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Africa report: Survival test

The list of challenges facing African carriers never seems to get shorter and liberalisation is painfully slow. But a willing few are making progress

The lack of critical mass of Africa's airlines is leaving the market wide open to foreign domination. Europe's legacy carriers are controlling the skies over Africa on international routes and are tightening their grip through equity investments and a franchising policy to attract local feed. Gulf carriers such as Emirates and Qatar Airways are aggressively targeting the continent, pushing into the Maghreb area of North Africa, down the eastern flank to the south, and as far as Senegal in West Africa, amid accusations of price dumping.

It is only a matter of time before Chinese airlines follow to support their country's lightning fast industrial incursion into oil-rich areas of Africa. China Southern will become the first Chinese carrier to fly to Africa at the end of December, when it launches a service to Lagos in Nigeria from Beijing via Dubai, and others will almost certainly follow.

With few exceptions, Africa's small, poorly funded and motley collection of inefficient carriers, more than half still government-owned, are ill-equipped to combat the strangling effect of this competitive attack. Add a palpable tardiness in the Africa-wide liberalisation of the air transport market as enshrined in the Yamoussoukro Decision (YD) of 1999 continued absence of political will ageing infrastructure and aircraft fleets low traffic safety issues and cultural diversity and complexity and the difficulties faced by the continent's airlines become abundantly clear.

Partner for Air Botswana

South African regional carrier Airlink is the preferred partner in the privatisation of Air Botswana. Airlink beat Lobair Botswana and African World Airlines. First Africa Consortium, led by First Africa Bank, advised the government. Rodger Foster, Airlink's chief executive, says the partnership with Botswana could be modelled on its operation in Swaziland, where it has a 40% stake in Swaziland Airlink. "It is a good model," he says, "and if we can replicate it [in Botswana], it will be a success."

Negotiations are underway to define the financial and business model, a process that could take up to two months, but is expected to be concluded before year-end. The percentage ownership to be offered to Airlink has not been agreed. Air Botswana chief executive Lance Brogden, who was contracted in 2005 to prepare the airline for privatisation, says the Botswana government has laid down no prescriptive conditions, but it is likely that it will retain a controlling stake.

Brogden says Air Botswana will initially remain a regional operator, growing its business in southern Africa. "However, there are a number of large projects under way in Botswana to develop the airport infrastructure and the growth of these airports will change the nature of the future fleet, and create the opportunity [for Air Botswana] to become a medium-haul airline and hopefully, eventually a long-range operator. The demand is there," he says.

Air Botswana flies three ATR 42 turboprops and two BAe 146s jets, with 19-seaters like the Beech 1900D leased in occasionally for domestic services. The fleet will be changed, Brogden says, but this depends on the outcome of the government's negotiations with Airlink. The South African carrier operates 16 BAe Jetstream 41 turboprops and five Embraer ERJ-135 regional jets, with more on order.  

All these shortcomings were debated at last month's annual general assembly in Cairo of the African Airlines Association (AFRAA). These are subjects that are discussed with monotonous regularity, with an equal amount of time devoted to ways for the industry to extricate itself from this malaise. Under the appropriate theme of Winning Strategies for African Airlines, the "to-do" list covered everything from liberalisation, technology, e-ticketing, to training and safety audits, integration, partnerships and joint ventures.

But the facts vividly illustrate what needs to be done to eliminate the disparity with airlines from other parts of the world. Although the African air transport market is growing at a rate above the world average, with gross domestic product also improving steadily, African airlines collectively accounted for only 38.5 million passengers in 2005, says AFRAA's secretary general Christian Folly-Kossi.

Poaching problem

"The poaching of qualified staff is another devastating competition tool that is being used to the detriment of African airlines," he says, adding that the almost total industry vacuum in regions such as Central and West Africa will also make it likely for "foreign carriers to take total possession of the market". He urges the African Union to expedite the adoption of an African Common Position in negotiations with the European Union (EU).

Thomas Windmuller, IATA senior vice-president, adds further statistics that make uncomfortable reading. Airlines in Africa are forecast to lose $800 million this year and a further $900 million in 2007 hull losses of Western jets was 12 times the world average in 2005 and those of all aircraft types three times higher only 10 airlines have implemented e-ticketing, with 31 yet to even start only five airlines have passed IATA's Operational Safety Audit (IOSA), although three more have been audited and another eight have contracted for an audit.

Yet, it would be unfair to highlight the recurring deficiencies without recognising the progress that is being made in parts of Africa. Morocco has been particularly proactive, signing an open skies agreement with the EU, and developing partnerships with West African states. Having invested in the formation of Air Senegal International with a 51% controlling stake, national carrier Royal Air Maroc (RAM) is extending its reach further into the region. Hassan Hihi, executive vice-president development, reveals that three further projects are nearing completion. These include the creation of Air Gabon International, which will replace the defunct national carrier Air Gabon, with RAM taking a majority stake in exchange for providing two Boeing 757s, and a similar plan for a new airline in Congo with one 757. A 51% stake and management control is being negotiated with Air Mauritanie and RAM will also take on the lease of the airline's two 737-700s.

These projects will go some way towards filling the void left by the disappearance of multinational carrier Air Afrique in 2002. Partially privatised Ghana International Airlines has already taken over from the liquidated Ghana Airways, while Virgin Nigeria replaced Nigeria Airways, which lurched from crisis to crisis until the government finally pulled the plug three years ago. This still fragmented situation is being addressed by a consortium of the largest African investment banks which plan to create a competitive, privately funded regional airline for West and Central Africa (see box story below).

Other regional blocks, such as the 20-member Common Market for eastern and southern Africa, have made progress in trade. And, says Chris Zweigenthal, deputy chief executive of the Airline Association of Southern Africa, its members are developing closer co-operation in sub-Saharan Africa. But he warns that some governments are still a hindrance to opening up the market. "We need strong airlines to grow tourism and trade," he says.

Partnerships

Having failed with its equity investments in East Africa, South African Airways (SAA) is nevertheless taking the lead in constructing useful codeshare partnerships within Africa. Proposed codeshares with Ghana International and Virgin Nigeria will ease its penetration into West Africa, while the most recent agreement with EgyptAir is being seen by Atef Abdel Hamid, Egypt­Air's chairman, as a significant development. EgyptAir's ambitions to join the Star Alliance will also help Africa's second largest carrier after SAA to raise its game. More encouraging developments include plans by Kenya Airways and Ethiopian Airlines to continue the build-up of cross-country routes from east to west, and growing links from the Maghreb area in the north to Central and West Africa by Libya's Afriqiyah Airlines, whose chairman Sabri Abdallah is also chairman of AFRAA.

Bellview Airlines, which together with the other Nigerian airlines is battling to replace the capacity lost through the collapse of Nigeria Airways, is expanding throughout the region and further afield. But this is not easy. "We have no real critical mass and need to form a large airline to enable us to play our role in integrating Africa," says Gabriel Gbenga Olowe, executive director. "I have seen growth, but I have not seen development."

While these various initiatives are beginning to create isolated success stories, there is unanimous agreement that a liberalised environment would be the strongest thread to knit together the various strands.

The failure by the African Union to create the Executing Agency to oversee and monitor the implementation of the YD has not helped. The Union's director of infrastructure, Aboubakari Baba-Moussa, says, however, that this agency will be in place by year-end and that it will be strengthened with a mechanism for settling competition issues arising from the YD and a legal framework to "build a real competitive market".

AFRAA, on the initiative of EgyptAir, has lost patience and is creating the Club of the Ready and Willing, a group of states that would liberalise immediately and give full market access to any airline from any member state. Egypt, Ethiopia, South Africa and the Seychelles have already expressed their readiness to join.

"Air transport expansion is the only way forward to effectively and rapidly realise the interconnectivity between African states, people and economies," says Folly-Kossi, but adds that liberalisation "will bear fruit only, if, at the same time, African governments speed up the removal of non-physical barriers on intra-African travel by nationals of African countries. We must move fast towards liberalisation."

The frustration with the slow progress in implementing the Yamoussoukro Decision is clearly demonstrated by a comment from Godwin Punungwe of NEPAD (New Partnership for Africa's Development), a unit of the African Union tasked to develop an integrated socio-economic framework for Africa.

"We are our own worst enemy to development," he says. "We have to say, enough is enough, we have to walk the walk and not talk the talk, we have to change the way we think. We give airlines outside Africa more freedom than we give our own airlines. In one region alone [Southern Africa] we lost $1.5 billion gross domestic product because we are not liberalising."

Read interviews with Girma Wake from Ethiopian, Atef Abdel Hamid from EgyptAir, Sanjay Bhuckory from Air Mauritius and Gabriel Olowo of Bellview Airlines at:

West and Central Africa to get new airline

The signing of a memorandum of understanding in September between the Economic Community of West African States (ECOWAS) and banking group Société de Promotion d'une Compagnie Aérienne Régionale (SPCAR) provided renewed vigour in the attempt to set up a multi-national airline in West and Central Africa.

The new airline, whose name has yet to be agreed but had been mooted as Air Cemac, will be modelled on the defunct Air Afrique, but with private finance rather than the unsuccessful ownership structure consisting of several regional governments.

The project is supported by the heads of state of the member states of ECOWAS, the Economic and Monetary Community of Central Africa, the West African Economic and Monetary Union, and the Association of SADC Chambers of Commerce & Industry.

Gervais Djondo, chairman of SPCAR and founder and honorary president of the Ecobank Group, says that the feasibility study has now been completed and he expects the new airline to start operations in 2007. "We hope to secure a strategic [airline] partner in the next few weeks," Djondo adds, "as well as a financial partnership comprised of banks and other financial institutions".

As to the strategic partner, he admits only to be talking to a number of airlines, both inside and outside Africa. There is no indication also of what type of aircraft the new airline would be operating.

Zambian buys jets

Zambian Airways has acquired two Boeing 737s from Safair of South Africa, with an option to buy a third in 2007. The aircraft, the airline's first jet equipment, will be used to open new routes to South Africa and Tanzania.

Mango launches

New South African Airways (SAA) low-cost subsidiary Mango launched in mid-November with services on South Africa's three busiest domestic routes. SAA is loaning Mango R100 million ($13 million) and leasing Mango its first four aircraft. But SAA insists Mango is independently managed and operating at arm's length from SAA.

Our writers blog from Cairo and Cape Town as Africa's airlines and the world's airports hold their annual get togethers.




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