Africa is the world’s second largest and second most populous continent. Is Africa really taking advantage of these factual numbers? How’s the aviation market performing in Africa? How safe is African aviation now? Why are countries like China and India investing in African aviation? How the gulf carriers are penetrating into African market segment? Is the perception of the west towards Africa changing? What’s the growth plan for African airlines for next 20 years? These are the questions that were discussing in a panel discussion in one of the events in World Travel Market 2012, London.

John Strickland, Director of JLS Consulting, London based transport consultancy moderated the panel discussion, below are three panel members:

• Ed winter, CEO FastJet
• Tewolde Gebremariam, CEO Ethiopian Airlines
• MBuvi Ngunze, COO Kenya Airways

We are presenting the entire panel discussion as a Q & A session below. The panel brings great insights about African aviation market to the table. Questions below

were posted by John to the panel members.

John Strickland’s Keynote:

Africa is a market that has lot of opportunities and challenges, here in the discussion we have two leading airline players and a new comer African airline (FastJet) who is planning to become a leading player. Africa is a market that’s least developed in terms of traffic. Research by FastJet says that “Africa is a growth aviation market with regional and intercontinental traffic both growing rapidly as a result of the continent’s continued economic expansion.  With over one billion people, Africa is hampered by poor infrastructure, a lack of roads and railways and long distances between urban populations.  The African aviation market is significantly underserved with air travel spending as a percentage of GDP a fraction of that of other emerging markets.  With rapid economic growth and, as a result, the growing wealth of African citizens, more and more people will be able to benefit from aviation and fly for the first time”. There are 68 million people travelling by air in Africa and its predicted it to rise to 130 million by 2030.

Ed winter, CEO of FastJet:

What do you propose to do in FastJet, what type of business model are you going to bring to Africa?
We are the new kids on the block. We are bringing a whole new different product to Africa. Its not just a different brand or an airline, its an all new different product. We are bringing the pan African low cost airline to Africa, we are launching later this month in Tanzania and expand into East Africa, Kenya, Angola and Ghana. We intend to go way beyond that and the intent is to create a pan African low cost airline fast and reach the consumer as one airline brand across the continent. Our airline will comply to all regulations.

What kind of aircraft you will be used?
AirBus A319, world proven aircrafts.

Why do you think a low cost model will work in Africa?
Up until now African aviation is oriented towards business traffic, tourists and high network individuals. The average man in street doesn’t think about flying, its not something that’s accessible to him. We looked at propensity of flying, its 2 seats per head of population in Europe, and its 0.02 in Africa. Aviation is incredibly expensive at the moment, its an average of 32 cents per seat kilometer versus 8 cents in Europe. So there are lots of reasons why an average man in Africa cant fly. We are democratizing air travel, when people want to travel for a wedding or funeral and stay over for a day or two – they will now will be able to travel by air. I think now the time is right, 3 to 5 years ago it probably would have been too early. Now we see the progress that’s happening in the countries economy – political stability, flowing investments and lot of things are changing. Now is exactly the right time to bring a LCC to Africa.

The issue of fragmented market and lack of homogeneity in Africa – How big are these issues?
Look at the west African region that has 400 million people – there are 16 countries there which propose free trading, people travelling without the need of passport. Accra, the capital of Ghana is only connected on a daily basis to four other capital cities, is that lack of connectivity? People in Conakry (Guinea) – if they have to travel to Accra they travel via Paris, its because of lack of connection. So, there is huge opportunity over there.

Have you sequenced your plan of action?
Yes, we are starting with Tanzania. Air Tanzania number of years ago has already gone through the process of putting the Airbus A320 family there and working with air worthy certification authorities. This makes our process easier. We will soon be launching in Kenya. Ghana will be the third, and Angola will be next focus though it has got few more challenges.

Africa is seen as an unsafe continent, how do you see FastJet addressing this safety concern?
Yes, with few exception, African aviation is currently unreliable and not seen with the safety and security measure as seen in rest of the world. In some parts of Africa, infrastructure is a challenge and wherever change is needed we have done that.

Tewolde Gebremariam, CEO of Ethiopian Airlines:

Ethiopian Airline is a very well established airline and its 66 years old, could you give a summary of your current business activities and business model?
Yes, we are one of the leading airlines in Africa. Historically, Ethiopian Airline was established in 1946 with management contract and technical support by TWA (Trans World Airlines). Goals of Ethiopian has always been aligned with the goals of continent. Back in 60s where many of the African countries where getting their independence from colonization and formation of the organization of African unity, Ethiopian Airlines played a key role in bringing the new nations and economic development of nation building process and that’s also when we introduced Jet service to the continent. In 80s when Boeing company came up with their 767 model, we were the first in Africa and second in the world to introduce 767 in the 80s. In 2010, we were the first to introduce the longest range commercial airplane 777 and in last August we introduced 787 dreamliner and in a week we will get our fourth 787. We have three of them already in service. We carry 4.8 million passengers a year, operating about 55 airplanes, in October this year we launched 6 new planes. We are also significant cargo carriers in the continent, carrying about 1,82,000 tonnes a year. By 2025, we are planning to grow the airline to 120 airplanes carrying 18 million passengers per annum.

What’s your response to the need of a low cost carrier in Africa?
We are more experienced in African aviation, but we aren’t experienced in the LCC model. I think the success factors of a LCC might vary. LCC might work in Africa, we have not done an in-depth study or research. African air travel market is slightly different from what we have seen in the USA or Europe, there is a culture issue, its not homogeneous market in terms of regulatory framework, there are cross border / national policy issues. African air travel market is more fragmented compared to Europe. But, LCC might work.

You have plans to grow substantially by 2025, your model is based on connecting Ethiopia with rest of the globe, tell us more about the markets you are developing into?
We are using the same business model for last 66 years. Going forward, it will continue the same as it is successful this far. In the last 7 years, we have seen tremendous growth, if we compare our current state with where we were seven years back – now we have 55 airplanes carrying 4.8 million passengers and we have had 14 airplanes then carrying a million passengers. The business has grown four fold in seven years, that’s also by design and plan. As of 2010, we have achieved / exceeded our targets, we closed 1.3 billion dollars in 2010. Our vision of 2025 is aligned towards fleet renewal and fleet modernization, and we have placed orders for dreamliners and A350s. Fleet modernization and acquisition by nature takes a longer period. So by 2025 the fleet size is going to grow to 120 airplanes, number of passengers carried will be 18 million and cargo carrying capacity will be 8,20,000 tonnes. Apart from being a pure play airline, we are also focussing on other profit centers areas like Cargo and MRO.

You mentioned that you three 787s and the fourth one is already coming, you have also ordered A350s. What if there is a market fall? Could you give us the reasoning behind this?
We believe in the growth of Africa, its a continent in fast growth trajectory. We are planning to expand the hub system to regional hub. We intend to multiply hub expansion in the continent. Africa GDP is going to grow and the natural resource in Africa are of interest to countries like India, China and West too is waking up.

Can you elaborate on the ‘west is waking up’?
Perception of west towards Africa is not encouraging, it has been looking at Africa as a marginal market and sometimes as a dark continent and its changing very fast, China has realized that quickly. Chinese investment in the continent be it in Angola, Ethiopia, Zambia, South Africa, Sudan – these are huge investments that are well managed and directed by the government. Its a good solution for infrastructure development for Africans. For Chinese its a strategic development interms of access to natural resources, particularly oil. Its a win-win situation and its working very well.

What’s your view of middle east carriers eating market share in Africa?
Competition is going to come from all directions. More and more will come from the gulf carriers, they have big strategy and huge expansion plan. What is more concerning is the market share. All African carriers put together – we have only 18% of the market, 82% of the market is by non-African carriers and this is a concern for African carriers. African air space is more open to African and non-African carriers.

Africa is seen as an unsafe continent, what’s your view on this?
I disagree a bit, African aviation is safe. Its only localized, isolated and few countries have weak regulatory framework and this is putting a wrong perception on us. There are global brands like Kenya airways, South African airways, Ethiopian Airways, Egypt Air, Air Morocco and so on operating in Africa.

MBuvi Ngunze, COO of Kenya Airways:

You are in Kenyan airways for a year now, can you give us a resume of Kenyan airways?
Kenya Airways was formed after the previous east African airways which was the airline operating across three east African countries – Kenya, Uganda and Tanzania. They broke up in 1977 and Kenya airways was formed, its been 35 years so far and we were privatized until 1966. We were the first airline company to get privatized and that’s when KLM came as a strategic shareholder. From 23 destinations then to 59 destinations today, we are strong in Africa serving 47 destinations (12 destinations out of Africa), 38 aircrafts with good mix of 767 and 737 models, carrying about 3.6 million people a year.

What’s your response to the need of a low cost carrier in Africa?
We announced a year and half ago that we are looking at low cost operations, we are still doing our home work on this. Its not something that you just go and launch. We are not going to react because FirstJet is coming in the LCC space. We know our business model, we know what we are trying to do and we will work towards that. I agree that Ed that in Africa there are lot of opportunities, its true and we have seen it. If you look at Africa from population point of view, it will be larger than India and China in next 20-30 years. If you look at growing middle class in Africa, its a significant growth. But, air market is still fragmented. When we are ready, we will launch a LCC operation. But we have our business model and its working very positive for us. We are still continuing in making sure that Africans travel within African with our existing services.

Kenyan Airways has switched from a continental focus to international focus and you have launched some Chinese destinations as well. What’s you take on investments from China and India in Africa?
In terms of trade between India, China, Africa and Latin America – its been growing by over 150% a year. Its because of investments by countries like India, China and Vietnam, people are coming here for employments, lot of Africans are travelling for trading to India. If you look at the trade flow between Africa and countries like India and China, there is good productivity both ways. China today is really focussed on natural resource extraction. When we look at people flow point of view – definitely the attractive market today and for future is much farther to far east and India. We want to make sure we are there in every African capital in the next three years. That’s a goal for us. We have actually lost market share over the last 10 years in Africa. We have lost probably over 10% market share and the people who gained from these are the middle east carries in terms of flow into Africa.

When Emirates launched its route from Shanghai to Dubai, it had 90% occupancy in just 2 months of time considering the fact that its a long haul flight. But the reality is, people actually travelled from Shanghai to Africa. Emirates has now built enormous route presence in Africa; Qatar and Etihad are also doing the same. In Europe, we hear a lot of criticism of gulf carriers. What’s your view of middle east carriers in Africa?
I think we will face more competition from them. We will have to play defensive. We will not try to replicate every route in which they fly, we will pick up markets where we are strong and we will grow towards it.

Africa is seen as an unsafe continent, what’s your view on this?
If you look at IATA standards, last year was the best recorded year in Africa in terms of safety. As an airline, we work with civil aviation authorities and we invest for addressing security concerns. Kenya Airways has partnered with GHS to drive safety measures across Africa. Probably the one area where we need more focus in terms of safety in Africa is the air traffic control. There are some places today where we don’t operate flight at night, because of air traffic control issues.

Author: Karthick Prabu