Africa

Joins Forces

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At a Glance

  • The launch of the new “Single African Air Market” and consequent attenuation of barriers will create a new environment to foster growth in many sectors in Africa, expanding tourism and enabling higher volumes of trade.
  • With more options available, airlines will be able to significantly improve their network, offering non-stop services to more destinations and therefore profitably stimulating traffic through extensive supplydemand balance on long-thin markets.
  • Aircraft capacity is still largely unmatched to market demand, leading to undesirable load factors throughout the continent. Right-sized aircraft may be used as a tool to avoid price wars and seek profitability.
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Market Liberalization Paving Way for Stronger Growth

Africa is expected to grow by 4.8% in the next 20 years, seeing an extra 270 million passengers a year for a total market of 400 million passengers. Some countries stand out amongst the fastest growing in the world, superseding the continent’s average and reaching a compound growth rate of over 7.2% per year. This shows that the region’s full potential is on the verge of being unleashed.

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COUNTRIES SIGNED UP TO THE SINGLE
AFRICAN AIR TRANSPORT MARKET

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This projected growth will be pushed mainly by the opening of Africa’s skies, coming through the long anticipated fulfillment of the Yamoussoukro Decision. After the period of analysis and discussion, 26 African states have already committed to the implementation of the concept, adhering to the “Single African Air Transport Market.” This initiative is aimed at upgrading connectivity in the continent, removing barriers, reducing fares and consequently stimulating economic growth.

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A greater development in infrastructure is still required for the single market to fully succeed. Some countries are leading the way towards this goal, as in the case of recent improvements made in Ghana, Rwanda and Ethiopia. Others should follow suit in time, as the aviation industry proves itself an important driver of prosperity.

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Connectivity Development

With the implementation of the Single African Air Transport Market, African airlines will be released from the bonds of regulatory limitation – meaning that passengers will be able to easily reach destinations within the continent, previously only available through lengthy connections or not available at all.

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AFRICAN MARKET
SERVICE PROFILE

Source: Sabre, Embraer – December 2017
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Currently 25% of African markets are not directly served and over 60% of routes have less than one daily frequency, showing that there is great potential coming from liberalization. The latent growth can be accessed through opening new direct markets and the consequent stimulus of intra-regional and domestic connectivity, resulting in newpossibilities for passengers.

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The geographical vastness of Africa, paired with budding volume of traffic, implies that many of the new markets to be created will likely be long and thin routes – too long for turboprops, but in volume too small for narrowbody aircraft. In this scenario, jets with up to 150 seats gain relevance as the perfect tool for exploring sustainably such markets, either as point-to-point connectivity providers or as hub developers.

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Profitability Challenges to Overcome

Although progress has been achieved over the past few years, airline profits have remained in the developmental stage as the industry endured external factors such as low commodity prices and geopolitical unrest. While there are still challenges ahead, the outlines of a new development cycle become clear, providing Africa with the opportunity to advance – given the right tools are at hand.

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Passenger per Departure in Markets
Dominated by 150+ Seat Jets

Source: Sabre, Embraer – December 2017
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In this scenario, capacity strategy is key, and may actually help airlines reach a whole new level. Currently, the majority of seat capacity in Africa is located above the 150-seat segment, while 70% of intra-regional and domestic markets operated by narrow-bodies have on average up to 130 passengers on board in each flight. This results in average load factors of 58.6%, according to IATA, indicating the inability of expansion of air services with current fleet configuration.

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SHARE OF ASK PER AIRCRAFT SEGMENT

Source: Sabre, Embraer – March 2018
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Adding to this, liberalization is bound to increase competitiveness between African airlines, generating

an overall decrease in passenger fares. In such an environment, a right-sized aircraft, designed with capacity to match market demand while ensuring financial return, is fundamental in avoiding price wars and subsequent steeper descents in profitability.

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