EU-AFRICA AVIATION CONFERENCE Windhoek, Namibia, 2-3 April 2009
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EU-AFRICA AVIATION CONFERENCE Windhoek, Namibia, 2-3 April 2009 DEVELOPMENT TRENDS IN THE AFRICAN AIRLINE INDUSTRY By Raphael Kuuchi AFRAA Commercial Director IntroductionIntroduction • In Africa air transport is vital for the socio-economic development, promotion of international trade, tourism and regional integration • Insufficient and/or poorly developed nature of other modes of transport makes air transport the most ideal for linking the vast continent • Huge untapped market – only 10% travel by air • EU-Africa co-operation is important because … – Long historical and cultural ties – Geographic proximity – Trade and business relationship – Major air traffic market – Significant changes in EU regulatory environment (single market, single sky, etc) • A win-win partnership will benefit both sides TrafficTraffic PerformancePerformance TrendTrend TrafficTraffic PerformancePerformance TrendTrend • Over the past decade, traffictraffic growthgrowth inin AfricanAfrican hashas averageaverage 5.7%5.7% per annum • Africa accounts for 3% of passenger and 1.8% of freight traffic • Non-African airlines carry over 75% of traffic • The number of passengers carried by African airlines topped 53 million last year • Freight carried exceeded 800,000 tons in 2008 • This represented an increase of 5.9% over 2007 compared to global growth rate of 4.6% Passengers Carried by African Airlines (2000 - 2008) 60,000 53,345 50,000 47,858 45,205 41,712 40,000 39,315 35,929 35,432 34,677 33,056 30,000 20,000 No. of Passengers No. of 10,000 - International Schedule Passenger Traffic by Region - Total Passenger Kilometres Performed (PKP) L/America Africa 4% 3% N/America Asia/Pacific 18% 28% Middle East 7% Europe 40% Passenger Traffic Distribution - Africa to other Regions N. America, 1% Intra-Africa, 15% Middle East, 16% Asia Pacific 4% Europe, 64% Major growth markets in the future include North America, Middle East and Asia Pacific Passenger traffic Carried by Market - 2008 Domestic Inter-continental 39% 49% Intra-Africa 12% Traffic Performance Trend Percentage of Freight Carried by Region A FRICA , 1.81% NORTH A MERICA , 27.60% ASIA /PA CIFIC, 34.66% MIDDLE EA ST, 6.45% LATIN AMERICA/CARIBBE AN, 2.94% EUROPE , 26.55% Market Outlook for 2009 • In February 2009 alone, African carriers posted a passenger drop of 13.7% - the largest drop among the world’s regions • Correspondingly, capacity of African operators was reduced by 11.8% • IATA projected a 2009 African airlines passenger traffic decline of 5.7% year- over-year with cargo demand falling by 13% • A forecast loss of $600 million is projected for African airlines in 2009 • … but high yields will continue to increase competition and attract new airlines LowLow CostCost AirlinesAirlines • 7 low cost airlines operate in Africa • A number of low fare operators also exist • Many more are expected as market opens up • In the near future, the nature of traffic in most African markets may not support low cost operations which requires point to point dense traffic. WHATWHAT AREARE AFRICANAFRICAN AIRLINESAIRLINES DOINGDOING TOTO REMAINREMAIN COMPETITIVE?COMPETITIVE? Fleet Modernisation • 58% of the aircraft in service in Africa is made up of ageing B727/B737/B757, DC9, MD80 and F28/100, etc • The average age of the African fleet is about 19 years • Boeing forecast Africa fleet requirement at 560 jets worth $60 billion between 2007 and 2027 • 156 aircraft are currently on order by African airlines • The biggest challenge is to obtain financing at reasonable cost due to risk perception and the financial weakness of the African airlines SafetySafety andand SecuritySecurity • Safety remains a major priority and challenge in Africa • Amidst resource constraints, the industry in Africa is not relenting on its responsibility in ensuring a safe and secure operating environment • AFRAA and its member airlines have endorsed IOSA, COSCAP, ICAO ACIP programmes, Banjul Accord Initiatives, etc • AFRAA is working closely with sub-regional and regional organisations to improve safety • Almost all AFRAA airlines have undergone the IOSA audits and over a dozen of them have passed and are registered SafetySafety andand SecuritySecurity • The EU blacklisting a major setback to the intercontinental carriers of Africa who meet international safety standards • The basis of the blacklisting is uncertain, lacks transparency and there is no clear process of getting off the list • Several years after the initial blacklist was published, the majority of countries and airlines that were originally listed continue to be on the list MROMRO andand TrainingTraining CentresCentres • To meet aircraft maintenance, repair and overhaul requirements of the African fleets at competitive costs, MRO Centres have been established by some major airlines in Africa • Besides servicing the aircraft of their airlines, these Centres provide maintenance support to other airlines within and outside the continent • Currently MRO Centres are located in Johannesburg, Cairo, Addis Ababa, Algiers and Casablanca • There are simulator training facilities as well as Pilots and Engineering training academies on the continent • Managerial and skills training and capacity building institutions also abound Partnerships and Code share Airline No. of Partners No. of Partners in Africa other Airlines South African Airways 7 16 EgyptAir 3 17 Kenya Airways 2 4 Ethiopian Airlines 1 6 Air Senegal International 3 2 Precision Air 2 0 Air Madagascar 3 1 Rwandair Express 2 0 Air Burkina 1 0 LAM Mozambique Airlines 1 2 Air Namibia 1 0 Libyan Airways 1 3 Tunis Air 1 6 Interair 1 0 TOTAL 29 57 GlobalGlobal AllianceAlliance MembershipMembership Three African airlines are members of global alliance groups EnvironmentalEnvironmental ConcernsConcerns • Environment issues have become topical and compelling • Operating older aircraft in Africa is negatively impacting the environment • Fleet renewal will reduce airlines environmental footprint • We applaud the EU for the leadership in establishing an environmental trading scheme for Europe • However, AFRAA and African States believe that a global approach under the leadership of ICAO is the appropriate way forward in addressing environmental concerns relating to international air transport LiberalisationLiberalisation • The internal African market is gradually being liberalised but the process is painfully slow • Many African carriers including Ethiopian, Kenya Airways, South African Airways, Royal Air Maroc, Afriqiyah and EgyptAir are benefiting from the liberal bilateral air services agreements • This has resulted in better intra-African connectivity today, though further urgent expansion is needed to shorten travel time and reduce the cost of inter-city air travel • The need to create a conducive environment for all operators is more urgent now than ever before if African airlines are to survive and position themselves for global liberalisation DiminishingDiminishing PresencePresence ofof AfricanAfrican AirlinesAirlines DiminishingDiminishing PresencePresence ofof AfricanAfrican AirlinesAirlines • African airlines support liberalisation but they need to be positioned to be able to compete and survive in a liberalised market • As a continent, we lack the necessary regulations, institutions and monitoring mechanism to ensure fair play in a liberalised global environment • In the 1970s and 1980s Africa had about 26 inter-continental airlines (including Air Afrique which covered 11 States) • Today, this has been reduced to just 9 • Some of the existing inter-continental carriers may further disappear • Efforts should be focused on safety, modernising economic regulations and opening up the internal market • Let’s look at air transport in the past and now The Airline Industry in the 1970s & 1980s KEY Countries that did not have long haul operators Countries with budding airlines. Dominant carriers are foreign airlines Countries that had vibrant long-haul airlines sharing the market with external competitors DiminishingDiminishing PresencePresence ofof AfricanAfrican AirlinesAirlines Weekly Flight Frequencies between Africa and Europe 300 250 200 131 150 136 100 84 82 94 76 125 50 21 31 20 26 35 0 Francophone to Francophone to Anglophone West East Africa to Southern Africa to North Africa to Paris Europe Africa to Europe Europe Europe Europe African Airlines European Airlines DiminishingDiminishing PresencePresence ofof AfricanAfrican AirlinesAirlines Francophone Africa, 4% Anglophone West Africa 2% Weekly Flight Frequencies - East Africa 3% Africa to Europe Southern Africa 4% North Africa 15% European 72% ChallengesChallenges ofof AfricanAfrican AirlinesAirlines • Lack of capital and high cost of accessing finance due to risk perception of airlines – Small size, modernise fleet • Developing and retaining skilled human resources – stemming brain-drain • Safety and security • Absence of conducive environment for airlines to position themselves • Lack of IT infrastructure and systems • Rapid regulatory changes particularly in the EU – community designation, blacklisting, ETS TheThe WayWay ForwardForward • Strengthen the capital base of African carriers through private strategic partnership and public private partnerships • Recapitalisation will modernise fleet, address some safety concerns, increase efficiency, network expansion and make airlines competitive • Develop and retain badly needed skills – EC could provide assistance either directly or by encouraging its airlines to support human capital development in Africa • Fully implement