First it was Kenya Airways announcing its worst losses ever. And now Air Zimbabwe is struggling as well. Things have become so bad that one of its flights flew from Johannesburg to Victoria Falls last month carrying just one single passenger, the world chess grandmaster Nigel Short:
Africa’s national carriers are not having the best of times. South African Airways is battling to increase revenues after back-to-back years of losses. Meanwhile, Air Tanzania has been in the doldrums for years.
At a time when Africa’s economies are posting strong growth and generating significant wealth, it’s surprising that the airline industry should be struggling. Passenger traffic on the continent’s airports rose by 3.2% in 2014, and air freight grew 3.8%. Boeing projected last year (pdf) that there would be demand for 1,080 new aircraft in Africa by 2033 and that intra-African traffic growth, as measured in revenue passenger kilometers (RPK), would grow by 6.7% a year. Only Latin America is projected to have higher intra-regional growth.
Yet African airlines are having difficulties tapping into this expansion. Part of the explanation is mismanagement. With Kenya Airways, a growth strategy that went awry has burdened the airline with huge debts that have contributed to its record losses. Political interference has stopped South Africa Airways from a faster restructuring.
Nevertheless, there are also structural reasons that may explain why African carriers are having a hard time. Put simply, the costs of doing business on the continent are just too high. Poor safety records contribute to high insurance costs. Despite only having a 3% share of global air traffic, Africa accounted for 43% of fatal airline accidents in 2014. This makes leasing aircraft more expensive, sometimes forcing African airlines to pay more than twice (paywall) what it would cost a European carrier.
But all is not gloom for the region’s aviation market. Regional, low-cost carriers are filling the gap that have been left open by the old airlines.
One such player is Tanzanian-based Fastjet, founded by Stelios Haji-Ioannou, who also founded European budget airline easyJet. Despite some struggles, fastJet announced a 36% increase in passengers in July compared to the same time last year. In response, it is increasing the frequency of some of its routes, it announced this week, and will soon expand its fleet from three aircraft to four.
As for the struggling national airlines, one strategy that can help is partnerships with established players. South African Airways has been trying this approach by partnering with Etihad Airways, for example. And Rwandair has announced a possible buy-in by the Abu Dhabi-based Etihad as well. The company is also in talks with Ethiopian Airlines, the one African airline that is doing well, for a potential equity stake in the Kigali-based carrier.