DEVELOPMENT TRENDS IN THE AFRICAN AIRLINE INDUSTRY

By

Raphael KuuchiAFRAA Commercial Director

EU-AFRICA AVIATION CONFERENCEWindhoek, Namibia, 2-3 April 2009

IntroductionIntroduction•• In Africa air transport is vital for the socioIn Africa air transport is vital for the socio--economic development, economic development,

promotion of international trade, tourism and regional integratipromotion of international trade, tourism and regional integrationon

•• Insufficient and/or poorly developed nature of other modes of trInsufficient and/or poorly developed nature of other modes of transport ansport makes air transport the most ideal for linking the vast continenmakes air transport the most ideal for linking the vast continentt

•• Huge untapped market Huge untapped market –– only 10% travel by aironly 10% travel by air

•• EUEU--Africa coAfrica co--operation is important because operation is important because ……

–– Long historical and cultural tiesLong historical and cultural ties–– Geographic proximityGeographic proximity–– Trade and business relationshipTrade and business relationship–– Major air traffic marketMajor air traffic market–– Significant changes in EU regulatory environment (single market,Significant changes in EU regulatory environment (single market, single single

sky, etc)sky, etc)

•• A winA win--win partnership will benefit both sideswin partnership will benefit both sides

Traffic Performance TrendTraffic Performance Trend

Traffic Performance TrendTraffic Performance Trend

•• Over the past decade, traffic growth in African has average 5.7%Over the past decade, traffic growth in African has average 5.7%per annumper annum

•• Africa accounts for 3% of passenger and 1.8% of freight traffic Africa accounts for 3% of passenger and 1.8% of freight traffic

•• NonNon--African airlines carry over 75% of trafficAfrican airlines carry over 75% of traffic

•• The number of passengers carried by African airlines topped 53 The number of passengers carried by African airlines topped 53 million last yearmillion last year

•• Freight carried exceeded 800,000 tons in 2008Freight carried exceeded 800,000 tons in 2008

•• This represented an increase of 5.9% over 2007 compared to This represented an increase of 5.9% over 2007 compared to global growth rate of 4.6%global growth rate of 4.6%

35,929 35,43233,056 34,677

39,31541,712

45,20547,858

53,345

-

10,000

20,000

30,000

40,000

50,000

60,000

No.

of P

asse

nger

s

Passengers Carried by African Airlines (2000 - 2008)

International Schedule Passenger Traffic by Region - Total Passenger Kilometres Performed (PKP)

Africa3%

Europe40%

N/America18%

L/America4%

Asia/Pacific28%

Middle East7%

Passenger Traffic Distribution - Africa to other Regions

Europe, 64%

N. America, 1%Middle East, 16%

Asia Pacific4%

Intra-Africa, 15%

Major growth markets in the future include North America, Middle East and Asia Pacific

Passenger traffic Carried by Market - 2008

Inter-continental49%

Domestic39%

Intra-Africa12%

Traffic Performance Trend

Percentage of Freight Carried by Region

AFRICA , 1.81%

ASIA/PACIFIC, 34.66%

EUROPE , 26.55%

LATIN AMERICA/CARIBBE

AN, 2.94%

MIDDLE EAST, 6.45%

NORTH AMERICA , 27.60%

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

Low Cost AirlinesLow Cost Airlines• 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.

WHAT ARE AFRICAN AIRLINES DOING TO WHAT ARE AFRICAN AIRLINES DOING TO REMAIN COMPETITIVE?REMAIN 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

Safety and SecuritySafety and Security

• 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

Safety and SecuritySafety and Security

• 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

MRO and Training MRO and Training 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

5729TOTAL01Interair

61Tunis Air

31Libyan Airways

01Air Namibia

21LAM Mozambique Airlines

01Air Burkina

02Rwandair Express

13Air Madagascar

02Precision Air

23Air Senegal International

61Ethiopian Airlines

42Kenya Airways

173EgyptAir

167South African Airways

No. of Partners other Airlines

No. of Partners in Africa

Airline

Global Alliance MembershipGlobal Alliance Membership

Three African airlines are members of global alliance groups

Environmental ConcernsEnvironmental Concerns

• 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

Diminishing Presence of African AirlinesDiminishing Presence of African Airlines

Diminishing Presence of African AirlinesDiminishing Presence of African Airlines

• 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

KEYCountries 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

The Airline Industry in the 1970s & 1980s

Diminishing Presence of African AirlinesDiminishing Presence of African Airlines

21

82

31

136

20

94

26

76

35

84125

131

0

50

100

150

200

250

300

Francophone toParis

Francophone toEurope

Ang lop hone WestAfrica to Europ e

Eas t Africa toEurope

Southern Africa toEurope

North Africa toEurope

Weekly Flight Frequencies between Africa and Europe

African Airlines European Airlines

Diminishing Presence of African AirlinesDiminishing Presence of African Airlines

Weekly Flight Frequencies - Africa to Europe

European 72%

North Africa 15%

Southern Africa 4%

East Africa 3%

Anglophone West Africa 2%

Francophone Africa, 4%

Challenges of African AirlinesChallenges of African Airlines

• 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

The Way ForwardThe Way Forward

• 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 YD – we’ve talked about it enough!

• Create the right environment for competition – regulations, institutions and monitoring

• There is an urgent need for a comprehensive air transport policy which should include a framework for Africa’s relationship with 3rd countries on issues related to air transport

The Way ForwardThe Way Forward

• We are encouraged that the EU is willing to support Africa under the proposed new strategic partnership to assist in the crafting of an African air transport policy

• Such a policy should encourage cross-border investments in aviation – EU carriers and investors should invest in our airlines

On safety;

• AFRAA will continue to work with and support stakeholders on various initiatives

• CAAs should be encouraged to share limited resources and expertise

• EU and Africa should work together to ensure that aircraft that are banned for environmental reasons in Europe do not get into Africa through the used aircraft markets

• Unilateral regulation of the industry should give way to global regulation led by ICAO. This will ensure the weak and vulnerable are not disadvantaged

The Way ForwardThe Way Forward

• AFRAA believe there could be better ways of addressing the safety concerns of Africa without resorting to blacklisting

• EU and Africa should continue to work together towards finding an appropriate solution in this regard