Africa’s Growth Potential

How Africa-Based Carriers Can Capitalize On Rising Travel Demand

Considering the ongoing vast growth in the number of African air travelers, carriers based in Africa have an enormous growth opportunity if they can adapt and effectively strategize to take advantage.

For a number of years, airline traffic growth has largely been concentrated in several specific regions of Asia including the Middle East and China, and in Latin America.

Today, Africa has the spotlight, and the optimistic African outlook is being driven by previously untapped market opportunity, potentially extremely high yields, rapidly accelerating economic development and traffic growth (which has averaged more than 8 percent annually during the past five years).

Taking Advantage Of Africa’s Growth

Africa-based Carriers can take advantage of the continent’s growth demand and compete effectively with foreign airlines based on five essential elements.

However, there’s a catch. Right now, Africa-based carriers represent just 20 percent of revenue generated on the continent. Therefore, approximately 80 percent of revenue generated on the African continent is represented by carriers that are not based in Africa.

Looking through a commercial lens, limited intra-Africa connectivity (as derived from restrictive traffic rights) focuses on strategic non-African markets (rather than on profitability) and capacity increases from Persian Gulf and Asian airlines, all of which are determinants further challenging Africa-based carriers’ capability to perform above industry standards.

How, then, do airlines based in Africa take advantage of Africa’s rising travel demand, with an emphasis on doing effective battle with competition from carriers based outside the continent?

There are at least five primary factors that can help Africa-based airlines not only succeed but truly thrive:

  1. Better and more thorough understanding of the competitive landscape,
  2. A savvy business strategy,
  3. Intra-Africa connectivity,
  4. Clilaboration among Africa-based airlines,
  5. Intensive application of industry best practices.
Competitive Landscape

For an Africa-based airline, it is critical to periodically perform competitive-analysis benchmarking regarding the carrier’s market position in comparison to other airlines based in Africa, as well as airlines from outside Africa.

This means using industry-leading tools (such as the Sabre Market Intelligence platform) to gather comprehensive competitive data, touching on all commercial functions and enabling the airline to track current performance and future growth, as well as providing data support for key commercial decisions.

Analyzing year-over-year capacity changes in both direct and indirect markets while calculating the five-year compound annual growth rate (CAGR) and capacity growth are imperative.

These insights can effectively enable airlines to pinpoint any indicators of rapid growth or shrinkage in the network and key markets, and to identify precisely what measures competitors are applying in terms of making inroads or altering strategies.

Commercial areas such as network planning, marketing, revenue management, pricing, alliances and partnerships can benefit from such findings, which can provide invaluable guidance as to where to focus initiatives and innovative processes.

Capacity changes constitute one dimension of the competitive piece, while O&D (origin and destination) market data comprise another.

Airlines in Africa should examine year-over-year O&D market data, as well as their historical compound annual growth rate going back five years, including:

  • Market-share growth — Determine the percentage share of passengers carried by the airline as compared to other airlines, and measure the compound annual growth rate, comparing the growth difference year-over-year. The key is to recognize an airline’s current market position and where it’s been heading. The majority of Africa-based carriers are challenged with declining market share in key routes.
  • Fair-share overview — Measure the airline’s seat/capacity share compared to its market share, and calculate the difference. These are measures of success relative to competition. The airline should then build upon the story of knowing its own competitive environment.
  • Top O&Ds per market — With continuous capacity changes, top O&D markets for certain destinations are bound to change, too. The airline should rank O&Ds by market size, and highlight significant changes.
  • RASK (revenue per available seat kilometer) — RASK remains the key metric for revenue management, but should also be closely observed in other commercial groups. The airline should generate a “scatter-plot” graph to compare RASK by distance for a particular competitor’s markets or a specific destination, and apply a power-trend line (markets above the curve can be considered positive, while markets below the curve are challenged or subpar).
  • Yield vs. growth by market-size matrix — This analysis emphasizes markets that serve as the next-best opportunities to consider for further investment. The airline should perform a market-data pull and rank O&D markets by market size, growth and yield. Then the carrier can generate a bubble chart (using market size as the “bubble” component).
Etihad Airways And Turkish Airlines Dominate Africa Traffic Growth

Traffic growth in Africa continues to be on the rise; however, it is heavily dominated by foreign carriers. Turkish Airlines’ growth is driven by an African-network strategy, flying to more than 40 African destinations (more than any foreign or Africa-based airline). Source: Sabre Market Intelligence (2011-2015)

Strategy

Now that a competitive assessment has been created, the airline should construct a coordinated strategy to leverage opportunities in the market.

Strategies and goals must be in scope with the airline’s corporate objectives and capabilities. However, airline strategists also need to think outside the box, leveraging the carrier’s strengths to achieve desired goals, and always with competitive implications foremost in mind.

Should the airline focus on capacity investment in large saturated markets with declining yields, or on underserved opportunistic high-growth markets? The data must be the guide, but the airline must also incorporate qualitative insights to help drive market strategy.

Intra-Africa Connectivity

Less-than-full implementation of the Yamoussoukro Decision (a liberalization framework to implement open-skies air-traffic rights within Africa) has inhibited Africa-based carriers in moving toward fully enhancing intra-Africa connectivity, and has restricted their potential to be high-performing, formidable competitors.

Open skies in Africa is not only the key to how Africa-based carriers can achieve success on their home turf, but can be graphically illustrated to represent huge potential to contribute significantly to the continent’s greater economy.

As an example of how the limited-intra-Africa-routes issue negatively impacts the marketplace, note that the easiest way today to travel from Nigeria to Mauritania is via Spain or France (possibly flying over Mauritania on the way), which in any event fundamentally triples the direct distance of about 1,500 miles (or 2,400 kilometers).

Simply put, Africa-based carriers must continue to lobby government entities to liberalize intra-Africa markets, and should be simultaneously identifying and building plans for prospective markets if and when liberalization occurs.

Having intra-Africa network coverage would be an attractive feature for carriers based outside Africa that are willing to partner and feed their long-haul routes.

Examining average fares, intra-Africa yields add up to about three times the amounts of those in the United States and Europe, so additional regional capacity that effectively serves to bring yields down will stimulate these underserved markets, growing them toward maturity.

Low-cost carriers in Africa, particularly FastJet and Mango, have benefited from this very scenario.

Understand The Competitive Landscape

To effectively compete in Africa, the continent’s airlines should periodically perform competitive analysis benchmarking to determine their market position with other Africa-based and foreign airlines. This means using industry-leading technology that provides comprehensive data to all commercial functions for an airline to track current performance and future growth, as well as provide data support for key commercial decisions.

Collaboration

While boosting intra-Africa connectivity to support airlines based outside Africa can enhance traffic, capitalizing on the synergies of Africa-based carriers partnering on certain routes can also generate considerable value.

The precedent to grow regionally is vital, and in small risk-averse markets, partnering with another carrier can effectively prove to be an important growth stimulant.

Markets with excess capacity represent another collaboration opportunity (to reduce risk).

Thorough due-diligence regarding partnership value contribution (on the parts of both airline partners), and aggregating this tactic within each carrier’s corporate strategy and goals, constitute critical objectives.

Industry Best Practices

Campbell Soup Co.’s longtime former president and CEO Doug Conant stated very presciently, “To win in the marketplace, you must first win in the workplace.”

That simple but profound pronouncement illustrates quite literally why having a top-notch proactive commercial team is essential for Africa-based carriers to capture future expected growth and achieve positive performance in an intensely competitive environment.

Among other imperatives, this business essential entails a bedrock commitment to invest substantially in training, tools and processes to ensure long-term success.

A Future In Transition

Africa’s skill shortage continues to challenge the region’s carriers and their competitive capabilities.

The critical importance of Africa-based carriers having adequate pricing-tool capabilities, revenue-management systems and network/fleet-planning forecast solutions, along with a solid foundation of employees well-trained on how to best utilize these tools, can undoubtedly be demonstrated with notably enhanced figures at the bottom line.

Additionally, adoption of best-practice organization structures aligned with processes that incorporate the best use of these tools is imperative.

As travel demand in Africa increases and airlines from outside of Africa continue their capacity investments, carriers based in Africa should strongly consider and adopt highly competitive approaches to reap a larger share of an inexorably expanding air transportation economy.