Why the low-cost model still struggles to get popular in Africa and how a solution could look alike.
Tobias Rueckerl
President & CEO @ ADAVCO | Advanced Aviation Consulting Ltd. | Innovative Aviation Strategy Consulting | Politics & Policy Consulting.
Exploring the Viability of the Low-Cost Carrier Business Model in Africa - Challenges and Opportunities
The low-cost carrier (LCC) business model has revolutionized the global aviation industry, offering affordable air travel options to millions of passengers. However, its successful implementation in Africa has been limited, primarily due to various unique challenges faced by the continent. This article delves into the reasons behind the struggles of LCCs in Africa and explores potential strategies to make this business model work effectively on the continent.
Air traffic in Africa continues to grow. New airlines are born, some under state control, others supported by private investment. In this changing environment, the low-cost model has been trying for almost two decades to make its way to the continent. However, the results are still far from the expected potential.
According to a study anna.aero, the continent's low-cost airlines have offered 14 million seats in 2019, representing only 11.8% of the capacity of the intra-African market. This is the lowest rate in the world, compared to other regions where the proportions are between 20 and 40%.
There are more than one billion people on the African continent, which is home to just 3% of the world's aviation business. It is clear that the continent remains in desperate need of improved and affordable aviation connectivity.
1. Infrastructure Deficiencies:
One of the major hurdles inhibiting the growth of LCCs in Africa is the inadequate aviation infrastructure. Many African airports lack the necessary facilities, such as modern terminals and efficient air traffic control systems, to accommodate large volumes of passengers. Insufficient runway capacity and limited maintenance services also hamper the operational efficiency of LCCs, making it difficult for them to maintain low-cost operations.
Solution: Investment in infrastructure development is crucial. Governments, in collaboration with private entities, should prioritize upgrading airports, expanding runways, and enhancing air traffic management systems. Furthermore, partnerships with international organizations and foreign investors can help raise the necessary funds to modernize existing facilities and build new airports in strategic locations.
2. High Operating Costs:
Africa faces unique challenges when it comes to operating costs. Jet fuel prices tend to be higher in some regions, affecting the profitability of LCCs. Additionally, taxes, fees, and regulatory burdens imposed by governments can significantly increase the overall operational expenses for airlines. Limited economies of scale, due to relatively lower passenger volumes, also contribute to higher costs.
Solution: Governments should work towards reducing the tax burden and regulatory complexities on airlines. Encouraging competition among fuel suppliers and negotiating favorable fuel supply contracts can help mitigate the impact of high fuel prices. Collaborative efforts between airlines and governments to negotiate mutually beneficial agreements can lead to more reasonable operating costs.
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3. Market Demand and Perceived Value:
LCCs typically rely on high passenger volumes to achieve profitability. However, in many African countries, air travel is still considered a luxury, and the demand for affordable flights remains relatively low. Moreover, the perceived value of air travel is often overshadowed by alternative transportation options, such as road and rail, which are more accessible and cost-effective.
Solution: Raising awareness about the benefits of air travel and promoting its affordability is crucial. Governments and airlines should invest in marketing campaigns to educate potential passengers about the convenience, safety, and time-saving advantages of flying. Collaborations with tourism boards and travel agencies can help generate interest in air travel and boost passenger demand.
4. Regulatory Environment:
Inconsistent and complex regulatory frameworks across African countries pose significant challenges for LCCs. Airlines face a multitude of bureaucratic hurdles, including restrictive market access, stringent licensing requirements, and complex bilateral air service agreements. These barriers hinder the expansion of LCCs and discourage foreign investment.
Market restrictions are one of the main factors?that really prevent the development of the low-cost model on the continent. Bilateral agreements in Africa severely limit ports of entry, on the grounds of protecting domestic carriers, putting everyone in direct competition on some routes. So much so that there are airports in a state of near-abandonment, while there is potential for regional international traffic.
Moreover, in a highly monopolistic context,?African low-cost companies are in fact only low-fares companies?as it is difficult to have a cost advantage. They cannot negotiate their stopover costs with various suppliers (handling, air navigation, oil, etc.) that still have a monopoly on most African platforms.
The lack of airport infrastructure in Africa also limits the effectiveness of the model. Low-cost products are more targeted at secondary platforms. But in Africa, most airports in regional cities are not open after sunset due to infrastructure limitations. The result is relatively low rates of aircraft utilization. If the low-cost model does not have the wind in its sails on the continent, it is also because of investors who want to transpose a Western business plan to apply it in Africa where the realities are quite different.
Solution: Governments should streamline and harmonize aviation regulations across countries to facilitate easier market access for LCCs. Simplifying licensing procedures and promoting open skies policies can encourage competition and attract foreign investors. Establishing regional regulatory bodies to oversee aviation operations and negotiate favorable air service agreements can also foster a conducive environment for LCCs.
For the efficient development of the low-cost model and, more generally,?for the construction of sustainable aviation in Africa,?stakeholders must take a purely commercial approach away?from political interference.
In this regard, the?Single Air Transport Market?(SATM), launched in January 2018 and which enshrines the revision of bilateral agreements and the liberalisation of African skies,?is highly anticipated.
Conclusion:
While the low-cost carrier business model faces several challenges in Africa, there are viable solutions to make it work effectively. Addressing infrastructure deficiencies, reducing operating costs, promoting the value of air travel, and improving the regulatory environment are essential steps towards unlocking the potential of LCCs in Africa. By embracing these strategies, African countries can foster greater connectivity, stimulate tourism, and drive economic growth through affordable and accessible air travel.
Developing Solutions. www.aviationguerrilla.com
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1 年Hello Tobias, operating LCCs in Africa remains a huge challenge,and will take time to commercially profitable in that sense.A European Airline plans won't work,one must be fully Local to gain footprint in Domestic markets.infrastructers is no issue here,it's the politicians who put Local Entrepreneur first than outsiders.
Thanks for Sharing! ?? Tobias Rueckerl