Africa’s international market: vision 2025
Route evolution in African international markets has always been defined by intra-African protectionist policies that cause long haul route networks to focus on Europe and, more recently, the Gulf.
With typically weak national flag carriers, foreign airlines are likely increasingly to dominate Africa's intercontinental market, particularly Emirates, Qatar Airways and Turkish Airlines. With the exception of Ethiopian Airlines, African carriers will continue to struggle and lose market share.
Fragmented and usually highly inefficient African airlines have a relatively small presence in the international market and struggle to compete against larger players from outside their region. Traffic to and from Africa will grow significantly in percentage terms over the next 10 years off the existing low base, particularly between Africa and Asia. However, African airlines appear destined to continue to lose market share to competitors.
Europe is the largest intercontinental market from Africa with approximately 1.2 million weekly nonstop return seats. African airlines account for less than 40% of this capacity, according to CAPA and OAG data for Jul-2016.
Air France-KLM is the largest airline group in the Africa-Europe market while Turkish Airlines is the second largest and the fastest growing. Turkish has expanded its share of capacity in the Africa-Europe market from less than 5% to approximately 7% over the last three years as it has rapidly grown its African network.
Turkish Airlines now serves 43 destinations in Africa and plans to expand further in Africa with new destinations and, more significantly, additional capacity to existing destinations through extra frequencies, decoupling destinations and up-gauging. Turkish's share of nonstop capacity in the Africa-Europe market could reach 15% in 2025, enabling it to overtake Air France-KLM as the market leader.
Europe's three main airline groups - Air France-KLM, IAG and Lufthansa - all have a strong presence in Africa which they are keen to grow, although the rate of growth will be much slower than Turkish. They particularly have an advantage over African competitors in the long haul markets connecting Europe with central, eastern, southern and western Africa.
In the larger north Africa-Europe market, the African airlines are relatively stronger. North African airlines allocate nearly all of their capacity to nearby Europe. However they have the disadvantage of having to compete against European LCCs in addition to Europe's main full service airline groups.
European LCCs now account for 22% of capacity in the north Africa-Europe market, led by a 7% share from Ryanair. North Africa-Europe accounts for approximately two thirds of total Africa-Europe capacity. Europe's LCCs will continue to expand in north Africa over the next decade and use new generation narrowbody aircraft to push further into Africa.
Given the challenges they face, African airlines will likely experience over the next decade a steady decline in their share of capacity in the Africa-Europe market. Africa's airlines generally lack the scale to compete effectively and have not been able to follow the European airline sector in pursuing acquisitions or mergers.
Ethiopian Airlines has made some moves towards consolidation, although its acquisitions have been relatively minor in terms of the airlines acquired and the size of the stakes. The political - essentially protectionist - environment in Africa makes it very difficult to pursue meaningful consolidation. As a result most of Africa's airlines will likely continue to struggle from both a profitability and growth perspective. In the Africa-Europe market this means ceding market share to stronger competitors from Europe and the Middle East.
According to OAG Traffic Analyser data, European airlines accounted for 60% of all Africa-Europe bookings in the year ending Mar-2016. African airlines accounted for only 35% and Middle Eastern airlines the remaining 5%.
Gulf airlines have become significant players in the eastern Africa-Europe and southern Africa-Europe markets. Emirates and Qatar Airways are particularly strong in Africa with 22 African passenger destinations each. Emirates accounted for more than a 3% share of total Africa-Europe bookings in the year ending Mar-2016, making it one of the top 10 airlines in the Africa-Europe market and the only airline in the top 10 that does not compete in the sizeable north Africa-Europe sector.
There are approximately 800,000 weekly nonstop seats between Africa and the Middle East. The Middle East is a large local market from Africa, particularly for northern and eastern Africa. However a large portion of Africa-Middle East traffic travels beyond the Middle East as the Gulf is geographically well placed for Africa intercontinental traffic.
Emirates is the largest airline in the Africa-Middle East market and is also the largest foreign airline in Africa overall. Middle Eastern airlines combined account for approximately a 60% share of seat capacity between Africa and the Middle East, led by an 18% share for Emirates - or 20% when including its sister airline flydubai.
African airlines account for the remaining 40% of total Africa-Middle East capacity. When excluding Egyptian airlines, their share is less than 10%. Egypt-Africa accounts for approximately 60% of total Africa-Middle East capacity. There are more than 10 Egyptian airlines serving the Middle East with a combined 63% share of Egypt-Africa seat capacity.
On non-Egypt routes, the Middle Eastern airlines dominate with an 80% share of total seat capacity. African airlines will likely see their share of this market continue to decline as they are not well positioned to compete against much larger Gulf airlines.
The Gulf hubs are particularly well suited for Africa-Asia traffic and also attract a significant share of Africa-North America traffic and even some regional intra-Africa traffic. According to OAG Traffic Analyser data, Middle Eastern airlines accounted for 45% of total Africa-Asia bookings and 11% of total Africa-North America bookings in the year ending Mar-2016. African airlines accounted for a 40% share of bookings in the Africa-Asia market and 30% share in the Africa-North American market.
There are currently only approximately 50,000 weekly nonstop return seats in the Africa-North American market and approximately 12,000 seats between Africa and Latin America. European airlines have traditionally dominated these markets, making it difficult for African airlines to pursue growth in the Americas. European carriers currently account for approximately a 38% share of passenger traffic in the Africa-North America market.
Ethiopian has been the only African airline in recent years to launch new destinations in the Americas. Ethiopian added Los Angeles in Jun-2015 and New York in Jul-2016, giving it four destinations in North America and five in the Americas. Ethiopian will add at least two more destinations in the Americas in the coming years - most likely Chicago and Houston - but is more focused on growing in Asia.
Asia is the fastest growing international market from Africa but has a relatively limited amount of nonstop capacity. There are currently approximately 90,000 weekly return seats between Africa and Asia Pacific, making it a larger market than Africa-Americas but significantly smaller than Africa-Europe or Africa-Middle East.
Unlike the Europe or Middle East markets, African airlines have a larger share of nonstop capacity to and from Asia than their overseas competitors. Currently African airlines have an 81% share of Africa-North America nonstop seat capacity, led by a 33% share for Ethiopian. African airlines have an advantage over Asian competitors as they can offer connections throughout Africa - and in some cases even to South America.
Ethiopian has rapidly expanded in Asia, growing its network from only six destinations in 2011 to 11 currently. Africa-Asia traffic has been the main driver of Ethiopian's rapid ascent over the past five years as it has more than doubled its total passenger traffic and emerged as Africa's largest (and most profitable) airline group. Ethiopian also has pursued rapid growth regionally in Africa which has complemented the expansion of its Asia operation, which requires significant feed as the local Ethiopia-Asia market is very small.
Ethiopian is planning more expansion in Asia in the coming years and will likely at least double its Asia seat capacity by 2025. However the total Asia-Africa market will also double or even triple in size, with other African airlines targeting a piece of the fast expanding pie.
East African airlines are particularly well placed for Africa-Asia given their geographic location. Air Mauritius is in the process of establishing a new Africa-Asia hub and Rwandair is pursuing the same pool of sixth freedom traffic as it prepares to launch services to China and India using a newly acquired widebody fleet.
EgyptAir and Kenya Airways, which have been restructuring following instability in their home markets, are also keen to resume Asia expansion over the next several years. Kenya Airways has suffered some setbacks after a fruitful partnership with KLM was established and is currently undergoing a management overhaul, but looks unlikely to become a major force in the next decade.
Asia represents a ray of hope for African airlines as they try to improve their overall position in a very challenging market. However competition in the Africa-Asia market is intensifying. Gulf airlines are very well positioned to capture a large share of the anticipated Africa-Asia growth as they continue to expand their networks in both regions.
Middle Eastern airlines already fly more passengers between Africa and Asia Pacific than African airlines. While there are opportunities for more nonstop services from African (and Asian) airlines, the majority of passengers in this market will travel via the Middle East. As previously mentioned Middle Eastern airlines currently account for 45% of total Africa-Asia Pacific bookings compared to a 40% share for African Airlines, a 9% share for Asia Pacific airlines and a 6% share for European airlines.
Emirates is already the leader in the Africa-Asia market with a 22% share of bookings and should be able to expand its share to 30% by 2025 as it continues to pursue expansion in Africa and Asia. Given the expected rapid growth in the Africa-Asia market, total traffic for Emirates in this market could triple or even quadruple.
Qatar is currently the third largest player in the Africa-Asia market, behind only Emirates and Ethiopian. Qatar's 11% share could reach 20% by 2025.
Competing against Emirates and Qatar is not an easy proposition for any airline from any region. For African airlines the challenge is even more intense as they are generally small, inefficient and unprofitable.
Ethiopian has been the only exception in recent years and should be able to continue growing its market share. Ethiopian has the largest order book in Africa and plans to again double in size by 2025.
Ethiopian should be able to grow its share of Africa-Asia traffic from 16% currently to over 20% by 2025 and its Africa-North America share from 6% to at least 10%. Ethiopian is not as well positioned geographically for the more mature Africa-Europe market, but should be able to modestly grow its current 2% share.
Most other African airline groups do not have the scale, profitability and backing to increase their market share over the next decade. Several are likely to contract - or even exit - unless they quickly are able to reform. They do not have the cost structures to compete internationally and the current protectionist policies and interventionist ways of several African governments are detrimental to their long term health.
The Yamoussoukro Decision, which was adopted as long ago as 1988, and designed to improve intra-African market access, has still not been implemented. Given the current environment it seems unlikely the long overdue open skies regime, or even significant liberalisation, will take place by 2025. LCC group fastjet is attempting to negotiate its way through international markets within Africa, but again runs afoul of the persistent protectionist policies that characterise so many markets.
It is hard to be optimistic about the prospects for Africa's airline sector. The market must grow, as the continent is resource rich and currently greatly underserved by global standards. But continuing political instability, government interference and poor management make for a difficult outlook. African airlines are less profitable than their counterparts in all other regions. Without major structural changes the African airline sector is unlikely to be profitable by 2025. Africa in a decade will be even more dominated by foreign airlines, particularly the big Gulf groups.
There is the potential for one or two more local success stories to join Ethiopian, particularly if partnerships are embraced and some consolidation is pursued. However by and large the current situation unfortunately is not about to change.