African Airlines Mull Options To Combat 'Mega-competitors'

 - December 6, 2016, 6:30 AM
A panel of top executives from some of Africa’s most prominent airlines, including Ethiopian Airlines chief commercial officer Busera Awol, RwandAir CEO John Mirenge and South African Airways (SAA) chief commercial officer Aron Mutensi discuss a competitive predicament posed by non-African carriers during the African Airlines Association general assembly in Victoria Falls. (Photo: Kaleyesus Bekele)

The acceleration of mega-intercontinental carriers’ expansion into Africa threatens the very survival of the continent’s indigenous airlines, according to several top executives speaking during a panel discussion held during last month’s African Airlines Association (AFRAA) annual general assembly Victoria Falls. The growing dominance of European and Gulf carriers over African skies poses a particular risk, they say.

South African Airways (SAA) chief commercial officer Aron Mutensi advocates for more cooperation among African airlines and their regulators to fend off competition from the likes of Emirates Airline. “Let me share with you the experience of working with brutal competitors like Emirates,” he said. “They have eight widebodies coming to our country daily. We have been very industrious dealing with them to the extent that in our entire network the code-share agreement we have with Emirates brings healthy profit to us. But we have to educate our own regulators to the extent they understand the net effect.”

Still, Mutensi said he does not advocate for market protection. “We are not talking about protectionism at all,” he explained. “We want to be robust in our discussion to have code-share arrangements out of Durban, out of Cape Town...Instead of sitting rolling my arms I am actually working with Ethiopian Airlines to [fight] the dangerous guys coming from the Middle East.”

Ethiopian Airlines chief commercial officer Busera Awol noted that the money his airline makes on the European market subsidizes its route network in Africa. “Now to make things worse the whole world flies to Africa,” he said. “Who has the largest [available seat kilometers] in Africa now? It is Turkish and Emirates.”

Awol said competition has become stiff before the African market has had a chance to mature. “There is too much competition. So the yield started going down,” he explained. “Now it is time to wake up. Can we have an African alliance? I think it is time to consider that...Unless we cooperate and do something together everybody is in danger.”

Meanwhile, intra-Africa travel faces its own challenges. “The spending power on air tickets with in the continent [Africa] is very limited,” said RwandAir CEO John Mirenge. “It has been made even worse with the commodity market crash. Today Africa is at a place worse than it has ever been.”

Nevertheless, RwandAir does not intend to park airplanes. Mirenge said he believes in positive turnaround in the coming few years, but mainly through international expansion. “We will continue to fly lower load factors than what we were doing three years ago,” he said. “Should we only look at our home base and forget about the rest of the world? No! We still have our people trading with the rest of the world, especially Asia, the Gulf and so on. But also we have historical colonial relations with our previous masters. There is a need to fly beyond, to Europe and the U.S.

“We need to recapture our market share of intercontinental traffic and this can be done if we all rise and do the right things towards attacking the enemy at their bases rather than waiting for them to come and finish us before even we fly,” he said.

Others argue that smaller African carriers should refocus on regional markets from their home bases. Abderahmane Berthe, CEO of Air Burkina, said that his airline stopped operation to Europe because of fierce competition coming from European carriers. “The thing is that you have to have a good network and a good fleet,” he said. “I would say you need to have the right aircraft in the right markets. That is what is missing at many of our airlines.”

Ethiopian’s Awol, who founded Togo-based ASKY Airlines, agreed, insisting that African airlines first should seek profits in Africa. “It all starts there,” he said. “If you are not profitable in Africa do not go long haul because you will die. When we started ASKY in 2010 everybody was pushing me to start flying to Europe to Paris. I said I will not fly to Paris before we become strong and profitable in Africa. If we do the right thing in Africa we can be profitable. ASKY is living proof.”

With the right capacity and right network ASKY now turns a profit, he noted. “ASKY now can fly to Europe because it has a ditch to retreat to if they (non-African giants) attack.  First we should be profitable in Africa, then we can go out. Otherwise do not go out and commit suicide.”

Though African airline executives often disagree on the viability of expanding to other continents, the CEOs agreed they must forge a Pan-African alliance. 

“In my view it is about us being more African and being concerned about what we can do together rather than think of what others are doing to us,” Mutensi said.

RwandAir board chairman Girma Wake agreed. “Running alone is not going take us anywhere,” he concluded.   

The market share of African airlines carrying intra-African traffic has shrunk from 40 percent in the 1990s to 20 percent today. Last year African airlines combined lost $1.5 billion. This year they expect to lose $500 million.