanded to the West African market. Now they want to venture into intercontinental operations, you need the right aircrafts. That is the kind of assessment and right economics one needs to take into account,” Kuuchi. editorial@newtimes.co.rw

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How can African airlines remain afloat, in business?