Tuesday, 12 July 2016

Aviating Phoenix of Africa

Aviating Phoenix of AfricaThe African Aviation sector has enormous growth potential. This is evident from the fact that it has a vast geographic stretch; rising middle class; accelerated growth rate of the continent in recent years and most of all a strong pull of tourists in Africa from all over the world. In order to unleash the potential of the African Aviation sector and garner its benefits certain pre-requisites need to be fulfilled. Given its continental size and huge population base, its aviation sector is destined to flourish, propagate and grow up to an international stature.

A great nation must have its own large commercial aircraft” - a genuine assertion made by Mr. Li Jiaxiang, Head of the China Civil Aviation Authority. The importance of Aviation sector in the growth of economy, has been acknowledged, time and again by most of the heads of nations. Globalization, is said to have come, sailing on to the wings of modern means of communication. Without the latter, the former cannot progress or proliferate. In the era of globalized-economy, when economies of the world are scaling through merger and integration, Aviation becomes a priori factor. For every nation, its Aviation sector is like the breathing lung for its economy. It connects with the outside world and either inhales or pulls in resources, for the growth of the economy.

Let’s see how globalization is spreading its wings over the African continent and how far it helps Aviation sector to soar high in the sky to bring economic prosperity.

Aviation Network of Africa
The African Aviation sector has enormous growth potential. This is evident from the fact that it has a vast geographic stretch; rising middle class; accelerated growth rate of the continent in recent years and most of all a strong pull of tourists in Africa from all over the world. In order to unleash the potential of the African Aviation sector and garner its benefits certain pre-requisites need to be fulfilled. Some of the inhibitory factors which are hampering the growth of African Aviation sector are – Lack of Open Skies policies among the countries of Africa, excessive government control, high cost, lack of infrastructure, lack of Investment, inadequate investment and lack of competition.

Global Aviation Perspective of IATA
Although International Air Transport Association (IATA) has drawn an impressive canvas for the World Aviation sector, but, for African Aviation sector, the growth rate is not very encouraging. Here is a glimpse of the African Aviation sector Vis-à-vis World Aviation sector. As per the IATA report for 2016, the expected outlook of the World Aviation sector there is a net profit margin of 36 billion dollars, with growth rate of 5.1%. Lowering of the oil prices is also one of the major reasons behind this enhanced performance of the sector, thereby adding profit margins of the airlines. It has also helped in the reduction of the airfares and consequently a rise in the numbers of people opting for air journey. There is an increase of 6.9% in air-traffic all over the world. If one takes up break up profit in terms of different regions of the world the North America will top the list, followed by Europe, Asia Pacific, Middle East, Latin America and then Africa. Nevertheless, North America, accounts for nearly half of the total profit margins i.e. 19 billion dollars approximately, whereas Europe 8 billion dollars and rest of the regions account for little less than 5 billion dollars each. Africa, unfortunately, is marked with red status in the IATA ranking of profitable airline regions of the world. In the year 2016 African Airlines is likely to suffer a loss of 100 million dollars, which is no doubt less than the 2015 loss of 300 million dollars. Beside this, the capacity enhancement of the African Airlines is also low.

Problems and Challenges
African region has been announced as the third fastest growing region of the world and under the circumstances when Africa is attracting investors from all over the world its Aviation sector, the very lifeline of all economic activities continues to give lame performance? This lack-lustrous performance of the African aviation sector can be attributed to many factors. The Aviation market of Africa is fragmented, which results in multiple operational problems for airlines industry. The fragmented smaller airlines fail to compete with the International Airlines. In addition, the extra protectionist policy of the governments of African countries is another major stumbling block that leads to loss of competition and subsequently, high cost of airline services. High air-fares, stifles the growth in the numbers of airpassengers. The growth in tourism sector which is directly proportional to the air-fares is also affected negatively by the high cost of African Airlines. Most of the African governments restrict the transit visas which again hamper the connectivity within Africa which acts as a speed breaker.

One of the most worrisome aspects of the African Airlines is the lack of appropriate mechanism, for the safety and security of its airlines. This results in high rate of airline accidents in Africa. As per IATA, Africa has 3 times higher rate of airline accidents as compared to the rest of the world. The crash of Egypt Air on May 19th, 2016 is one such recent tragedy. African Airlines are not adequately adhering to the internal standards of Airline safety measures. There is also a lack of coordination and consistency amongst different governments of Africa while following Safety related rules for African Airlines. The International Civil Aviation Organization has repeatedly stated that, it will lend its full support, for the African-Union in assuring the safety and security of the African air-passengers.

Inadequate infrastructure is also one of the factors that dampen the performance of African Airlines. Infrastructure is the basic building block for the development of any sector. Without infrastructure no sector of economy could either stand or sustain itself for long. The African Airports have a poor physical infrastructure. There is lack of human and capital resources also which leads to poor management of airports. Moreover, due to lack of investment the fleets of airplanes are aging. They are not being replaced with the new ones. In such a scenario a firm and resolved governmental steps are required to address the recurring issues of the African Airlines. Mr. Nick Fadugba, the CEO of African Aviation Services Limited and the former Secretary General of African Airlines Association, gave a call for ‘integration’ of African Airlines sector and creation of an ‘enabling environment’ by the African government, with right policy intervention, for its non-competitive and ailing airline sector, which could minimize the risk factor in coming years. He further added that, African Aviation sector could play a major role in unlocking the economic potential of Africa.

Step towards Resolution
In view of the problems of the African Airlines, the Yamoussoukro Decision of 1999 is notable. In 1999, Yamoussoukro Decision was signed by the 44 countries of Africa. The African countries pledged to open their skies, in order to give way to intra-African air transport. They also agreed to liberalize their skies even for the non - national private operators. The so called fifth-freedom was given to the airline industry, under which a nonnational airline operator could take the passengers to the third country. This decision was made binding, upon the signatories from the year 2002 with a hope that air fares of African Airlines would go down and will eventually increase the air-traffic and would control the incidents of airplane crash. Improvement in the performance of the African Airline sector was anticipated to attract much needed capital investment as well.

The African aviation industry is a vital catalyst for Africa’s economic growth and social advancement. A safe, reliable and profitable African aviation industry – that facilitates business, trade, tourism and social interaction will help to promote sustainable development in Africa. Mr. Nick Fadugba CEO of African Aviation Services Limited

Although it was planned, but it went awry, due to non-implementation of the Yamoussoukro Decision. In 2010, World Bank Report, “Open Skies for Africa - Implementing Yamoussoukro Decision” was published. It underlined about the non-implementation of the Yamoussoukro Decision in the following decade. There are ten countries of Africa which are not the signatories of the Yamoussoukro Decision. In most of the countries of Africa, there is dominance of state-owned airlines. Around 70% air-traffic of Africa is still carried by the state owned airlines. Most of the countries of Africa have not liberalized their Aviation sector. They even have not stopped themselves from taking the protectionist measures. They fear that the outside airlines of private sector will outperform their sovereign airlines. They see it as a threat for the survival of their own airlines, rather than as a boost for the aviation sector. Even if, they allow private sector to operate on small scale they subsidies their sovereign airlines. The free competition is not encouraged, which in turn fails to bring down the cost of air-fares and benefit to the consumers, whereas only 10% of African population uses air ways for transportation. Unfortunately, due to such introvert governmental policy the Malawi Airlines has succumbed to the recurring losses, mounting debt and non-performance. The external help of Kenya Airlines, although was sought by the Malawi government, but only at the end of its own airlines. If such intervention of outsiders were allowed on time, the African Aviation sector would have flourished and would have generated employment as well.

Let’s have a region wise look at the disparity in the Aviation sector of African Airlines- Airlines hubs have mushroomed in the Eastern, Northern and Southern Africa. These hubs facilitate connectivity with most of the major cities of world. Owing to political turmoil the Western and Central Africa could not manage to develop any airline hubs. They depend largely on their state-owned airlines, most of them are riddled with losses and debts.

Setting Example
On the contrary those countries of Africa which came forward and implemented the Yamoussoukro Decision have countered the cycle of negativity that was hampering the growth of their aviation sector. The rise of the Ethiopian Airlines, Kenya and South Africa Airline could be seen in this context. Ethiopian Airlines right from its beginning has not distanced itself from partnering with the private airlines. In 1945, it began its journey in partnership with the American Airline, Trans World Airline. Today, although it is completely state-owned, but it is not dictated by the political terms. The management of Ethiopian Airline is segregated from the ownership questions that enable it to take independent decisions. Since 1945, it has made all effort in increasing its inter-connectivity within and outside Africa, thereby connecting 71 destinations across Africa. The Ethiopian Airlines in its pursuit of integrating the African airspace has formed partnership with the ASKY Airlines, a West African government led initiative for providing uninterrupted air-services to its people. In the backdrop of the grim picture of African Airlines, it is only the Ethiopian Airline as exception, which is growing at a high rate of 20-25%. The proud CEO of the Ethiopian Airline Mr. Tewolde GebreMariam, who has been recently reappointed into the board of governor of the IATA, proclaims- “We are the fastest growing, largest and the most profitable airlines of Africa.” Read more....


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