Before the global health crisis, Simple Flying looked at the growth prospects of African aviation for the 2020s. However, just like the rest of the world, operations in the region were shaken up following the transformations in the industry in the last year and a half. Despite the shifts, there is still massive potential for airports and airlines on the continent. Let’s take a look at the underlying factors.
Billions at stake
Carriers based in Africa lost $10.21 billion in 2020. Even though this is a significant figure, the losses aren’t so considerable compared with what some operators across the globe lost. For instance, the world’s six largest airline groups lost $110 billion between them by November.
Nonetheless, the African aviation industry has had to adapt to the conditions following the health crisis. However, despite the difficulties, there are bags of potential with the continent’s industry. Simple Flying spoke with Moritz Breickmann, Investment Director at African Infrastructure Investment Managers (AIIM), on the issues affecting Africa’s airports and the recovery prospects for the market.
AIIM actively manages investments in East, West, and Southern Africa. It has backed important airports in countries such as the Republic of Congo and Côte d’Ivoire. Therefore, it has been keeping a close eye on activity across Africa.
Glimmers of hope
Breickmann shares that there has already been a strong response since the relaxation of restrictions. It’s clear that there is demand to travel again, but a consistent recovery largely depends on government factors. Nevertheless, nations in the region have shown that they can respond well following a crisis.
“I think Africa as a whole has been less affected by COVID than other parts of the world. Cynics may say that is, to a large degree, due to less testing, but that’s a superficial response if you look at the detail. For instance, the population is much younger on average than other regions,” Breickmann told Simple Flying.
“The continent is more responsive and ready to deal with the environment, given, for example, Ebola and other crises in the past. There’s certainly demand for travel, and I’d say from that side, this is a good opportunity for a speedy recovery, and in the medium term, very attractive growth rates in line with pre-pandemic expectations.”
The young population that Breickmann refers to will also have a significant impact on the long-term future of African aviation. The sub-Saharan Africa population is expected to double by the middle of this century, which is a 99% increase. Cities Alliance highlights that almost 60% of Africa’s population is under 25 years old. This factor makes Africa the youngest continent in the world when it comes to population. Altogether, high fertility and declining child mortality rates are contributing to these numbers.
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Many members of this young population are from a growing middle class. They are also well adapted to global commerce trends. Therefore, airports and carriers are determined to grow with these market segments.
A careful approach
Overall, organizations see a lot of opportunity in the African aviation sector, and there is certainly an appetite to invest in more airports across the continent. The current environment is a good example of explaining how officials approach capacity development and investment in expansion. When it comes to airline and airport investment, a lot of countries take the approach of wanting to go big. However, AIIM feels this method is a significant risk and not an efficient use of capital.
“Our approach is to size the capacity, according to the expected traffic. So as part of our investment process but also part of the airport operation, we would forecast the traffic in the short, medium, and long term, and then invest accordingly to make sure that there is sufficient capacity to support the traffic numbers at all times, but not overinvestment in capacity,” Breickmann added.
“If you asked a lot of people in the industry two years ago, they would have given you a very ambitious growth forecast. Here we are 18 months later, where traffic temporarily dropped to around 10% of pre-pandemic levels, and then internationally recovered maybe at 40/50/60%. So, this shows you how quickly things can change. This is an exceptional situation, but it does highlight the fact that you have to be flexible and nimble in your investment approach and be able to adapt your investment strategy.”
Regardless, global powerhouses are recognizing the potential in the sector. Qatar Airways flies to 26 destinations here and is continuing to add more services. The Doha-based carrier is also working well with partners in the region to optimize operations. Meanwhile, Embraer highlights that the right aircraft are needed for the continent. If airlines can balance their vehicles to suit conditions, further opportunities will open up.
In the short term, there may be challenges with airline capacity amid the mass cuts across the industry. Moreover, we are in the middle of a transition with the likes of South African Airways still grounded while newcomers such as Lift emerge. Regardless, investors see a speedy recovery for the continent once the ball for consistent opening gets rolling again.
What are your thoughts about the prospects of the African aviation industry? What do you make of the potential of the markets across the continent? Share your thoughts with us in the comment section.