Africa

Joins Forces

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AT A GLANCE

  • The region is on the verge of realizing its huge potential with the implementation of the Single African Air Transport Market (SAATM);
  • As the number of mid-sized cities grows, the geographical vastness of Africa makes it imperative to improve air connectivity;
  • Right-sized aircraft will be key in improving airline load-factors and, consequently, bringing the industry into a more profitable status.

STATUS OF THE SAATM

The Single African Air Transport Market (SAATM) has been in the spotlight over the past few years, as a key element of the liberalization agenda of the African Union. Although this initiative has the potential to unlock passenger traffic in the region, the timeframe remains unclear, as some member states still need to overcome political hesitance before fully adhering.

It is only a matter of time, and once fully implemented the SAATM will eliminate many of the barriers that hinder air travel for Africans. Upgraded connectivity, tourism growth and higher commerce volumes will be some of the major benefits.

POTENTIAL OF MID-SIZED CITIES

Africa is set to become one of the fastest growing regions globally, with a projected annual RPK expansion of nearly 5%. This level of growth comes hand-in-hand with the economic development of small and medium cities, as prosperity spreads well beyond large centers.

AFRICAN CITIES GROWTH OVER TIME

Source: United Nations, Department of Economic and Social Affairs

Currently there are over 250 urban centers across the continent with somewhere between 300K and 1 million inhabitants, representing over 70% of all African cities. According to the United Nations, the number of these centers will exceed 300 by 2025. These cities already provide plenty of demand for high quality air services.

Nowadays, 25% of African markets are not directly served and over 60% of routes have less than one daily frequency, showing that this latent growth can be accessed through opening new direct markets and therefore stimulating intra-regional and domestic connectivity. Providing service from less dense areas to main cities, as Kenya Airways and South African Airways already do, will continue to be a very profitable way to tap into new sources of passengers.

PROFITABILITY CHALLENGES

There is consensus that, historically, the aviation industry as a whole has faced headwinds when it comes to achieving positive economic results. However, in Africa this statement resonates even stronger: for 2019, IATA forecasts a net post-tax profit margin of -2.1%, an improvement from 2018’s results, but still well below the ideal.

Several elements contribute to this unfavorable scenario, such as high regulatory costs, the challenging revenue environment, and unstable exchange rates.

 

Additionally, load factors play a key role in enabling airlines to generate profits, and must be watched carefully. Moving forward, the right capacity strategy is instrumental in moving towards a more profitable industry. In this sense, aircraft in the up to 150-seat segment will be the backbone of this movement, helping airlines improve load factor, obtain higher yields and achieve greater profitability across the industry.

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