EU-AFRICA AVIATION CONFERENCE

Windhoek, Namibia, 2-3 April 2009

DEVELOPMENT TRENDS IN THE AFRICAN AIRLINE INDUSTRY

By Raphael Kuuchi AFRAA Commercial Director

Introduction
In Africa air transport is vital for the socio-economic development, promotion of international trade, tourism and regional integration Insufficient and/or poorly developed nature of other modes of transport makes air transport the most ideal for linking the vast continent Huge untapped market only 10% travel by air EU-Africa co-operation is important because Long historical and cultural ties Geographic proximity Trade and business relationship Major air traffic market Significant changes in EU regulatory environment (single market, single sky, etc)

A win-win partnership will benefit both sides

Traffic Performance Trend

Traffic Performance Trend

Over the past decade, traffic growth in African has average 5.7% per annum Africa accounts for 3% of passenger and 1.8% of freight traffic Non-African airlines carry over 75% of traffic The number of passengers carried by African airlines topped 53 million last year Freight carried exceeded 800,000 tons in 2008 This represented an increase of 5.9% over 2007 compared to global growth rate of 4.6%

Passengers Carried by African Airlines (2000 - 2008)

60,000 53,345 50,000 45,205 39,315 35,929 35,432 33,056 34,677 41,712 47,858

N o. of P a sse ngers

40,000 30,000 20,000 10,000 -

International Schedule Passenger Traffic by Region - Total Passenger Kilometres Performed (PKP)
L/America 4% Africa 3% Asia/Pacific 28%

N/America 18%

Middle East 7%

Europe 40%

Passenger Traffic Distribution - Africa to other Regions

Middle East, 16%

N. America, 1%

Intra-Africa, 15% Asia Pacific 4%

Europe, 64%

Major growth markets in the future include North America, Middle East and Asia Pacific

Passenger traffic Carried by Market - 2008

Inter-continental 49%

Domestic 39%

Intra-Africa 12%

Traffic Performance Trend

Percentage of Freight Carried by Region
AFRICA , 1.81% NORTH AMERICA , 27.60% ASIA/PACIFIC, 34.66%

MIDDLE EAST, 6.45% LATIN AMERICA/CARIBBE AN, 2.94% EUROPE , 26.55%

Market Outlook for 2009

In February 2009 alone, African carriers posted a passenger drop of 13.7% the largest drop among the worlds regions Correspondingly, capacity of African operators was reduced by 11.8% IATA projected a 2009 African airlines passenger traffic decline of 5.7% yearover-year with cargo demand falling by 13% A forecast loss of $600 million is projected for African airlines in 2009 but high yields will continue to increase competition and attract new airlines

Low Cost Airlines

7 low cost airlines operate in Africa A number of low fare operators also exist Many more are expected as market opens up In the near future, the nature of traffic in most African markets may not support low cost operations which requires point to point dense traffic.

WHAT ARE AFRICAN AIRLINES DOING TO REMAIN COMPETITIVE?

Fleet Modernisation
58% of the aircraft in service in Africa is made up of ageing B727/B737/B757, DC9, MD80 and F28/100, etc The average age of the African fleet is about 19 years Boeing forecast Africa fleet requirement at 560 jets worth $60 billion between 2007 and 2027 156 aircraft are currently on order by African airlines The biggest challenge is to obtain financing at reasonable cost due to risk perception and the financial weakness of the African airlines

Safety and Security

Safety remains a major priority and challenge in Africa Amidst resource constraints, the industry in Africa is not relenting on its responsibility in ensuring a safe and secure operating environment AFRAA and its member airlines have endorsed IOSA, COSCAP, ICAO ACIP programmes, Banjul Accord Initiatives, etc AFRAA is working closely with sub-regional and regional organisations to improve safety Almost all AFRAA airlines have undergone the IOSA audits and over a dozen of them have passed and are registered

Safety and Security

The EU blacklisting a major setback to the intercontinental carriers of Africa who meet international safety standards The basis of the blacklisting is uncertain, lacks transparency and there is no clear process of getting off the list Several years after the initial blacklist was published, the majority of countries and airlines that were originally listed continue to be on the list

MRO and Training Centres

To meet aircraft maintenance, repair and overhaul requirements of the African fleets at competitive costs, MRO Centres have been established by some major airlines in Africa Besides servicing the aircraft of their airlines, these Centres provide maintenance support to other airlines within and outside the continent Currently MRO Centres are located in Johannesburg, Cairo, Addis Ababa, Algiers and Casablanca

There are simulator training facilities as well as Pilots and Engineering training academies on the continent Managerial and skills training and capacity building institutions also abound

Partnerships and Code share

Airline South African Airways EgyptAir Kenya Airways Ethiopian Airlines Air Senegal International Precision Air Air Madagascar Rwandair Express Air Burkina LAM Mozambique Airlines Air Namibia Libyan Airways Tunis Air Interair TOTAL No. of Partners No. of Partners in Africa other Airlines 7 3 2 1 3 2 3 2 1 1 1 1 1 1 29 16 17 4 6 2 0 1 0 0 2 0 3 6 0 57

Global Alliance Membership

Three African airlines are members of global alliance groups

Environmental Concerns
Environment issues have become topical and compelling Operating older aircraft in Africa is negatively impacting the environment Fleet renewal will reduce airlines environmental footprint We applaud the EU for the leadership in establishing an environmental trading scheme for Europe However, AFRAA and African States believe that a global approach under the leadership of ICAO is the appropriate way forward in addressing environmental concerns relating to international air transport

Liberalisation
The internal African market is gradually being liberalised but the process is painfully slow Many African carriers including Ethiopian, Kenya Airways, South African Airways, Royal Air Maroc, Afriqiyah and EgyptAir are benefiting from the liberal bilateral air services agreements This has resulted in better intra-African connectivity today, though further urgent expansion is needed to shorten travel time and reduce the cost of inter-city air travel The need to create a conducive environment for all operators is more urgent now than ever before if African airlines are to survive and position themselves for global liberalisation

Diminishing Presence of African Airlines

Diminishing Presence of African Airlines

African airlines support liberalisation but they need to be positioned to be able to compete and survive in a liberalised market As a continent, we lack the necessary regulations, institutions and monitoring mechanism to ensure fair play in a liberalised global environment In the 1970s and 1980s Africa had about 26 inter-continental airlines (including Air Afrique which covered 11 States) Today, this has been reduced to just 9 Some of the existing inter-continental carriers may further disappear Efforts should be focused on safety, modernising economic regulations and opening up the internal market Lets look at air transport in the past and now

The Airline Industry in the 1970s & 1980s

KEY
Countries that did not have long haul operators Countries with budding airlines. Dominant carriers are foreign airlines Countries that had vibrant long-haul airlines sharing the market with external competitors

Diminishing Presence of African Airlines

Weekly Flight Frequencies between Africa and Europe
300 250 200 150 100 82 50 21 0
Franco p ho ne to Paris Franco p ho ne to Euro p e Ang lo p ho ne Wes t Africa to Euro p e Eas t Africa to Euro p e So uthern Africa to Euro p e No rth Africa to Euro p e

131

136 94 31 76 26 84 125

20

35

African Airlines

European Airlines

Diminishing Presence of African Airlines

Francophone Africa, 4% Anglophone West Africa 2%

Weekly Flight Frequencies Africa to Europe

East Africa 3% Southern Africa 4%

North Africa 15%

European 72%

Challenges of African Airlines

Lack of capital and high cost of accessing finance due to risk perception of airlines
Small size, modernise fleet

Developing and retaining skilled human resources stemming brain-drain Safety and security Absence of conducive environment for airlines to position themselves Lack of IT infrastructure and systems Rapid regulatory changes particularly in the EU community designation, blacklisting, ETS

The Way Forward

Strengthen the capital base of African carriers through private strategic partnership and public private partnerships Recapitalisation will modernise fleet, address some safety concerns, increase efficiency, network expansion and make airlines competitive Develop and retain badly needed skills EC could provide assistance either directly or by encouraging its airlines to support human capital development in Africa Fully implement YD weve talked about it enough! Create the right environment for competition regulations, institutions and monitoring There is an urgent need for a comprehensive air transport policy which should include a framework for Africas relationship with 3rd countries on issues related to air transport

The Way Forward

We are encouraged that the EU is willing to support Africa under the proposed new strategic partnership to assist in the crafting of an African air transport policy Such a policy should encourage cross-border investments in aviation EU carriers and investors should invest in our airlines

On safety; AFRAA will continue to work with and support stakeholders on various initiatives CAAs should be encouraged to share limited resources and expertise EU and Africa should work together to ensure that aircraft that are banned for environmental reasons in Europe do not get into Africa through the used aircraft markets Unilateral regulation of the industry should give way to global regulation led by ICAO. This will ensure the weak and vulnerable are not disadvantaged

The Way Forward

AFRAA believe there could be better ways of addressing the safety concerns of Africa without resorting to blacklisting EU and Africa should continue to work together towards finding an appropriate solution in this regard