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Africa’s high operational costs cause of low propensity to spend on air travel

…Air connectivity hiccups dampen aviation expansion

 

The International Air Transport Association (IATA) has described Africa as a continent with a high operational cost base and a low propensity to spend on air travel.

The clearing house for over 300 global airlines in its region-by-region roundup of airlines profitability outlook for 2024 said in 2024, all regions are expected to generate profits for a second year in a row with the most significant increase being for Asia-Pacific carriers.

It said, moreover, that connectivity challenges dampen the industry’s expansion and performance in Africa.

Despite these headwinds, the association expressed joy with the continent’s sustained demand for air travel, which should allow the market to deliver a second year of profitability.

Airline profitability for 2023 it said was better than expected in IATA’s December outlook, adding that revenues for 2023 are now expected to have reached $908 billion ($12 billion higher than the previous forecast).

Expenses according to the group grew to $856 billion ($1 billion higher than the previous forecast), translating into a $27.4 billion industry-wide net profit ($4.0 billion higher than the previous forecast).

As a result, the net profit margin for 2023 was 3.0% it further stated is above the previously forecast 2.6%.

The Regional Vice-President for Africa and Middle East of IATA, Kamil Al Awadhi reiterated that the cost of operating airlines in Nigeria is about the most expensive.

Africa, home to 1 billion people or 13% of the world’s population, travels very little by air today. The passenger kilometres flown by African airlines in 2018 were just 2.1% of the world total, that is. more than 6x less than the population share.

In Europe or North America, the average person takes at least one return trip each year. In populous Nigeria, and in the important market of Ethiopia, the average person takes just one return trip every 50 years.

Yet Africa needs to travel by air. East-West transport connections by rail or road are extremely poor and average distances, between cities and businesses wanting to trade, are great.

Air transport has not yet filled that gap partly because of government restrictions. The benefits of opening up air transport markets between 12 African economies, could add $1.5 billion to their joint Gross Domestic Product (GDP).

The proposed Single African Aviation Market (SAATM) is an even more ambitious project, linking 28 economies.

Analysts are of the view that one challenge to implementation will be delivering affordable air travel.

They are of the view that fares within Africa are relatively high but Africa to the rest of the world fares are relatively low, compared to other markets of a similar sector length.

The problem is not so much high fares by international standards, but that living standards are so low on average, so buying a typical return ticket from Africa will cost almost seven weeks of national income per person. It costs less than one week’s national income per person in Europe or North America.

Not a few believe that an implemented SAATM would deliver more GDP than the $1.5 billion it was estimated would result from better connecting the 12 economies, which they noted would go some way to raising living standards.

According to them, “But for air travel to become affordable to more people there is no alternative to cutting operating costs, allowing airlines to reduce the cost of air travel. That can’t be done unless policy-makers implement smarter regulations and tackle inefficient infrastructure.”

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