Open skies: Why Africa could take off on liberalised aviation
| May 28, 2023
Africa is under renewed pressure to open up its skies to global airlines, with liberalisation being touted as the only way for local aviation industries to grow.
The subject of open skies has always been a touchy one for aviation stakeholders, supported and opposed in equal measure.
The industry on the one hand feels that open skies could crush local industry, especially in cases where the local carriers are not large enough to withstand competition from foreign airlines.
Governments - including Kenya - have also been largely persuaded to keep the skies closed, especially in instances where they have national flag carriers to protect.
However, industries that depend on air traffic such as tourism as well as cargo importers and exporters have pushed for an open sky policy.
More carriers having the freedom to fly into the country with limited restrictions would mean more traffic for tourism industry players.
It would also mean increased competition and in turn reduced airfares and in turn see an increase in tourists coming to the country.
Similarly, exporters would have more choices, with competition bringing down the cost of shipping goods out of the country by air.
Aengus Kelly, chief executive and executive director of AerCap - an international aircraft leasing firm - says Africa’s aviation industry has over the years registered minimal growth due to failure to liberalise and that this could continue to cost taxpayers more to support national carriers.
It would also continue being costly to fly within Africa.
“At the moment in Africa, there is too much political interference and if the industry does not deregulate, it is destined for a long period of small subscale airlines that will always need bailouts. There is a need to create scale,” he told The Sunday Standard in an interview.
“In the whole continent, there are only two airlines with more than 50 large commercial airlines. There should be at least a dozen and at least a few more with more than 100.”
Because of this, he said, the connectivity between various African countries and cities remains low and the result is that travelling between two African nations is sometimes more expensive than moving from Africa to Europe or the Middle East.
“There are limited frequencies between many cities and countries in Africa. Because of this, the fares are sky-high… much higher than going to Europe. The only way to fix this is open skies,” said Mr Kelly.
“Open skies means much greater opportunity for the airlines. It will also mean much greater economic opportunity for the continent.”
Those who have been pushing for open skies – including tourism lobbies – note that a similar move has changed fortunes for destinations such as Morocco, with its visitor numbers going up from two million to 12 million in less than 10 years.
It also transformed the South African cities of Durban and Cape Town which were once on the verge of death, but have now become leading conference tourism hubs.
Others such as airlines say caution is necessary in opening up the skies, warning that abrupt opening up of the skies could lead to the unintended impact of foreign carriers running down local airlines.
At the regional level, there have been attempts to get individual countries to adopt the Single Africa Air Transport Market (SAATM), an initiative of the African Union to create a liberal civil aviation market.
The initiative has, however, been opposed by some airlines that fear other more financially muscled carriers might crush them.
SAATM, which has been in the works for years, is designed to create an air industry akin to what the European Union has, where carriers and passengers have it easier to move from one country to another.
Through it, the African Union hopes to ease flying on the continent. SAATM has received the backing of aviation bodies such as the International Air Transport Association (IATA) and the African Airlines Association.
“At the moment, people are nervous, countries want to have their own carriers but sub-scale carriers and limited route options are going to cost taxpayers more to fly. They will remain sub-scale and they are going to lose more money,” said Kelly.
“What needs to happen is to open up the skies, get rid of all the middlemen. The alternative to open skies has been bilateral negotiations, with many people involved and many people need to get their part of the deal.”
“Until that happens, we are destined for sub-optimal economic development. You can see what happens in other jurisdictions; when deregulation happens there is a tremendous increase in economic activity and tourism.”
AerCap is among the firms that lease aircraft to Kenya Airways (KQ). It is one of the largest owners of commercial aircraft and engines in the world and leases to various airlines globally. At the moment, it is leasing three planes and one engine to KQ. When Covid-19 hit, the lessor took back a Boeing 777 it had leased to KQ, which the airline at the time found difficult to fill due to its large size.
While KQ had to pay a contract termination fee, Kelly said this was nowhere near the losses the carrier would have experienced had the plane sat idle at its hangars.
“The most expensive thing an airline can have is an empty aircraft sitting on the ground,” he said.
Leasing aircraft among airlines has over time grown and at the moment stands at around 50 per cent, up from around five per cent in the 1980s. “If you own them all and there is a downturn in your market, you will lose a fortune. That is why leasing has gone up every year for the last 40 years, from five per cent of the market to over 50 per cent of the market.”
He is optimistic that Kenya Airways and the local aviation industry will recover as the global aviation industry rises from the shocks dealt with in recent years, including the Covid-19 pandemic. Kelly said that while KQ had posted a deep loss in 2022, the carrier is ordinarily able to fully utilise its assets. “Demand is the hardest thing to get but for Kenya, you have tourists coming, there are exports out of this country, flowers going every day to Europe,” he said.
“KQ comes in for a fair bit of criticism locally and they had a big loss last year. But two-thirds of that loss came out of things that were outside of their control, which are the strengthening of the dollar and high fuel costs.
“These factors also hit the global airline business. When you strike these out, KQ still lost money but nowhere near the level that is being reported.”
He added that what the carrier needs is better infrastructure as well as to streamline operations and get rid of excesses that weigh on the airline.
“What they need is an infrastructure around them that enables them to get rid of anyone who is a third party to the airline, no consultants anywhere…and have the freedom to fly anywhere, freedom to use whatever maintenance they want to use,” said Kelly.
“These are the things that need to be put in place for a successful airline.”
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