Thomas White Global Investing
Airlines vie for a Sky-slot under the African Sun
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April 19, 2013
A Postcard from the Middle-East & Africa
Airlines vie for a Sky-slot under the African Sun

Flying in Africa

African airline industry is the world’s second-fastest growing after China. Some of the world’s largest airlines, starved of profits in developed markets, are camping in Africa with an eye on growth and profits.

The African terrain may be a rugged one to traverse: thick forests and expansive deserts certainly don’t make life easy for the average passenger trying to travel across the continent by road or rail. How about air travel? Surely, the bright African skies must offer a better alternative to navigate this challenging landscape.

Sadly, however, African skies have not been friendly to the frequent traveller. In the place of natural barriers are artificial ones that discourage air travel among millions of Africans who would otherwise hop into an airplane to travel between cities.

Instead, almost 50 different countries regulate the African skies in 50 different ways. Air fares cost hundreds of dollars to fly a few hundred miles, and airports are incapable of handling more than a few dozen aircraft at a time, frustrating the African flyer. To travel between two African cities, passengers often have to land at a European airport that serves as a connecting terminal. No wonder international carriers neglected the African airline market, which had gained the unflattering title the “long-forgotten market”. In fact, in the time between the late 90’s and the mid-2000’s, no big U.S. airline company even served the continent. In effect, the African flyer got a raw-deal.

But things are changing. With the rising strength and the wealth of the potential African flyer, global airlines are being forced to take a serious look at the African air travel market. Starved of profits in most developed economies, major global airlines view Africa as the last major frontier from which to reap some riches. The timing cannot be more conducive for these airlines: Africa is making steady economic progress and many African consumers are earning enough to afford an airplane trip for the first time in their lives. For instance, Airbus, one of the world’s largest manufacturers of passenger aircraft, has forecasted that total African passenger air traffic will grow at the pace of nearly 5.7% until 2030, compared to 4.8% growth for the entire world. Boeing, another aircraft manufacturer, predicts that demand for passenger aircraft in Africa will jump to nearly 1,210 by 2030 worth nearly $100 billion.

Given such lucrative opportunities, a number of airline companies from across the world are rushing to book their place under the sun. Stelios Haji-Ioannou, the Greek entrepreneur, who disrupted life for all major European airlines some decades ago with his EasyJet low-cost airline, is camping in Africa. Vowing to make air travel cheap for Africans and still make a profit from flying, Mr Haji-Ioannou, introduced his first Fastjet flight in Africa between the state capitals of Kenya and Tanzania. The cost of the Fastjet ticket was priced at a mere $27 compared to $350 typically charged by full-service carriers. Although ticket costs on future Fastjet flights for the route will touch $100 per trip, Mr. Haji-Ioannou claims ticket prices are still low enough to drive millions of flyers to his airline from countries such as Uganda, South Sudan, and Ethiopia.

Major international carriers too are queuing up in Africa. British Airways, which used to serve only a few countries in Africa, is now ramping up services in nearly 16 countries. Cash-rich Middle-eastern carriers like Etihad Airways are eyeing some of the busiest African cities and airports to boost their operations on the continent. Even the emerging giant China is taking its flying expertise to Africa through the state-owned China Southern Airlines Co.

African nations for their part are upgrading old airports in addition to building new ones. While South Africa equipped its major airports with cutting-edge air traffic control systems, smaller African nations like Senegal are building airports anew. Still others like the Republic of Congo are adding new runways and terminals to encourage the airline industry in Africa, the world’s second-fastest growing geography after China.

While welcoming these changes in Africa, major airlines still feel Africa has a long way to go to improve the industry especially with regard to safety. Despite recent improvements in safety standards, accident rates on the continent are roughly nine times behind the global average. And, for all the growth in the industry, the market is still small. The airline industry added just $8 billion to African GDP, employing a work force of just 260,000 compared to the North American industry that added almost $230 billion to GDP and employed nearly 3.1 million workers in 2011 according to an airline industry group. Unless growth comes at a rapid clip, the tiny African airline market will not create enough opportunities for smaller airlines.

But currently, African airlines are flying high as the sun shines brightly by them. And symbols special to African culture, such as the African grey parrot and mango, serve as the logos of key carriers, signalling the arrival of the continent on the world aviation scene.

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