If there is one industry that has highlighted the shortcomings of doing business in Africa it is aviation. Air travel on the continent is expensive, unreliable and not particularly profitable compared to other regions, the industry has long suffered from being dominated by inefficient state run national airlines who have been kept afloat by governments eager to retain a national flag carrier, in some cases the airline has turned into a personal plaything, witness the use of Air Zimbabwe jets being used at short notice for presidential shopping trips by Mugabe and his family.
There are signs this is changing; the Yamoussoukro Accord theoretically liberalised air travel between African states, but there is a long way to go before it is implemented in practice. New airlines like Fastjet in East Africa have launched and expanded rapidly using the low cost model of Easyjet. Where routes have been liberalised and low cost carriers have been able to use them, flight costs have dropped by an average of 40%, a ringing endorsement of the open skies approach.
In the past many flights between major African cities had to be routed through Dubai, London or Paris, however three main African hubs are emerging in the form of Addis Ababa, Nairobi and Johannesburg, over time these hubs will hopefully spur improved continental business links, which in turn will boost intra-African trade and investment.
In the short term carriers have benefited from lower oil prices (the main cost in running an airline), but this should be balanced against the long term issue of high taxes and airport fees across Africa, governments typically view airlines as an easy target for revenue. In order to meet the needs of growing African economies airlines must focus on lobbying governments to liberalise and reduce taxes and fees, on promoting safety measures in order to achieve full compliance with the IATA operational safety audit (as directed by the Abuja Declaration), but also having the confidence that the continent’s middle classes and business people will want to travel in ever greater numbers and then opening the routes to make this reality as cheap, quick and safe as possible.
One relatively new airline Rwandair is rumoured to be soon privatised by the Rwandan government, its relatively modern fieet, central African location in Kigali (which could make it a great hub) would make it an interesting investment play for a brave entrepreneur keen to tackle the challenge of African aviation.
Categories: Frontier Markets