Tough times continue for African airlines

The airline sector has been one of the most vulnerable to both the impact of the Covid-19 pandemic and the various lockdown restrictions put in place to counter it. Passenger numbers and revenues plummeted, with some airlines forced to mothball their entire operations.

Africa’s biggest carriers have responded in very different ways and there is a growing feeling that the crisis has speeded up ongoing developments in the industry, with struggling airlines forced to take desperate measures and the few success stories becoming increasingly dominant.

Many airlines were completely grounded from April to August 2020 during the early months of the pandemic. Although some services have been reintroduced since then, the operating environment remains very difficult.

While cafés, restaurants and hotels can find it difficult to make a profit with lower customer numbers, the same limitations make it almost impossible for airlines to operate profitably because they have virtually the same fuel and staff costs with a fraction of the passenger numbers.

According to the African Airlines Association (AFRAA), airlines based in Africa lost a combined $10.2bn in passenger revenue alone in 2020. Big losses are also expected this year, as many restrictions have remained in place and many potential travellers have been reluctant to return to the sector because of fears over transmission.

AFRAA’s Air Transport Report 2020, which was published at the start of June, revealed a 63.7% fall in total passenger numbers on the continent, from 95m in 2019 to 34.7m last year.

The report points out that there is still a correlation between airport charges and passenger numbers, with some of the busiest airports, such as Johannesburg, Algiers, Cairo and Addis Ababa, offering some of the lowest charges. It argues that this “indicates that lowering the airport charges can have a positive effect on traffic”, although it is also possible that it is cheaper to handle passengers on a per capita basis when there is high turnover.

Johannesburg and Cairo remained the busiest passenger airports, although Nairobi Jomo Kenyatta Airport handled the most freight over the year, at 330,000 tonnes. North Africa was the leading region, with 36.6% of the total continental traffic.

Need to develop intra-African networks

Just 13 African countries have direct flights to more than 20 other African states. Kenya and Ethiopia lead the way, with direct flights to more than 30 other African countries, although this is perhaps no surprise given that Ethiopian Airlines and Kenya Airways are among the three biggest operators in sub-Saharan Africa.

AFRAA argues that it is even more important for African airlines to develop their intra-African network because non-African airlines have limited their connections with the continent due to the pandemic.

Some non-African airlines have invested heavily in their African operations in recent years, with Qatar Airways now flying to 26 destinations and Turkish Airlines betting heavily on Africa’s future. The latter now flies to 53 African destinations in comparison with just 41 in Asia.

The choice of aircraft is often vital to an airline’s success. New aircraft are more expensive but more reliable and cheaper to operate, while narrrowbodies – those with just a single aisle, such as the Airbus A320 and Boeing 737 – are becoming a more popular choice among the more commercially viable airlines operating in Africa.

Such models are ideal for the medium-haul routes that dominate the African market, and are also big enough to serve the biggest airports, but not so large that they regularly suffer from a high proportion of unfilled seats. Triangular routes, where services connect three rather than two destinations, are also becoming increasingly popular.

Medium-sized jet market shows promise

The aviation manufacturing market should not entirely be viewed as a titanic struggle between Airbus and Boeing. Brazilian medium-sized aircraft specialist Embraer is particularly enthusiastic about Africa’s vast untapped air travel potential. While there are just 500 scheduled routes between African destinations, there are 800 between African airports and the rest of the world. The lack of services between even relatively populous African countries means travellers often take long, uncomfortable road journeys or fly via other continents just to get to a neighbouring African country.

Embraer therefore hopes that its medium sized E170 and E190 aircraft with just 70-120 seats can fill the gap by making it commercially viable to offer direct flights between African destinations. Its regional jets dominate similar markets elsewhere in the world and could help reduce the cost of medium-haul transport for both airlines and African passengers by increasing load factors – the proportion of seats sold on any flight. 

African load factors currently stand at about 70%, in comparison with a global average of 82%. Some airlines use wide-body aircraft on medium-haul routes because they want the flexibility of being able to use the same planes on longer routes or they hope to grow markets, but this can result in too many unsold seats.

Moreover, demand for business jets in Africa is higher than before the pandemic, even in struggling Nigeria and South Africa, according to consultants WINGX Advance. Often regarded as the preserve of the super rich, business jets are being used in a variety of commercial environments. Indeed, the Nigerian Civil Aviation Authority (NCAA) has sanctioned some private jet operators for offering commercial operations without a licence. While illegal, this black market does highlight the level of untapped demand for air travel in the continent’s most populous country.

Mixed fortunes in Kenya and Ethiopia

Of the big three carriers, Ethiopian Airlines expects to have generated a small profit in 2020, one of only three airlines anywhere in the world to do so.

It operated many repatriation flights as people rushed to return home as lockdown restrictions kicked in, it converted passenger planes to freight carriers, and it has also helped to distribute vaccines and PPE equipment across the continent. The airline was experiencing strong growth before the pandemic – of the 25m annual seats added by Africa’s 10 biggest airlines between 2011 and 2019, Ethiopian was responsible for 15m.

Ethiopian’s adaptability also extended to the opening of the final phase of its new Terminal 2 at Bole International Airport in Addis Ababa in September. Socially distanced gate seating, self check-in kiosks, e-gates, thermal scanners and touch-free sanitisers were included in the $300m facility, which the airline describes as an 86,000 square metre bio­safe terminal.

Long-troubled Kenya Airways, one of Ethiopian’s regional competitors, has not fared so well. The airline secured moratoriums on debt capital repayments with its main creditors but these were not extended to interest repayments, leading to a fresh round of talks with lenders in an attempt to renegotiate the terms of its existing debts. Its revenue fell 59% to KSh52.8bn ($494m) for the year to the end of December 2020, yet its costs declined by just 3.1%.

As a result, the Kenyan airline appointed the UK’s Steer Group in May to advise on its survival and recovery strategy. The Kenyan government will be watching the situation carefully as it agreed to reforms at the airline and other state-owned companies as part of a $2.3bn loan from the IMF in March. It has managed to cut some costs by bringing more servicing in-house but wider reforms will be needed to ensure a viable future.

Air freight takes off

While passenger numbers are sharply down, the air freight sector has provided some much-needed growth for the sector as a whole. According to the International Air Transport Association (IATA), global demand for air cargo was 12% higher in April 2021 than April 2019, before the pandemic, and higher even than the historical peak in August 2018. Aside from Latin America, all global regions have registered growth over the past two years but none more so than Africa, where demand grew a massive 30.6% in the two years to April 2021.

Demand was particularly strong on Asia-Africa routes. Given the impact of the pandemic on African economic growth, it is difficult to determine exactly why demand should be so strong but it must be noted that ship-borne cargo at the continent’s ports was not nearly as badly affected by the crisis as might have been expected. The increase was achieved despite cargo capacity being 9.7% below pre-Covid levels due to the grounding of passenger flights that would normally carry cargo in the hold. 

Some airlines looked for innovative solutions in switching to cargo services. Ethiopian Airlines expanded its existing fleet of 12 dedicated cargo aircraft by temporarily converting 25 passenger planes to cargo, allowing it to serve 74 cargo destinations, doubling its cargo revenue in the process. 

This strategy helped buoy revenues during the most difficult months but those planes have gradually had their seats returned as demand for passenger services has picked up.

Investment in air cargo operations and infrastructure has continued even during the pandemic. CEVA Logistics has bought Moroccan freight forwarder ASTI and a stake in logistics provider AMI Worldwide, which operates across Southern and Eastern Africa. 

Global firm DHL is building a new 10,000 square metre warehouse with pharmaceutical storage capacity at OR Tambo Airport in Johannesburg, while DHL has also set up joint ventures with Ethiopian Airlines in Ethiopia and Unicargas in Angola. The latter aims to promote the export of agricultural products and other goods from Angola.

Government sells stake in SAA 

Covid-19 hit airlines that were already struggling before the pandemic particularly hard. For instance, South African Airways (SAA) was placed under bankruptcy protection in December 2019 but coronavirus restrictions forced it to halt all operations in Sept­ember 2020 when it began to run out of money.

The South African government has been forced to take some difficult decisions as it fights to turn round several loss-making parastatals. As a result, Pretoria has announced that it will sell a 51% majority stake in it to the Takatso Consortium, which includes airline group Global Aviation and Africa-focused investment group Harith Global Partners, and aims to list at least part of its remaining equity in the longer term.

Announcing the deal, public enterprises minister Pravin Gordhan said: “The objective of bringing in an equity partner to SAA is to augment it with the required technical, financial and operational expertise to ensure a sustainable, agile and viable South African airline.” Takatso has pledged to inject at least R3bn ($221m) into the company in the form of working capital and consumer protection guarantees in the first instance to keep it going for one to three years.

At time of writing, it was hoped that the deal would allow SAA to restart domestic operations by August, with regional destinations thereafter, but it remains to be seen whether it will re-enter the long-haul market, as no long-haul services are planned for the next two years. 

Takatso chief executive Gidon Novick commented: “We’re going to be competing with the greatest airlines in the world, and we need to be mindful of that.”

The fate of SAA’s low-cost offshoot Mango also hangs in the balance. A big reduction in SAA’s operations seems likely, however, given that the number of employees is to fall from about 4,000 to 1,000, with a reduction in the size of its fleet from 44 to 26 aircraft.

Filling the gap in West Africa

West Africa has a long history of airlines being launched and folding, leaving a far from comprehensive network even before the pandemic. The latest company to try to fill the void is Green Africa Airways, which was set up by Nigerian entrepreneur Babawande Afolabi and which was due to launch on 24 June.

Structured as a low-cost airline, it aims to “afford more customers the opportunity to pursue their economic interest or simply spend more time with family and friends”, according to Afolabi.

Although starting small, using ATR turboprops, it has placed a $3.5bn order for 50 Airbus A220 jetliners, in a contract that displaced earlier plans for 50 Boeing 737 Max aircraft. No date for delivery has been revealed but in the meantime it aims to operate up to 15 turboprops by the end of 2022 on seven routes from its Lagos base, including Abuja, Enugu and Port Harcourt, with prices from N16,500 ($40).

There are grounds for long-term optimism, as Africa’s growing middle classes create more demand for both business and leisure travel. Moreover, the African Continental Free Trade Area promises far greater intra-African economic integration but much remains to be done to actually fulfil this promise.

In the even longer term, Africa’s population is expected to continue growing strongly, from 1bn in 2009 to 2.49bn in 2050, at a time when the population of many other parts of the world is predicted to fall. If average incomes grow significantly over this period then demand for air travel will rise exponentially, but the focus for the months ahead will be on securing more vaccinations in Africa to give consumers the confidence to fly again.