African airlines will have to overhaul their business models, increase the size of their airlines and adopt cost cutting measures if they are to remain viable, experts warned at the 49th African Airlines Association (AFRAA) general meeting that took place in Kigali last week.
“African airlines need good leadership at the top, a cost reduction plan and a fleet plan if they are to make profits,” said Elijah Chingosho, the Secretary-General and CEO of AFRAA.
He added that many African airlines are too small and need to expand both their fleet and routes if they are to grow and be profitable.
The majority of African airlines have been registering losses despite the significant reduction in fuel prices, with the 2017 AFRAA report showing that losses for the aviation industry were $500 million in 2016, down from $700 million is 2015.
A barrel of jet fuel was 22 per cent lower in 2016 compared with 2015 according to IATA, but African airlines still posted losses because of structural constraints.
Africa currently has 720 aircraft in total, however this makes up only 4.1 per cent of the global fleet. According to data from Boeing, African airlines will need 1,220 new aircraft over the next 20 years to accommodate projected growth in traffic.
This represents $180 billion in required investment.
According to AFRAA, Ethiopian Airlines has 91 aircraft, EgyptAir has 78 aircraft, South African Airways 55, Air Algerie 56, and Royal Air Maroc has 56 aircraft.
Airlines were advised to enter into partnerships in order to achieve consolidation in the industry. But, this would require a fully liberalised industry.
International tourist arrivals to Africa increased by eight per cent in 2016, with a total of 58 million tourists, bringing in $35 billion. However, even this surge was not enough to make the aviation industry profitable.
Another factor that makes the airline business in Africa costly is the fact that almost everything is outsourced externally, from services, equipment and specialised personnel to operate the latest aircraft.
“Almost all the technical expertise is outsourced, which drives up operational costs for African airlines,” said Richard Ortega, director of leasing at Air Charter International.
Low passenger load recorded by many African airlines is another factor contributing to losses and it is caused by an imbalance between capacity and demand.
For instance, the average passenger load factors (PLF) for African carriers in 2016 only increased marginally to 68.8 per cent from 68.2 per cent in 2015. This compares unfavourably with the global average of 80.4 per cent for 2016.
The other factors noted in the report were limited commercial co-operation, limited connectivity and unco-ordinated intra-African networks.
African airlines registered a 13.3 increase in arrivals this year and introduced more new routes.
Destinations in East Africa saw a 12.2 per cent growth this year, particularly from European visitors, which were up by 16.3 per cent. Arrivals from the Americas and Asia Pacific were less less than those travelling within Africa.
Total scheduled capacity for international flights to the EAC were up by nine per cent — with Kigali leading the growth by 89 per cent.
African airlines were urged to explore new revenues streams.
“It is very difficult to get an airline that is making money off ticket sales,” said Chance Ndagano, the acting CEO of Rwandair and current president of AFRAA.
Mr Chingosho said complementary support from governments is needed in the form of infrastructure, developing and deepening regulation and ensuring a conducive environment for airlines to operate.