Managing African Airlines' Risks In A Liberalized Operating Environment

SAATM - The Big Step For 2018

In January 2018, African Union States are expected to launch the all-important Single African Air Transport Market (SAATM) in Addis Ababa, Ethiopia. The solemn declaration for the SAATM has been signed so far by 23 States, and the rest of the 54 AU member States are now earnestly enjoined to sign the declaration to spur Africa-wide implementation and benefits of the concept.  The SAATM is aimed at removing barriers to enable African airlines fly freely to interconnect all parts of Africa, and help deliver unprecedented benefits to Africa's economies and citizenry.


To complement the SAATM, over the next two decades, Africa's economy, population, air traffic figures and tourism figures are projected to grow considerably. Africa's population of 1.2billion people is projected to grow even though less than 10% of this population currently flies. With economic growth and expanding middle-class more people out of this population would start using air transport as a regular means of movement, which will increase Africa's air traffic figures. Air traffic in Africa grew by nearly 6% in 2016 and this trend is expected to continue over the coming two decades, for instance, while tourism is forecast to grow at about 4-5% in Africa.


Amidst these growth trends, aviation sub-sectors including airports, air navigation services providers and airlines in Africa must renew their strengths to contribute more meaningfully as well as optimize their benefits in the emerging liberalized SAATM operating environment.


Anticipated Growth, Liberalization Pose Risks

Airlines are the centerpiece of the aviation industry, the SAATM and liberalization. Airlines provide the basis for the existence of regulators, airport, air navigation services providers, accident investigation bureaus, and other support services. It is interesting to note, therefore, that the SAATM and new growth opportunities present both risks and opportunities for African airlines.


New and expanding markets, passenger preferences, need for partnerships, etc. will bring increased pressure on African airlines to expand their fleet and operations, maintain high level of safety, security and quality of service. African airlines that fail to comply with these standards would run the risk of losing out in the liberalized SAATM market.

In fact, airlines that compromise on the standards above not only jeopardize their own opportunities, but also the safety, security and overall quality of the air transport industry in the region. In the same vein, growth at the global level also presents opportunities and challenges to operators and other service providers in the aviation industry. ICAO Council President, Dr. Olumuyiwa Benard Aliu, who spoke recently at the 27th ACI-Africa/World Conference in Port Louis, Mauritius, on the theme, 'bold leadership in a time of change', says the projected doubling of flight and passenger volumes by the early 2030s poses significant risks to air transport safety performance, network capacity and efficiency, security preparedness, and emissions mitigation targets.


"Amidst these growth trends, aviation sub-sectors including airports, air navigation services providers and airlines in Africa must renew their strengths to contribute more meaningfully as well as optimize their benefits in the emerging liberalized SAATM operating environment".



Containing African Airlines' Risks

African airlines face internal risks seen as usually within the control of the airlines. Other risks facing airlines exist in the operating environment; these are beyond the control of airlines, thus airlines can only strive to manage these risks effectively.


The launch of SAATM and liberalization in Africa in 2018, therefore, makes it imperative for African airlines to strive to minimize their internal risks and optimize the benefits from liberalization. To achieve this, airlines must step up the quality of management and services provided. It is also crucial that airlines' business plans should not remain static, but adjusted to reposition airlines for competitiveness in a liberalized market. Specifically, airline monopolies and airlines protected by BASAs must align with the requirements of a competitive market, while States planning or repositioning the so-called national carriers must bear competitiveness in mind.

Importantly too, governments must reconsider their negative policies and actions in order to reduce risks faced by African airlines. Governments must realize that their economies would enjoy greater benefits from aviation if they provide an operating environment with reduced taxes, charges and fees on African airlines which in turn would lead to more African airlines flying at reduced fares that will enable more of Africa's over 1 billion population to fly. In the light of the upcoming SAATM, governments should therefore desist from the current inordinate high taxes, charges and fees and other harsh operating conditions that suffocate African airlines.


The action of airlines and governments are essential to mitigate the overall risks airlines are bound to face in the unfolding aviation clime in Africa.


Core Airline Workforce

Some of the specific challenges that would face African airlines in the liberalized operating environment include the increased risk of losing critical workforce. The projected growth in all global regions including Africa requires strong interventions to build up new generation of aviation workforce to meet the demand that come with industry expansion. New workforce is also required to replace ageing and retired workforce. African airlines must reassess their standing in this regard.


Boeing's 2017-2036 Global Market Outlook states that Africa will require 24,000 pilots over the next 20 years. Within the same period, "the Asia Pacific region will lead the worldwide growth in demand for pilots, with a requirement for 253,000 new pilots. North America will require 117,000, Europe 106,000, the Middle East 63,000, Latin America 52,000, and CIS / Russia 22,000."


For technicians, Boeing GMO indicates that "The need for maintenance personnel is largest in the Asia Pacific region, which will require 256,000 new technicians. Airlines in North America will require 118,000, Europe 111,000, the Middle East 66,000, Latin America 49,000, CIS / Russia 25,000, and Africa 23,000."


And for cabin crew, the GMO states: "Over the next 20 years, the largest projected growth in cabin crew demand is in the Asia Pacific region, with a requirement for 308,000 new cabin crew. Europe will require 173,000, North America 154,000, Middle East 96,000, Latin America 52,000, Africa 28,00, and CIS / Russia 28,000."


Boeing's GMO states that "Regional markets that have relied heavily on recruiting pilots from outside their home locations are increasingly seeking to recruit, train, and develop locally sourced pilots. New market opportunities are creating an increased demand for qualified, skilled, and experienced pilots." This observation from Boeing may be heartwarming given the continued poaching of workforce in Africa from other regions; but there is no guarantee the poaching would ebb significantly or even cease over the coming decades. African airline industry has been a soft target for big airlines from Middle East and now China to poach pilots and engineers.

The effect of this assault on Africa's airlines industry can only be mitigated if more of African airlines can attract or replace lost pilots, engineers and technicians at more rapid rates. And this can be achieved when African governments provide the right operating environment for African airlines to become more competitive and profitable.


The risk of shortage of professionals are being confronted by ICAO through the training TrainAir Plus and Next Generation of Aviation Professionals programmes. Also, States training institutions like Ethiopian Training Academy, Nigerian College of Aviation Technology (NCAT), etc. have keyed into ICAO initiatives. Furthermore, several flying clubs have been set up to encourage young people to join aviation,; even though these initiatives require funding and other support.


Loss and Gain Of Marketshare

Several African economies are projected to grow at over 5% annually thus providing sustainable new markets for aviation, which will in turn be boosted by improved air transport activities. Liberalization will lead to increased competition in these markets, and ill-prepared airlines will lose marketshare. The interesting aspect here is that the more successful African airlines that will emerge will plough back revenue into the African economy to spur increased growth. This will boost economic resilience contributing towards the achievement of African Union's (AU) Agenda 2063 and United Nation's Vision 2030 Sustainable Development Goals.


Liberalization Requires Economic Development

Liberalization alone will not benefit African airlines; neither will it benefit the aviation industry or the continent's economies. The launch of the SAATM in January 2018 must therefore be complemented with several other aviation and economic conditions. This is why ICAO, aviation industry players and partners in Africa have stepped up efforts to improve safety through the AFI Plan; improve security through the AVSECFAL; and most recently improve infrastructure financing and development through the Abuja Declaration on infrastructure financing made in November 2017.


Most of Africa's aviation wealth is locked in potentials that require dedicated massive investment and ease of doing business, backed by economic transformation policies in Sub-Saharan African States to unlock. Without unlocking these potentials, liberalization cannot do much for African airlines and economies. This is a major risk African governments must urgently address.


Africa's biggest economies including South Africa, Egypt and Nigeria are experiencing recovery; which is exhilarating news for African airlines. Yet in the case of Nigeria's economy, for instance, lack of industrialization, economic diversification, and poor implementation of economic development policies and low per capita income keep the country's huge aviation potentials far from reality. This ought to be reversed to minimize risk to African airlines and drive successful SAATM regime. Africa's future of aviation in Africa is mainly in the hands of governments, airlines and their partners.

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