In 2018, Africa accounted for 2.8% of total global Revenue Passenger Kilometres (RPK), and yet its population makes up 16.72% of the world’s people. The African aviation market remains underdeveloped, despite having incredible potential. By 2037, it is expected to grow at a CAGR of 4.6%, making it the second-fastest-growing continent, only 0.2% shy of the expected growth of the Asia-Pacific region. To fully understand why, it is worth taking a look at the current situation in Africa and how it will develop in the future.
Recent history and developments
One of the key reasons behind the underdevelopment of the African market is the lack of a single unified air transport market. It makes route creation extremely difficult, decreases air connectivity of the entire continent and increases fares by more than 25% due to various taxes and tariffs.
There are significant attempts being undertaken to create a single market, yet the pace of action is quite slow. The first agreement was reached in 1999 when 44 members signed the Yamoussoukro Decision – a treaty allowing open skies among the signatories.
In 2015 the Declaration for the Establishment of a Single African Air Transport Market (SAATM) laid the framework for the implementation of a single market by 2017. SAATM was finally launched in January 2018 and 23 nations have joined the project since then.
The African aviation market requires some changes to unlock the potential it holds. Lack of a unified market and the operational difficulties drive cost inefficiencies. The African market is currently not only much smaller than it could be, but it is also unprofitable.
According to IATA, in 2018 African airlines lost on average $1.09 per every passenger they carried (versus an average $14.66 profit/pax in North America). The average load factor was at 71%, ten percent less than the global average, which partially explains the lack of profitability. What’s more alarming is the persistence of the low load factor across the entire continent, as all African states noted load factors below the global average.
There are other structural issues that could be resolved by a single transport market. Currently, 19 states have no international airlines, 22 states have only one international airline, and just four states have more than three international airlines. These numbers showcase the underlying underdevelopment of the market, along with a lack of competitiveness, an issue that could be solved once airlines acquire more freedom to operate in foreign markets.
Furthermore, the African aviation market is unequally distributed, as 35 African states have less than 20 international flights per day while the top five states (Egypt, Morocco, South Africa, Kenya, and Algeria) have over 100 international flights daily. Also, Africa seems to lack major hubs, as 75% of the intra-African flights are nonstop.
The possible effects of SAATM
One of the key issues holding back the African aviation market is the low-income levels in Africa. This makes the aviation markets in most of the countries rather small. In fact, over 40 African states have less than two million international passengers a year. Despite that, the expected effects of the implementation of SAATM are quite impressive.
Research conducted by IATA outlines the expected effects of the implementation of the Yamoussoukro Decision. The study took into account 12 countries: Algeria, Angola, Egypt, Ethiopia, Ghana, Kenya, Namibia, Nigeria, Senegal, South Africa, Tunisia, and Uganda.
IATA claimed that the introduction of complete air connectivity across those 12 countries would create an additional 155,000 jobs and USD 1.3 billion in annual GDP. It would add up to five million passengers a year due to fare savings. Ticker prices should drop by up to 35%, while trade would increase by USD 430 million.
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