Top 500 Companies: Aviation – Giving wings to the recovery

In depth
This article is part of the dossier: Africa’s Top 500 Companies

By Pierre-Olivier Rouaud
Posted on Wednesday, 13 April 2022 11:06, updated on Tuesday, 26 April 2022 14:45

An Ethiopian Airlines Airbus 350-900. © Fabrizio Gandolfo / SOPA Images / Sipa

Please take your seats and fasten your seatbelts... we’re coming in for landing. In these still turbulent times, with Covid-19 still a threat and the Russian aggression in Ukraine exacerbating tensions, the clouds are gradually dissipating in the African sky.

According to Abderahmane Berthé, secretary general of the African Airlines Association (AFRAA), “the worst is over”. AFRAA estimates that traffic in February reached 64% of the 2019 level. “A recovery is happening. It remains moderate because all health measures are not lifted, but appears to be faster for companies that had a large network before the pandemic,” Berthé says.

During the first quarter of this year, Ethiopian Airlines, EgyptAir and Royal Air Maroc relaunched their flight programmes. These top three, as well as a number of medium-sized and smaller airlines, are all betting on a market recovery this year. To achieve this, airlines are dusting off their aircraft and bringing out of their hangars those they had mothballed. Some of them are not renewing their sublease contracts with other operators, “a market that has been quite active, paradoxically, for almost a year”, says a consultant in the air industry.

Air Côte d’Ivoire, Royal Air Maroc, Air Algérie, EgyptAir and RwandAir are reopening international routes at a pace that should accelerate until mid-2022. Air Senegal launched a Dakar-New York route in September 2021 with an A330-900. Royal Air Maroc plans to restore all its major intercontinental routes and counts on the recovery of tourism, with the easing of health measures. It also has a historic new route with Israel in a codeshare with El Al Israel Airlines. EgyptAir has recently launched its first direct flights to Dublin, Ireland and Kinshasa, DRC.

At Ethiopian Airlines, Tewolde GebreMariam, the emblematic boss of the continental leader, announced the return to service of its Boeing 737 Max on 1 February, after rigorous testing. Three years after the tragedy of Flight 302, the company now has fewer than a dozen aircraft parked out of the 123 in its fleet.

Nimble airlines use their hubs

A notable factor affecting which airlines are bouncing back is that “companies that had developed a hub system before the crisis are better able to quickly take advantage of the recovery”, says Didier Bréchemier, a senior partner at consultants Roland Berger. Channelling flights through a transport hub enables airlines to fill more seats.

However, the crisis has taken its toll. In Africa, according to the International Air Transport Association (IATA), traffic in 2020 fell by a staggering 65.7% to 34.3 million passengers. The passenger figure is estimated at 55 million in 2021, still down by more than 40% on pre-crisis levels.

Fleet modernisation is an imperative for companies, especially in times of high fuel prices.

AFRAA’s Berthé says: “We hope to return to a level comparable to 2019 on an annual basis during or at the end of 2023, but the decline in activity was massive and unprecedented in 2020, with a loss of revenue of $10.2bn. In 2021, that loss of business narrowed to $8.6bn. But our companies are still expected to record $4.9bn in revenue loss this year.”

Struggle for survival

This crisis has affected all African players, some of whom are still struggling for their survival. South African Airways, already in a state of near-bankruptcy before the crisis, was grounded in March 2020 before timidly resuming its flights in September 2021. Despite the government’s injection of R7.8bn ($521m), the state-owned company, once the continent’s leading airline, remains moribund. In June 2021, as part of a deal that has yet to materialise, South Africa’s public enterprises minister Pravin Gordhan announced the sale of 51% of the capital to the Takatso Consortium – Harith General Partners and Global Aviation – which is also expected to inject R3bn to revive the company. It is not clear whether this will be enough, seeing as the airline only has a fleet of only half a dozen active aircraft.

South African Airways and its future shareholders are also working on an alliance with Kenya Airways, which is financially crippled, too, despite a recent state aid of $176m. With the blessing of Presidents Uhuru Kenyatta and Cyril Ramaphosa at the end of 2021, the two operators are expected to come together in a deal yet to be determined. The fate of Mango, a major subsidiary of South African Airways, remains in doubt. Another subsidiary, South African Express, was liquidated in 2020.

While Air Madagascar and Tunisair, for example, have not been able to count on fresh public money, other governments have been keen to support their national carriers. Royal Air Maroc is benefiting from a support plan of Dh6bn ($613.5m).

Pan-African aircraft leasing company

Several major African institutions, including Afreximbank and the African Development Bank, are continuing to work on the creation of a pan-African aircraft leasing company. “This project is moving forward little by little. We strongly support it. Access to the most modern aircraft remains a limiting factor, especially for small companies,” says AFRAA’s Berthé.

In terms of competitiveness, Roland Berger’s Bréchemier says: “Fleet modernisation is an imperative for companies, especially in times of high fuel prices. The latest generation of aircraft and engines can reduce fuel consumption by 15% to 25%.”

Alliances can be an interesting way forward, but even in this historic crisis, there are few initiatives in this direction.

The fact remains that while there is optimism among airlines, much remains to be done to brighten up the African skies in the long term, particularly in terms of the number of operators. “It is understandable that states want to have a national flag carrier. However, given the real demand and the resources that this sector requires, the number of small companies remains too high. Alliances can be an interesting way forward, but even in this historic crisis, there are few initiatives in this direction,” says Bréchemier.

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