Aviation Africa

Aviation Africa

Mark Kapchanga examines the world of African airlines and considers why they may be on the cusp of another boom in passenger numbers

Aviation Africa

SAA new

Africa’s economic growth is likely to outperform the world’s average in the next three years. According to the World Bank, increasing investments will boost the continent’s growth to more than five per cent.

The Bank forecasts the foreign direct investment will reach $54 billion by 2015. The growth prospects are fast pushing firms to invest in Africa, with the latest in the race for a piece of the region’s burgeoning market being the aviation firms.

South African Airways (SAA) says it expects the economic benefit from this development that is projected to turnaround the region once referred to as a ‘dark continent’. The airline plans to inject close to $ 105.6 billion over the next 20-years in its operations that has been occasioned by stiff competition.

The changing market landscape saw the firm post a pre-tax loss of $ 143.7 million for the year ending March 2012. In the same period in 2011, it registered a profit of compared with a profit of $83.7 million.

The South African government gave the airline a $528.3 million debt-guarantee late last year in a bid to ensure that SAA could borrow from the markets to back its recovery plans.

The airline had announced four months ago that it was preparing for a bond sale, which was later postponed ‘until such time that the long-term turnaround strategy has been permitted’. “SAA will source its funding requirement through a bank term loan on the back of the shareholder guarantee,” said Monwabisi Kalawe, the chief executive officer of the airline.

South African Airways is part of the Star Alliance. It recently signed a code share arrangement with United Arab Emirates and Etihad Airways to expand its flight routes by 26. SAA has also established partnerships with other local airlines such as South African Express. The SAA subsidiary, Mango, operates around six Boeing 737-800 aircraft. Each ferries passengers between Johannesburg and Cape Town, Bloemfontein, Port Elizabeth and Durban.

The airline launched two new mobile applications recently that give customers access to travel and airline information. “This new service will go a long way in giving travellers easier and instant access to information whilst in transit or away from a computer. The new functionalities are helpful especially for passengers who are always on the go such as business travellers,” said Marc Cavaliere, the SAA’s Head of Global Sales Development and Alliances.

Experts say the aviation sector in Africa is expected to grow by six per cent in the next year. This is almost in tandem with the continent’s Gross Domestic Product growth, which is to swell by five percent in the same period.

“With growing global interest in Africa’s abundant minerals and agricultural resources coupled with increased stability in the region, the stage is set for a huge leap. Aviation will indeed play a pivotal role in catalyzing this move,” said Luke Ngome, an aviation consultant in Nairobi.

SAA’s future looks potentially complicated as London-registered low-cost airline Fastjet plans to enter the South African market. Fastjet plans to start by operating two flights daily between Cape Town and Johannesburg.

Chief Executive Ed Winter says Fastjet, in which Lonrho is the major shareholder, has entered into a partnership with local investment company Blockbuster, which will own 75 per cent of the South African operation.

“We have raised additional working capital to assist with the South Africa launch through a successful placing with an institutional investor who is committed to low-cost air travel in Africa,” Mr Winter said.

As airlines compete for opportunities in the continent, the challenges they have to overcome are innumerable. Africa still lacks the basic infrastructure to support airlines growth such as endemic corruption, weak and ever depreciating currencies, high fuel costs and lack of secondary airports commonly used in Europe.

Perhaps this explains why airlines in the Gulf region such as Emirates, Etihad and Qatar Airways are fast penetrating every corner of Africa. The airlines enjoy cheap and abundant supply of fuel, which have made them out-compete key airlines in the Western world such as KLM, British Airways, Air France, among others.

Qatar Airways, voted the best airline in the world and winner of the prestigious World Airline Awards, is currently investing in new routes in Africa, Europe and Australia. Its African drive has in the recent past seen it open operations in Rwanda, Zanzibar, Entebbe and Benghazi, Mombasa in Kenya.

The airline also unveiled its second Australian route to the Western city of Perth. The Kigali flight is operated daily via Uganda’s Entebbe. Flights to both Kigali and Zagreb are operated with an Airbus A320 in a two-class configuration of 12 seats in Business Class and 132 seats in Economy.

“We are glad to be forging ahead with our expansion. These are exciting times for Qatar Airways as we begin our route expansion programme,” said Qatar Airways Chief Executive Officer Akbar Al Baker, adding: “In keeping with our highly focused and tailored growth strategy to enter underserved and thriving markets all over the world, the latest additions very much match our plans to open up a host of new destinations.”

The International Air Transport Association, an international industry trade group of airlines based in Montreal, says some 6.7 million jobs are supported by air transport, creating $68 billion for the African economy. IATA says the potential is even more.

“The benefits of aviation connectivity go far beyond these figures. With a few kilometers of runway the most remote region can be connected to the global community,” said IATA Director General Tony Tyler.

Perhaps this explains why British Airways is very keen on its expansion in Africa. The flag carrier airline of the United Kingdom now flies to more African countries than before. The airline, which will take delivery of its first Airbus A380 in July 2013 currently, operates in 169 destinations excluding those served by subsidiaries and code-shares.

British Airways Regional Commercial Manager for Africa Ian Petrie says the airline is not afraid of competition and will soon be increasing its services to Kenya to eight times a week and an additional three weekly flights to Johannesburg.

Mark Kapchanga 2013