Story ID: KBafricaceos12062019
African Airline CEOs Highlight Connectivity Challenges
By: Kaleyesus Bekele
Caption: A failure to address high taxes and bilateral air service agreements continue to hamper airline profitability in Africa.
Word Count: 620
High operating costs, market restriction, poor airport infrastructure, and blocked funds remain among the myriad challenges facing African airlines, according to several airline CEOs speaking during a recent aviation conference in Mauritius. Prohibitive visa policies represent another competitive hurdle hampering the free movement of people on intra-Africa routes.

Somas Appavou, CEO of Air Mauritius, noted that fuel in Africa costs 35 percent more than the global average and that exorbitant charges and taxes have worsened the situation. Tax bills run 15- 20 percent higher in Africa than in other regions. “Our ticket price depends on taxes, and taxes are high everywhere in Africa,” he said. “High tax is not helping any airline to reduce cost and give better connectivity.”

African airlines lose an average of $1.54 per ticket. “If we can not lower the cost of operation we will never be profitable,” Appavou said. “If we could reduce those costs we will be able to accommodate more traffic and therefore we can be profitable.”        

Even with a population of 1.2 billion, Africa represents only 2.5 percent of the global air traffic. “The traffic in Africa is still thin,” Appavou said. “There is definitely a problem in Africa [in that] people are not traveling by air. I can mention one route in Africa where the tax is as high as 50 percent. If we reduce the tax more people will visit Africa.”

Meanwhile, African countries that continue to block repatriation of foreign funds present another major cost issue, particularly for small airlines. “We have had blocked funds in a particular country for over a year now,” explained Rwandair CEO Yvonne Manzi Makolo. “This is impacting our airline. It also limits the ability for people to travel in and out of that country. Now we are forced to charge people on a cash basis and only in U.S. dollars, which makes it difficult for people in that country to travel.”

Market restriction stands as another challenge. African countries depend heavily on bilateral air service agreements (BASA), a problem the African Union attempted to address with the launch of the Single African Air Transport Market (SAATM) in January 2018. According to the African Airlines Association (AFRAA), 32 countries of 54 have become signatories. However, Secretary-general Abderhamane Berthe said that 12 states have signed the implementation agreement and only eight of them have implemented the six concrete measures of SAATM.

While some African Airlines CEOs like Tewolde Gebremariam of Ethiopian Airlines remain strong advocates of SAATM, others have expressed skepticism about the open skies agreement. The outgoing CEO of Kenya Airways, Sebastian Mikosz, argues that Africa’s lack of uniform governance and imbalance of power between airlines make it ill-prepared for an open skies agreement. “There is no level playing field,” he said. “SAATM is going to benefit few airlines. There is one airline that gives pills to all the other airlines to swallow.”

Appavou shares Mikozs’s view in arguing that SAATM will benefit only the big carriers. “[The] one-size-fits-all concept doesn’t work,” Appavou said. “If you take our small Island, Mauritius, travel and tourism accounts to 23.6 percent of the GDP and supports 110,000 jobs. If we alter the environment without analyzing the consequences it will have a dramatic impact on the country,” he said.

According to Appavou, the small operators face challenges that differ vastly from those of the large airlines. “Big operators have economies of scale; they do have synergies and network freedom through code-sharing partners. Applying SAATM might be a different way of doing things...If you see it in absolute term, of course, SAATM is beneficial but the way we get there and how we get there is very important.”