DON'T MISS : Talking Africa New Podcast – Ethiopia/Egypt: tension spikes despite Dam talks

Coronavirus: a unique opportunity for African aviation ?

In depth
This article is part of the dossier: Corona Chronicles: 4 May – 7 May
Sylvain Bosc
By Sylvain Bosc

Aviation and tourism expert and advisor with over 25 years experience, mostly at an executive level for different African airlines.

Posted on Wednesday, 6 May 2020 16:42

A South African Airways (SAA) plane is towed at O.R. Tambo International Airport in Johannesburg
A South African Airways (SAA) plane is towed at O.R. Tambo International Airport in Johannesburg, South Africa, January 18, 2020. REUTERS/Rogan Ward

It is impossible to overstate the impact that COVID-19 is having on the global aviation sector. The International Air Transport Association (IATA) estimates that the industry will see its revenue shrink by 44% in 2020, while global GDP will “only” contract by approximately 3%.

Many Western governments, including some staunch “free traders”, decisively came to the rescue of their respective national airlines with massive state-guaranteed, low-rate loans; as they recognize that no country can afford to let national air services, and their catalyst effect on the entire economy, disappear altogether.

“Flight to safety”

In Africa the situation is even more critical. States are already struggling to debt-finance emergency interventions (education, health, homeland security) and do not have access to additional funds at attractive rates.

The demand for natural resources is plunging, depriving many states of irreplaceable hard currency income, and exerting further downward pressure on African currencies already weakened by the “flight to safety” phenomenon.

This absence of clear strategic direction has already cost the continent billions and billions of Dollars in public funds. Africa can no longer afford this.

That means that local airline costs, denominated in large part in US dollars, are going through the roof just when international demand, their main source of high yield revenue, is going to be severely, and enduringly, subdued by health concerns.

Viable strategies to boost profits

Let’s be frank: if only a few African airlines were (sometimes) profitable even before COVID-19, massive losses will be incurred for the foreseeable future, unless investors (government in most cases) break the mould and start to think differently about their aviation involvement.

Firstly, it is time to look back and recognize that there are only three potentially viable strategies (if perfectly executed) to choose from:

1.  The intercontinental mega-hub strategy, à la Ethiopian Airlines. This is the option of choice for ultra-rich countries (Emirates, Qatar etc.) who can methodically align colossal financial resources behind a carefully crafted “whole of State aviation strategy” that becomes the cornerstone of their national development journey.

READ MORE: Ethiopian Airlines to China: last international carrier standing

This blueprint, invented by Singapore in the late 1970s, can only succeed for geographically well-positioned countries, who intend to turn their country into a global trading hub to create a steady flow of business traffic.

Clearly this strategy is hardly suitable for most African countries.

2.  The domestic low cost strategy, à la Kulula in South Africa, which aims to stimulate traffic flows through low prices. The prerequisites for this strategy are the existence of a large enough middle-class, a vast country with distant provincial capitals and a lack of ground transport alternative.

READ MORE: Coronavirus: South Africa’s Comair lands into business rescue  

Fastjet, which was successful in domestic Tanzania, tried in vain to extend this strategy on regional routes where it found that African cross-border traffic is not price sensitive, and that lowering prices simply doesn’t stimulate the market.

3.  The regional premium strategy à la Air Côte d’Ivoire or Airlink in South Africa, is to harness business traffic flows out of a regional economic capital. This strategy is successful if connecting flows from intercontinental carriers can complement point-to-point traffic, and requires high frequency-services operated on small gauge aircraft, with relatively high prices and levels of service.

READ MORE: South African Airways set to be carved up by competitors

Historically, airlines, not only in Africa, mistakenly tried to merge all three incompatible strategies together, in an attempt to combine long haul aircraft for volume and prestige, a few narrow-bodies for high-volume routes and a pinch of sub-100 seater aircraft for smaller routes.

This absence of clear strategic direction has already cost the continent billions and billions of Dollars in public funds. Africa can no longer afford this.

“Stop the financial bleeding”

As aviation has come to a grinding halt, with costs continuing to accrue without corresponding revenues, radical strategic choices need to be made to stop the financial bleeding. Every African country should urgently ask and decide:

  • Do we really want a state-owned airline or should we concentrate on enabling private local players to maintain our key aviation services ?
  • If yes, are we ready to concentrate on one and only one of the aforementioned strategic business models? Are we able to allocate financial resources to drastically restructure our existing aviation assets and provide them with the required governance for a successful turnaround?
  • Furthermore, how can we achieve the required scale through mutualisation of resources (with partners, competitors, whether public, private, domestic or regional)?

The last question is, in truth, the most important one.

The current crisis will induce a global wave of airline concentration, through bankruptcies, mergers and acquisition, from which even more powerful overseas competitors will emerge.

African governments need to realize that, in order to maintain local aviation connectivity jobs and skills, regional cooperation will be paramount.

Looking ahead

Imagine if southern Africa had two or three commercially-run airlines criss-crossing the region and offering affordable, reliable domestic and regional services, training and building on local talent, sharing intercontinental services with a mega transcontinental carrier.

Imagine if West Africa did the same, with possibly one Francophone and one Anglophone airline replacing all existing subscale carriers with two profitable ventures that wouldn’t have to be burdens on local governments.

This type of forward thinking was tried before, in the form of Air Afrique, and is now also embraced by Ethiopian airlines – although Tanzania, Rwanda, Uganda and Kenya all still want to compete against it instead of joining forces.

Bottom line: If the COVID-19 crisis ends up forcing African stakeholders into realising that national borders are meaningless in today’s aviation landscape, and that pan-African airline groups, run on commercial terms without excessive government interference are the future, then it will end up being a true blessing in disguise.

Also in this in Depth:

Coronavirus: South African logistics shines amid lockdown

South African investors in real estate for logistics have so far been largely shielded from non-payment of rent caused by lockdown.

Coronavirus: South Africa’s Comair lands into business rescue

Comair, the listed regional and local airline operator, has ordered an immediate halt to trading in its shares and entered into voluntary business rescue.

Coronavirus: Ecobank CEO says COVID-19 can boost digital financial services

The COVID-19 pandemic is likely to quicken the shift to digital financial services in Africa, Ecobank Transnational Incorporated CEO Ade Ayeyemi told The Africa Report.

Coronavirus: Unpacking the theories behind Africa’s low infection rate

Two months after the first coronavirus cases burst onto the scene in Africa, the disease seems to be spreading more slowly on the continent than elsewhere. What factors could be behind this apparent resilience?

Coronavirus: Nigeria’s Access Bank announces salary cuts to curb job loss

Following the assurances to shareholders that the bank is considering new ways to efficiently “withstand the effects of coronavirus pandemic on businesses,” Access Bank announced on Monday that it is restructuring salaries “across the institution as a result of the impact of COVID-19.”

“I would rather borrow from Algerians than from the IMF” says President

According to President Abdelmadjid Tebboune, Algeria has ruled out approaching the IMF and international financial institutions for loans despite the looming financial crisis in the country after a fall in oil prices.

Coronavirus: Tanzania’s economy resilient to pandemic impact

Projections by the International Monetary Fund (IMF) for a sharp slowdown in Tanzanian growth due to the coronavirus pandemic, underestimate the economy’s resilience.

Coronavirus: Flour Mills of Nigeria to help in fight against COVID-19

One of Nigeria’s biggest food businesses, the Flour Mills of Nigeria, is deploying N400m worth of food relief packages to vulnerable communities as part of its N2bn support in the fight against coronavirus in a country of nearly 200 million people.

Coronavirus: Pandemic is the needed catalyst for South Africa’s mines

I am a mining engineer by profession, and in my youth, and until the end of the 1980s, South Africa was the Silicon Valley of mining engineering.

We value your privacy

The Africa Report uses cookies to provide you with a quality user experience, measure audience, and provide you with personalized advertising. By continuing on The Africa Report, you agree to the use of cookies under the terms of our privacy policy.
You can change your preferences at any time.