Africa is being carved up once again as airlines funnel commuter workers into the booming mining market, with Sub-Saharan carriers staking their claims against global rivals in the world’s least-developed travel market.
Carriers from Addis Ababa to Cape Town are counting on new jets and discount fares to pile on passengers and win major-airline status while seeking to overcome the continent’s reputation for graft, state meddling and poor safety. African passenger traffic grew 6.9 percent last year, ranking the region second only to the Middle East.
Standing in the way of companies such as Ethiopian Airlines Enterprise, among the first to fly Boeing Co. (BA)’s 787, and Kenya Airways, which aims to add bases across Africa, is the clout of carriers such as Deutsche Lufthansa AG (LHA) and emerging-market operators led by Turkish Airlines and Emirates. More than 200 aviation executives will discuss the state of the industry next week when IATA hold its annual meeting in Cape Town.
“It would be naive to think that our backyard will not be attacked,” said Nico Bezuidenhout, deputy chief executive officer at South African Airways, the regional No. 1. “African aviation may never be as big as in Europe or North America, but it does have scope for being two or three times the size it is now.”
South African, Ethiopian and Kenya Airways face a “window of opportunity” before larger competitors pour in capacity in a major way, Elijah Chingosho, secretary general of the African Airlines Association, said in a phone interview.
They’re not starting out from the strongest position. African airlines have lagged behind those in other emerging markets. Operations in Africa are expected to make a profit of $100 million in 2013, the least for any region, based on projections in March from the International Air Transport Association.
The continent had a loss of $100 million in 2012, when it was the only unprofitable market worldwide, according to IATA. Demographic changes should result in a middle class about the same size as that in the U.S. within 20 years, according to Hadi Akoum, head of sub-Saharan sales at planemaker Airbus SAS.
“Mining and natural resources are the main drivers, but we see more and more tourism and trade within Africa,” he said.
SAA recent history illustrates both the potential and failures of the continent’s carriers. After the end of apartheid in 1994, the Johannesburg-based airline became the first African recruit to the Lufthansa and United Airlines-led Star Alliance, and looked set to establish a global brand.
Instead, it accumulated 9.3 billion rand ($927 million) of losses in the nine years through March 2012, the latest period for which numbers are available. The decline was accompanied by management upheaval that culminated in the October resignations of CEO Siza Mzimela and Chairwoman Cheryl Carolus, which led the opposition Democratic Alliance party to call for SAA to be sold.
Deputy CEO Bezuidenhout said a turnaround plan targeting a “fair share of African flows” has been submitted to the government and that new chief Monwabisi Kalawe takes over tomorrow. The company has also struck a code-share deal with Abu Dhabi-based Etihad, the No. 3 Gulf carrier, where CEO James Hogan says he’s keen to boost access to a “changing” Africa.
“It has a growing population, markets are opening, people are traveling,” Hogan said by telephone, adding that the accord with SAA and an earlier one with Kenya Airways “changed our footprint overnight to one of the strongest African networks.’
While Etihad, which has established accords with smaller airlines based around minority shareholdings, says its partners gain access to destinations they wouldn’t ordinarily serve, other global carriers are bypassing local operators.
Temel Kotil, CEO of Turkish Airlines, cites the example of a new service between Istanbul and Kinshasa in the Democratic Republic of Congo as evidence of his company’s intention to tap even minor African destinations. The route is operated with a Boeing 737-900 single-aisle plane seating about 150 passengers.
“As we grow in Africa we can provide the link to Europe,” Kotil said in an interview. “Africa is very important for us.”
Like Etihad, Emirates and Qatar Airways Ltd., Turkish Airlines (THYAO) is seeking to establish its home hub as a global transfer point for inter-continental travel -- a model that has proved tough to combat even in developed markets such as Europe.
Among European carriers themselves, the largest, Air France-KLM (AF) Group, serves 42 African locations from Paris and Amsterdam and chose Johannesburg as one of the first destination for its fleet of Airbus SAS A380 superjumbos. Lufthansa also flies an A380 double-decker to the tip of Africa.
Air France-KLM, which plans to lift African capacity 8 percent this year, also owns a 27 percent stake in Nairobi-based Kenya Airways, bought by KLM in 1996 for $26 million.
Expansion plans remain hobbled by restrictive air traffic rights. FastJet, backed by EasyJet Plc (EZJ) founder Stelios Haji-Ioannou, is targeting eastern Africa with the aim of becoming the first discount carrier to span the region with a fleet of leased Airbus SAS A319 jets. Efforts to fly beyond Tanzania have been stymied by a lack of government approval.
FastJet’s inroads into South Africa, through an affiliate set up with local investors, will initially focus on domestic operations, CEO Ed Winter said on April 24 when he unveiled the expansion. The inaugural service between Cape Town and Johannesburg is scheduled to begin in early July.
Notwithstanding its opportunities, the African market faces more economic and safety challenges than most other emerging regions. The prevalence of cash over credit means revenue collection models differ from those in established markets, with sales dependent on travel agents and online bookings requiring leeway for money transfers to be made days later.
The hurdles confronting African carriers are on display in Nigeria, the continent’s most populous country, which has struggled to build airline capacity.
Air Nigeria, the successor to the Virgin Nigeria (IMARANF) venture in which Virgin Atlantic originally held 49 percent before existing, ceased flying last year amid a battle with the government over operational plans. Dana Air, another local airline, had its operating certificate temporarily suspended last year after a crash that killed 159 people.
The poor safety record hangs as the biggest reputational cloud over African airlines and the region at large. Local carriers represent more than half those barred from operating into the European Union under an aviation blacklist.
“At an industry level, safety will forever be an issue on the African skies for as long as we remain the graveyard of second-hand aircraft,” Bezuidenhout said.
IATA aims to bring African airline accident rates down to the current global average by 2015 which “is a big challenge,” Guenther Matschnigg, senior vice president for safety operations at IATA said in an interview. The airline group has identified 15 non-member African airlines that it wants to help pass safety audit made standard for carriers to help them meet standards next year, Matschnigg said.
“There is a lot of opportunity for airlines in Africa,” JLS Consulting Director John Strickland said in an interview. “But local carriers have to claim ownership on the basis of competitive service. If others don’t do what Ethiopian, Kenya and Fastjet are doing, then the continent will just remain open season for outsiders to come in and to pick the best crops.”
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