A wish list for aviation investors in Africa
Africa stands out as one of the great undeveloped commercial aviation markets worlwide. It has a huge population (1 billion), tremendous national resources, vast distances and limited ground transport infrastructure. Its economic potential is huge and per capita flight rates are close to the lowest on the globe at about 0.1. Such an environment suggests a rich opportunity for the growth and expansion of civil aviation.
Airport and fuel levies, in particular, are treated as legitimate significant tax revenue sources in a number of countries in Africa and a fully liberalised aviation market across the continent has yet to be established.
IATA calculates that fuel levies in Africa impose, on average, a 21% penalty for airlines operating in the region. In an industry where fuel costs can account for up to 40% of expenses in an efficient airline, these fuel levies dampen any entrepeneuriual initiative in the region. Further, travel taxes in certain markets are at levels significantly in excess of other parts of the world and this too restricts the appetite for investment in aviation. A cursory look at middle east and asian markets where liberalisation and low taxes have been utilised as engines to power avaition investment provide a template for Africa.
A wish list for aviation investors in Africa should include; (1) airport charges that are benchmarked against those paid in successful mid east and asian aviation markets, together with charges paid by a carrier such as Ryanair which focusses heavily on regional and low cost airports; (2) fuel levies no higher than those paid in competing continents; (3) a series of open skies agreements that allows airlines to operate unhindered between countries. Parallel with such a structure authorities should ensure a regulatory environment in which modern fuel efficient aircraft are incentivised and older inefficient aircraft are penalised. This would help quickly modernise the African fleet while providing an important passenger safety mechanism across the continent.
Recent experiences among both legacy carriers (e.g. in South Africa, Nigeria) and new entrant airlines (eg FastJet) underline the challenges facing investors and executives in this marketplace. A difficult airline environment explains why the volume of ASKs in Africa has actually declined from 5bn in the past decade despite patches of good economic growth in the region. This underlines the urgent need to find a pathway to a transparent, efficient and progressive aviation policy map across the region.
Africa cannot rely on external decisions to improve its aviation infrastructure. Only clear and strategic decision making by political leaders can unlock the economic potential offered by aviation. The experience of countries such as Turkey, Malaysia and Dubai should be studied closely by policymakers in Africa if they want to develop a progressive aviation based growth plan for a continent with enormous potential.
Boeing estimates that Africa has the capacity to grow its aviation market by a compound rate of 5.6% over the next twenty years. If achieved, this will raise the African commercial aircraft fleet from 670 units currently to a projected 1300 units by 2032. That fleet would include 850 narrowbodies and 330 widebodies, and it would account for 3.3% of the global fleet at that date. To attain such success, however, existing and new entrant airlines will have to invest in major upgrades of their fleets.
Recent experiences among both legacy carriers (e.g. in South Africa, Nigeria) and new entrant airlines (eg FastJet) underline the challenges facing investors and executives in this marketplace. A difficult airline environment explains why the volume of ASKs in Africa has actually declined from 5bn in the past decade despite patches of good economic growth in the region. This underlines the urgent need to find a pathway to a transparent, efficient and progressive aviation policy map across the region.