Single African Aviation Market: Pros & Cons

Single African Aviation Market: Pros & Cons

By Nkem Osuagwu

Recently, Nigeria along with 23 other African countries launched a single aviation market (SAATM) as part of efforts to boost connectivity, reduce fares and stimulate economic growth. This comes as a development following the difficulty travelers encounter on travels within the content, as most travels are often routed through European countries making travel within the African continent expensive even as it hinders trade among African countries.

According to statistics by the International Civil Aviation Organization (ICAO), while Africa accounts for about 15 per cent of the world’s population it accounts for only 3 per cent of the world’s aviation traffic. Hence, both the International Civil Aviation Organization (ICAO) and the International Air Transport Association (IATA) have lauded the adoption of SAATM highlighting several benefits inherent in its implementation for Africa and its air carriers.

IATA says the impact of SAATM will be “immense” because it will increase the number of direct air connections within the continent, which will reduce the current long travel times on journeys between African destinations as well as helping to bring down airfares to drive passenger growth.

IATA says 50 new routes have been introduced within Africa since 2014 and the association expects SAATM to accelerate the increase in intra-African services. According to an IATA statistics based on a study it commissioned; liberalizing air travel between just 12 key markets in Africa would create an additional 155,000 jobs and $1.3 billion in GDP.

ICAO which hailed the official launch of the Single African Air Transport Market (SAATM), noted that it represents a historic milestone for Africa and Africans.

The President of the ICAO Council, Dr. Bernard Aliu, while addressing African leaders at the 30th African Union (AU) Summit in Addis Ababa, Ethiopia, where the SAATM was launched said “This new and more liberalized air service framework stands to deliver tremendous new economic benefits and potentials to this continent.

“And by steadily enhancing regional and global connectivity continent-wide, air transport has continued to foster economic growth in Africa in terms of enhanced travel and tourism and other vital trade activities.”

He said the launch of SAATM, will enable the Yamoussoukro Decision’s fuller potential, as well as the implementation and objectives of the AU Agenda 2063.

“Certainly, the 23 States which have signaled their early participation in this new market will be reaping the initial and quite significant socio-economic benefits it will help to deliver,” he said.

Also speaking of the benefits of SAATM to Africa at a workshop organized in Lagos, Ms. Iyabo Sosina, Secretary General of the African Civil Aviation Commission (AFCAC), said, the 2016 African Statistical Yearbook recorded that in 2015, 63.5 million international tourists were recorded in the continent and the 23 countries accounted for over 54 percent of international visitors. Thus the numbers of countries that have signed the solemn commitment offer a significant singe air transport market space in terms of traffic volumes and airport infrastructure.

She said, “The better connected a country is by air, the greater its ability to unlock the economic and social benefits that air transport can deliver through the mobility of people and goods to the travelling public, air carriers, airports, other allied service provider, the economy of  member states (countries) and the continent as a whole.’

While some industry enthusiasts have lauded SAATM as what is required for the industry and the continent to achieve the expected growth, others especially Nigerian airlines have cautioned that much more work was needed to create genuinely open skies in Africa, even as they have said they are not  fully ready  to partake and benefit from SAATM.

IATA describes Africa as the weakest global region for airline profitability over the past three years with “few airlines in the region being able to achieve adequate load factors but adds: “Performance is improving, but only slowly”.

Also, aviation analyst Patrick Folley, a director at London-based consultancy Consilium, in an article that appeared in Routes News, captured the problems that Nigerian carriers and some other carriers in Africa will encounter in an open skies environment.

He said many African airlines are not well equipped currently to benefit from the programme, in many cases lacking the financial capability to provide the necessary capacity increases.”

Folley says Nigeria “stands out for strong potential growth” from the implementation of open skies.

“It has the largest population in Africa – around double that of the next country.  It has significant regional business centre and a growing middle class by African standards. Yet it has an ongoing history of airline failures, has yet to develop the network of routes that could be achieved and its largest airport, Lagos, lags behind others in terms of passenger throughput in relation to where it perhaps should be.”

He further said, “Financial woes continue. Nigeria’s aviation industry certainly does not appear to be in good financial health at the moment – the country has suffered severely from the slump in oil prices over recent years and the Nigerian government took over the running of its largest carrier, Arik Air, in February to avert a “major catastrophe”. Following this move, Arik has suspended flights on key international routes such as London, New York and Johannesburg.

Unfortunately, this is a pattern seen across Africa with governments continuing to support loss-making flag-carriers. For example, South African Airways would be “technically insolvent” except for loan guarantees from the South African government. Other carriers such as Kenya Airways recorded loss in 2016 while EgyptAir has lost a total of $14 billion in the past six years, as its tourism industry has suffered since the Arab spring uprising in 2011.

In view of these woes, one is bound to ask; Will open skies in Africa help this sector to finally get off the ground as a profitable enterprise? Analysts believe the SAATM should help “in theory” if it is properly implemented, but they are not so certain about the reality on the ground.

So while there should be good news on the opening up of the aviation sector within Africa, there are plenty of other familiar challenges facing airlines and route development across the continent.

For instance, the Nigerian airlines have expressed fears that there is no level playing ground for them to benefit from the single skies in reality.

The Airline Operators of Nigeria, speaking through their President, Captain Nogie Meggison expressed the fear that Nigerian Airlines are at a disadvantage because they are privately owned and do not attract any subvention from the government unlike some of the African Airlines who are going to be players in the single Air transport market, Also Nigerian Airlines access loans from commercial banks at very high interest rate of close to 28 percent which is not so in other African countries among other challenges including the high cost of aviation fuel, double taxation, and fluctuating foreign exchange rates.

AON urged the government to note the short comings of the SAATM especially issues bothering on the legal framework that would drive the implementation of the project.

AON said “While the idea may be noble on paper, there is a need for government not to lose sight of the facts and the dangers of the direct impact of the decision on the Nigerian economy and Nigeria as a whole and the future of our youths.

“We are concerned that the timing is not right as there are several unresolved issues and challenges being faced by Nigerian aviation that will ultimately undermine the perceived gains of this Treaty that might be an illusion for our beloved country,” said Meggison.

He listed some things that might enable Nigeria to take its position and compete favourably in the open skies process.

He said, “The basic issue of free movement of people and trade is an integral aspect of the declaration that will go a long way to determine the fairness of the SAATM project. Sadly, it is a well-known fact that Nigerians require over 34 visas to travel within Africa alone. This is an issue that first needs to be addressed. Before opening the skies, open the visas”

He urged the government to come out with a clear policy that will position Nigerian airlines to take full advantage of the open skies. He decried the issue of high Bank Interest rates of 28% compared to access to cheap funds provided and guaranteed by the government of most African carriers at a maximum of 2%.

He listed other issues that placed Nigerian airlines at a disadvantage over the open skies to include the fact that Nigerian airlines pay VAT while most African carriers don’t pay VAT both in their various countries as well as here in Nigeria. This is already a deficit of 5% on a small margin industry from the start for Nigerian Airlines.

“Also, airlines in Nigeria don’t have access to forex and only get allocation per percentage of our bids which takes an average of 6 months. Most of the African carriers are subsidized and being funded by their government.

Also Captain Mohammed Joji, an airline owner said the government should take cognizance of the fact that Nigerian airlines have high operating costs listing then to include high cost of aviation fuel, payment of VAT on their operations, payment of certain charges in foreign currency among others. He said these and other factors will not make Nigerian airlines to operate under the liberalized air space in a profitable manner.

These notwithstanding the Nigerian government has gone ahead to rectify the treaty, what is now left is for the full implementation of the SAATM, any arguments against it will be like crying over spilled milk. It is now left to the airlines to find out ways in which they can partake in the open skies  in a profitable manner by looking into options like merging their operations or seeking for partners that will enable them operate profitably.

Subsequently, those in authority should take up the responsibility to look at some of the issues raised and find a way to resolve them for the benefit of the airlines, the Nigerian people and the success of the SAATM.

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