Not a few have shrugged off the idea of ‘low-cost airlines’, saying it made little business sense in the context of dwindling revenue of airlines in Nigeria and Africa at large, writes, WOLE SHADARE
Africa is an expensive place for airlines to do business. Having the right fleet strategy, access to finance, and a harmonised regulatory system are all crucial for air transport to develop.
The potential that Africa possesses for air services is huge and this has been well-documented over the years.
However, there are several challenges imposed on African airlines which create a uniquely tough operating environment – issues ranging from high taxation, the cost of fuel (which is around 35 percent higher than other regions), and the lack of an integrated intra-African network are just some of the issues facing the regional market.
In Nigeria, the concept of low cost is almost non-existent. Many of the carriers before operation promised to be Low-Cost Carriers (LLC) in outlook or in tariff. They apply the concept of what makes people believe that they are truly LLC. A few months after that, they join the fray and act exactly like the.
Can anyone blame them? Their business plans are immediately jettisoned a few weeks after setting up. They are faced with a harsh economic reality. They are faced with an unfriendly business climate such as the hiccup in accessing foreign exchange, skyrocketing jet fuel, a high number of taxes levied against them, deteriorating aircraft fleet, and high cost of aircraft maintenance overseas.
In all sense of it, air tickets are underpriced in Nigeria and some parts of the continent because of the low purchasing power of many Nigerians.
President, Aviation Safety Round Table (ASRT), Dr. Gbenga Olowu said to put proper perspective; there must be a clear definition between LLC and low tariff. He said it would be difficult for any airline, particularly Nigerian airlines to offer low tariffs at a time the costs of the airlines have risen exponentially.
He added that doing so now would amount to cutting corners as he found it extremely for the carriers to go that route.
Before the spike in the price of jet fuel, the average cost of an air ticket for an hour flight was less than N40, 000 which amounted to less than $50. This was not sustainable for the carriers, meaning that at N40, 000 or less, the carriers were already running at a loss. The fares have since reached over N100, 000. Many charges are as high as between N120, 000 and N190, 000 depending on the airline, and beyond the reach of many travelers.
Green Africa which came with a different model that looked like LLC was charging far less than the other carriers. The type of aircraft the carrier operates, the ATR 72 is fuel efficient with minimal cost of operation. Despite that, they have struggled to break even.
Almost every African country has a national full-service carrier, which is carefully protected. But the same cannot be said about the continent’s low-cost carrier (LCC) market.
Low-cost carriers are a relatively recent addition to the air travel market in Africa. In comparison to the region’s well-established full-service carriers (FSC), including Ethiopian Airlines, EgyptAir, and Kenya Airways, its budget airlines were all launched in the early 2000s.
Africa’s LCC market
What are the main challenges in running a budget airline in Africa? And why have so many failed? Here, AeroTime investigates the LCC market to assess the situation.
The LCC business model requires a liberalized market to be able to operate flexibly and at a low cost. So the reason why African LCCs were late starters was the absence of air service liberalization and a lack of deregulated regulatory frameworks.
After independence, the continent’s governments established their own flag carriers, which have been supported and protected from competition and have prevented new companies, including low-cost carriers, from joining the air travel market.
According to the International Air Transport Association (IATA) report stated that “The expansion and improvement of air transport on the continent has been hampered by a restrictive and protectionist intra-African regulatory regime”.
Things started to change after 1999 when the Yamoussoukro Decision (YD) was set in motion to liberalize African air services. Previously, they had operated under bilateral agreements on a country-by-country basis.
The implementation of YD, and later the Single African Air Transport Market (SAATM), have alleviated restrictions on airspace and lessened tariffs and red tape. However, while some African states have relaxed bilateral agreements to allow more flights and frequencies, full liberalization was, and still is, far from being a reality.
Lack of success
Despite the slow process, low-cost airlines have been launched in Africa. Since the early 2000s, several airline ventures have entered the market but almost half of them have not succeeded.
In 2020, there were only around 10 LCCs based in Africa with scheduled traffic, IATA confirmed in a statement. It is worth noting that this number may exclude LCCs that operate charter flights.
To this day, most of the low-cost carriers in Africa remain relatively small. The biggest players are concentrated in southern and northern Africa, where the network is more complex and accessible.
However, most of Africa’s low-cost carriers are South African. The country is home to Kulula.com, Mango Airlines, Fastjet, FlySafair, and market newcomer Lift.
According to the Centre for Aviation (CAPA) LCC penetration rate in South Africa was 60% in 2019, while the penetration rate for the overall intra-Africa market was approximately 13%.
The country is home to Africa’s first budget airline, Kulula.com, which has been operating for 20 years. The airline currently serves six cities across South Africa: Cape Town, Lanseria, East London, Johannesburg, Durbs, and George.
The airline boasts one of the youngest and largest fleets across the continent. It has a total of eight Boeing 737 aircraft in its fleet with an average age of 13.2 years, according to Planespotters.net.
Penultimate month, exactly June 2022, Comair reached the end of the line after the company’s business rescue practitioners (BRP) announced that they had switched operations from recovery to liquidation. This came as a significant dent for South African travel given that they stood as the country’s second-largest domestic airline, operating both a British Airways franchisee arm and the Kulula.com brand.
Richard Ferguson, one of the company’s BRPs said that despite Comair possessing positive characteristics including a modern fleet, experienced crew, and good market share between the two names, they were unable to secure the necessary capital to fund its recovery plan.
“We did our utmost to secure the funding, but when we were unable to do so had no option to lodge the application. It is an extremely sad day for the company, its employees, its customers, and South African aviation.” After entering business rescue, Comair was able to start flying again when the Comair Rescue Consortium (CRC) invested R500m (over $32 million) for a 99% share of the equity in the company at the time.”
The low-cost model has been successfully implemented everywhere else in the world but has struggled to gain traction in Africa.