Low Cost & Regional

Regional review: The challenges faced growing African airlines

african airlines

Africa is an expensive place for airlines to do business. Having the right fleet strategy, access to finance and a harmonised regulatory system are all crucial for air transport to develop.

The potential that Africa possesses for air services is huge and this has been well-documented over the years.

However, there are several challenges imposed on African airlines which create a uniquely tough operating environment – issues ranging from high taxation, the cost of fuel (which is around 35 per cent higher than other regions) and the lack of an integrated intra-African network are just some of the issues facing the regional market.

Fleet strategies

Flying the right sized aircraft is critical. OEMs in the regional aircraft sector have been vocal about the importance of rightsizing the fleet as a means of keeping operational costs in check. Embraer’s Africa Airline Business Seminar, in Mauritius in April, was one such platform to get the message across.

At the event in Port Louis, Embraer announced a firm order for 10 E195-E2s for Peace Air. The Nigerian carrier will become the first E-Jets E2 operator in Africa. The contract includes purchase rights for a further 20 E195-E2. With all purchase rights being exercised, the contract has a value of $2.12 billion, based on current list prices.

Embraer says having the right sized aircraft is essential for African airlines to be able to return to profits. The OEM said 97 per cent of flights within Africa depart with fewer than 150 passengers on board. The market in Africa presents significant opportunities for airlines to deliver the connectivity that the whole continent needs.

Aircraft, however, must be right sized to develop those routes profitably.

Nonetheless, Raul Villaron, VP Middle East and Africa at Embraer observes that the majority of aircraft serving those markets are still large narrowbodies, with more than 150 seats, resulting in an average load factor below 70 per cent – significantly lower than the world average of more than 80 per cent.

“Deploying large narrow bodies into thin routes is also resulting in a low number of frequencies. More than 60 per cent of the intra-African routes are served with fewer than one flight per day,” he states.

In March, Embraer delivered the first of two E175s to Mauritania Airlines. The E175 for Mauritania Airlines is configured with 76 seats in a dual class layout. The introduction of E175 is part of Mauritania’s fleet modernisation, replacing older aircraft.

African airlines
Feuerherd says full liberalisation will take some time

During the handover ceremony, Mauritania Airlines’ CEO Radhy Bennahi said the introduction of the E175 in the fleet would allow the airline to add more frequencies and new destinations whilst enhancing the quality of passenger experience.

Actively supporting the development of aviation in Africa also involves investing in the infrastructure that will make success possible.

One good example of this is the opening of the new Embraer training centre in Johannesburg that will address a key challenge in Africa: the training of local skilled workforce. “Because of this new training centre, local pilots and technicians will be trained and will support new airlines as well as the existing Embraer operators in the continent,” says Villaron.

Another good example are the Embraer Authorised Service Centres that allow airlines to have access to MRO services. Kenya Airways and Jet Services in South Africa are offering Embraer operators MRO services and developing the local know-how.

“Having the right local support streams is essential in building a strong future for the crossover jets in Africa.”

Funding is also a key enabler for Africa’s future in aviation. Embraer’s prospects and experience of funding in Africa are actually very positive, states Villaron. “E-Jets are considered very liquid assets by financial institutions because of their large customer base and excellent residual values and secondary market performance. This results in an enviably diverse number of finance options.”

Embraer’s E-Jet family is strongly supported by lessors, he continues. “Over a third of the total fleet is on an operating lease with around 35 lessors and these figures are trending upwards; new players are entering the space and existing ones growing their portfolios.”

In contrast to some OEMs, export credit financing has never been closed off for E-Jet operators, Villaron suggests.

Embraer has also developed an extended approach to export credit, facilitating the development of cooperation agreements between BNDES (the Brazilian Development Bank) and other multilateral financial institutions willing to support the financing of new aircraft deliveries in Africa.

Fleet financing, or the lack of, has often been the biggest challenge facing many African regional carriers, and Villaron indicates that commercial banks are widely supportive of Embraer’s crossover narrowbody and small single-aisle jets, including all African banks active in aircraft financing: “Financing for Ejets and the E2 is in fact a competitive advantage for Embraer. We have strong support from both the international aviation financiers and local African banks,” he says.

African Airlines: Grounded MAX
Comair BA grounded its MAX following the Ethiopian crash

Elsewhere, start-up carrier Uganda Airlines has chosen the CRJ series from Bombardier to grow its fleet. The airline has received two out of four CRJ900s ordered in 2018. The aircraft are configured with 76 seats, including 12 in first class.

“We are thrilled to commence our operations with the world’s leading regional jet, and we look forward to providing the most modern passenger experience in regional aviation to the people of Uganda and across Africa,” said Ephraim Bagenda, CEO, Uganda National Airlines.

And further south, Johannesburg-based British Airways franchise operator Comair was the first airline in sub-Sahara Africa to operate the 737 MAX. The carrier received its first aircraft just weeks before the type was grounded following the Ethiopian Airlines crash.

The airline removed its 737 MAX 8 from its flight schedule, saying, “the safety and confidence of our customers and crew is always our priority,” and that there was extensive preparatory work prior to the introduction of the first MAX 8 into its fleet.

The new aircraft enters a growing African aviation market, where the domiciled fleet has almost doubled in the past two decades. And over the next two decades, Africa will require nearly 1,200 new jets, according to Boeing’s Commercial Market Outlook.

At the time of this writing, Boeing announced it had completed development of the updated software for the 737 MAX, along with associated simulator testing that will lead to the eventual return to service of its jetliner.

ATR are also making some advances in Africa. In November last year, long-time customer Air Botswana began to upgrade their fleet of three ATR 42-500s and one ATR 72-500s with new ATR 72-600s. Air Botswana has been operating ATRs for over 20 years.

ATR sees a demand of 300 new turboprops over the next 20 years for the Africa and Middle East region.

Harmonised regulatory framework

The opportunity underlying a stronger cooperation and reduced protectionism by a liberalised air traffic system on the African continent was recognised over 30 years ago and documented in the Yamoussoukro Declaration dating back to November 1988.

It was refined 10 years later with the Yamoussoukro Decision. But for many nations the individual interests prevailed, leading to a new attempt driven by the African Union officially launched in 2018, the Single African Air Transport Market (SAATM).

African airlines: Uganda airlines
Bombardier and Uganda Airlines signing off on the CRJ900

SAATM is a flagship project of the African Union, an initiative to create a single unified air transport market in Africa to advance the liberalisation of civil aviation in Africa and act as an impetus to the continent’s economic integration agenda.

However, only about half of African states have signed up to SAATM which, if fully implemented, should increase the level of connectivity between African countries and in turn boost air travel.

IATA fully supports this initiative, which will open Africa’s skies and promote the value of aviation throughout the continent.

“This strategic target will only be achieved if the majority of parties involved participate in it,” comments Sascha Feuerherd, managing director at Alton Aviation Consultancy.

The current status, and thus recommendations, for measures to be taken largely differ for different regions and countries in Africa. Feuerherd says the main impact factors are logically the respective economic and political environment, the size and wealth of the population as well as the existing and developing competitive situation in the respective air traffic market.

“There are some generalist observations, but naturally an individualised investigation on a per country or region basis would be mandated to derive a proper individual development plan,” he says.

Building infrastructure

When it comes to infrastructure there are several new airport developments taking shape around the continent – Senegal has a brand-new airport in Dakar, and a brand new multi-million-dollar terminal is opening at Lusaka, Kenneth Kaunda International Airport in Zambia later this year, these being just some examples.

Modernising infrastructure and operations require both investment and expertise, ideally from public-private partnerships. “Africa needs to open its doors for private capital investment,” declared Hassan El-Houry, group CEO, National Aviation Services (NAS), during an economic forum last year.

He said countries such as Côte d’Ivoire and Rwanda were heeding this call and making strategic bets in the sector while employing best practices to drive vibrant aviation growth.

In April, NAS announced that it will offer comprehensive ground handling and cargo services in Mozambique beginning in July 2019. This covers ramp, passenger and engineering services and includes check-in, boarding, ramp handling, maintenance, cleaning as well as import and export cargo handling and storage, for scheduled and ad hoc airlines at all airports in Mozambique.

El Houry said, “Airline traffic is growing steadily in Mozambique. Coupled with the developing oil and gas, and mining sectors, there is a huge demand for air transport related goods and services for both cargo and passenger operations.

“This requires heavy investment in the latest equipment, technologies and processes at the different airports in Mozambique, all which NAS can easily provide. We look forward to utilising our global experience and expertise to modernise operations and drive efficiency using the latest technologies and operational practices.”

NAS is committed to investing $50 million in Africa over the next three years. Mozambique is the first African country to benefit from this investment. With new infrastructure and fresh resources, equipment, technology and training, NAS say they will ensure the highest levels of quality and security for international airlines operating at the various airport in the country.

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