Lack of liberalisation hurting Africa airline industry - CNBC Africa

Lack of liberalisation hurting Africa airline industry

Special Report

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The lack of liberalisation has resulted in the industry’s poor growth. Zweigenthal, Chief Executive, Airline Association of Southern Africa (AASA) says that while there is still some stability, Africa has not taken advantage of liberalisation within the continent which has led to international airlines gaining a foothold in the industry. 

“One of the big things that we’ve looked at is liberalisation of Africa and I think that’s one of the opportunities that we’ve lost. That has led to increased international airline presence in Africa and African airlines have not grown to the extent that international airlines have. About 80 per cent of African traffic is brought in by international airlines,” he said.

According to the European Commission (EC), an executive body for European Union member countries, services such as transport, energy, postal services and telecommunications are not always open to competition. Liberalisation is a solution to this.

The EC aims to encourage competition in the market and allow consumers to choose from a wide range of products and services. The African market seeks to apply the same approach but the booming presence of international carriers limits local growth.

“We’ve always spoken about a huge potential that exists within Africa. We are still very much operating off a low base with probably about 12 per cent of the world’s population and we only account for about two to three per cent of the global airline passenger industry,” Zweigenthal said.

“The problem we have is that we are trying to develop and strengthen the African aviation industry and the industry, with the exception of a couple of the larger airlines, is struggling to get off the ground and to be sustainable,” he added.

Each regional block on the continent, from the Southern African Development Community (SADC) to the Central, Western and East African Community (EAC) blocks, has a number of successful national carriers. This success, however, is not being reflected between the individual regions.

“Liberalisation has taken place within the blocks but not between the blocks. There’s some starting to happen between West and East Africa but with the SADC region there’s not great liberalisation taking place,” said Zweigenthal.

The AASA has a number of member airlines within the SADC region which include Air Botswana, Air Mauritius, Air Namibia, Comair, Kulula.com, Mango airlines, South African Airways and Swaziland Airlink.

While both Mango and Kulula.com started off as fairly small national carriers, they have established themselves as significant players in the airline business. 

“Kulula is part of the Comair group and they were the first local carrier to get going – they’ve certainly established themselves a brand. I believe that Mango is more and more establishing itself as a brand but in South Africa. It’s obviously a subsidiary of South African Airways but it’s got its own team that is focused on providing a service. It’s fulfilling a very big, important part of the market,” said Zweigenthal.  

South Africa has a well-established airline industry but internal and external economic forces have forced a slowdown in the domestic market.  

“I think South Africa is a bit of an anomaly at the moment. I’ve seen some bank projections saying that domestic growth has actually slowed. It’s showing itself throughout the economy and that’s being reflected to some extent in the domestic airline market within South Africa. We haven’t seen growth,” he said. 

 Zweigenthal echoed the very same sentiments for the African market.

“Growth has been projected at around about six to six and a half per cent within Africa, and I talk about Africa as a whole, which is above the global average of about four and a half per cent. Growth is there but it’s not at the level that it should be. I don’t think we’re necessarily realising the full potential of Africa.”

In order to compete both nationally and internationally, the airlines themselves have to look at cost-saving measures.  If they don’t get more cost efficient, they won’t make it.

“The challenge would be to find a way to increase revenue and reduce costs. The problem at the moment is they have high operating costs. The high price of jet fuel, high infrastructure charges such as airport charges, taxes that government imposes, air navigation charges and distribution costs. Those are some of the costs which are pretty much set and not within their control so the airlines have to constantly look at new efficiencies,” said Zweigenthal.

He also believes that there’s a huge potential for increase in both the business and tourism and leisure markets.

“The African market is a market ready to burgeon. At the moment I think that we’re not able to because there’s investment required within airlines to be able to increase their fleet sizes. It’s a very tough environment and that’s why I think we’re seeing the strength of the international carriers in Africa.”

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