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Africa's Aviation Growth Surging to New Heights
Africa's aviation growth trajectory seems to have gained traction, as demand for air travel is projected to hit a 5.6% growth rate within the next twenty years signaling a myriad of opportunities for investors, airlines and airport operators. This means Africa's passenger capacity will be an estimated 200 million, and in comparison to the global compounded average growth rate of 3.6% (IATA, 2019), Africa is bracing itself for a surge.
While it is evident that aviation in Africa has the potential to fuel economic growth, several barriers exist. Weak infrastructure, high ticket prices, poor connectivity and lack of liberalization rank amongst the many challenges. Notably, poor infrastructure is a barrier to speeding economic progress and as long as African airports remain poorly developed, airlines and other stakeholders may not have the appetite to access these markets. Thus, modal transport development does provide an impetus towards progress which in turn improves multiple layers of the country’s service chain.
The signing of the Single African Air Transport Market (SAATM) by 23 countries could signal the open skies for Africa's restrictive air transport market. Despite such fundamental moves by the signatories, the region still remains visibly restrictive. Other factors that are also restricting faster growth include a lack of competitive dynamics within Africa’s airlines. The majority of carriers are state-run and exhibit very poor performance due to years of poor management and operational negligence. South African Airways has recently received a financial lifeline, but this capital injection will not go far to save the beleaguered carrier. The airline has bleeding cash for so long and now has even suspended some of its domestic operations in order to save operating costs.
Africa’s failure to integrate and liberalize its intra-regional air transport market has been cited as a significant reason why growth in the air transport market has not reached its huge potential. Most countries rely on restrictive bilateral service agreements. This is a paramount reason why insufficient integration and lack of non-restrictive open skies policy present a major barrier to air transport growth in Africa. Open skies agreements not only enable better competition, but it also allows carriers of two or more countries to operate any route between the countries without interference in decisions about routes, capacity and pricing. The result is better service provision, affordable airfares an efficient service for the consumers.
So, what lies ahead in Africa's aviation landscape? Few observations are imminent, thus Privatisation of national flag carriers could unlock operational and profitability efficiency, embracing the “open skies” arrangement to facilitate a more competitive and dynamic air transport market. Finally, private sector engagement through investing and financing in airport infrastructure in order to improve services at airports. However, this is a challenge due to the fact that most African airports are run under the government Civil Aviation Authority where ownership structure is predominantly in the hands of the state. Unless the governments are willing to engage private equity investors in improving the infrastructure through public-private partnerships (PPP). A positive sign includes the recent 60% acquisition of Rwanda International Airport by Qatar Airways.
Even though the African continent is experiencing this surge in growth, it still lags behind the rest of the world in terms of aviation development. Privatization will be a key tool in securing funding for these types of projects.
Given the aviation industry’s strategic importance for modern economies and the need to improve and expand infrastructure to respond to the expected increase in air traffic, airport privatization presents itself as a viable solution. The question still remains: Is the African continent prepared for massive large scale privatization?
Such growth potential requires market caution because, despite a rise in passenger capacity numbers, Africa's homegrown national champion carriers still have poor operational performance. Whilst the rest of the world is basking in an estimated $31.4 billion in profits, Africa's airline carriers will hemorrhage $0.1bn in losses due to high operating costs and excessive government taxes on fuel, further exacerbating the burden.
This puts Africa’s carriers at the forefront of a region with the highest operating costs and costly monopolies among service providers at the different airports continue to blight the industry. This can only be attributed to poor management practices and government restrictions on operational freedoms that have severely impaired the natural progression of the industry.