in Air Transport / Features

It's time for some joining-up thinking

Posted 11 December 2018 · Add Comment

Rolls-Royce’s senior market analyst for Middle East & Africa, Taieb Ben Sghaier, outlines the potential for the civil aviation sector across the African continent.

The African aviation market is growing at a remarkable rate. It is expected to increase at 5.9% year-on-year, growing from 130 million annual passengers today to almost 500 million within the next 20 years.
But sustainable growth requires the industry to take a hard look at the market and ask itself: Are there now too many players competing for the same demand? Is there too much capacity in the marketplace? It is time to look at re-launching the idea of an African Airline Alliance?
The most important driver of passenger growth is the growing middle class: Deloitte reports that Africa’s middle class has tripled over the last 30 years, with one-in-three people now considered to be living above the poverty line – but not among the wealthy.
The current trajectory suggests that the African middle class will grow to 42% of Africa’s population by 2060.
Affordability is also a key factor. Low-cost carriers (LCCs) are making flying more accessible. For example, more than 30% of Fastjet’s passengers in 2016 were first-time flyers.
Connectivity is also improving and African carriers are winning back their share of their home markets. According to the African Airlines Association (AFRAA), about 90% of flights within the continent are operated by African airlines. The home carriers also account for just under half of the flights coming into Africa from other continents.
Two extremely interesting markets have been the routes from Africa to China and from Africa to the US. Most airlines want to break into these two markets. However, a closer look at the Chinese-African market shows that it is a tough nut to crack. Available seat kilometres – a key indicator of airline capacity on a given route – have risen six times over the last seven years, but this number has plateaued since 2015.
One of the world’s largest global airline alliances, Star Alliance, has managed to dominate these routes with Ethiopian Airlines, EgyptAir and Air China driving traffic between the regions, whereas others have had to abandon their efforts.
In order to make this market work, the foundations must be in place. An airline needs a strong hub, with strong demand and low seasonality. But, it seems, the most successful pathway to success is to be part of a major alliance and have multiple code sharing partners. These elements combined create sustainably.
Practically, each sub-region in Africa today has one or two major hubs; with Casablanca and Cairo being the front-runners in the north, and Addis Ababa and Nairobi competing fiercely in the east. Johannesburg is probably unrivalled in southern Africa. However, in west Africa, the jury is still out as Lomé, Cotonou, Abidjan, Lagos and Accra are developing rapidly and all show much promise.
All this competition is great for original equipment manufacturers (OEMs), which include airframers such as Airbus, Boeing, Embraer and Bombardier, as well as engine makers such as Rolls-Royce.
In Rolls-Royce’s most recent forecasts, we have concluded that Africa will need around 1,000 new aircraft over the next 20 years.
Of these, narrow-body or single-aisle aircraft will make up the lion’s share. However, we will see more and more national airlines, such as Air Tanzania, embracing wide-body aircraft as they launch new international routes and seek to meet rising demand.
Of course, it is not just about new aircraft; there has been a very healthy market for ‘second-hand’ or ‘transitioning’ aircraft. For instance, our Trent-powered Boeing 777s and A330s, and AE3007 fleets have been particularly successful in moving from one operator to the next.
Liberalisation of the skies will help to drive a culture of competition. Also, it is widely agreed that Africa’s market cannot sustain more than 50 airlines.
It is natural for any maturing market to see a level of consolidation and I foresee a Lufthansa Group-style alliance where smaller national airlines will benefit from growing under the wing of a stronger overarching airline group. There may be resistance to this at first, but examples such as the HNA Group in China and LATAM in Latin America show signs that this concept can work.
 

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