The Failed Model:

Why Low-Cost Airline Carriers Don’t Work in Africa

Low-cost airline carriers (LCCs) have had a major effect on most of the world’s continents. Following the pattern of Southwest Airlines in the United States, budget carriers in Europe, Asia and even the Middle East – where it was popularly believed that travelers would equate low prices with low quality and take on low cost airlines – have opened up new horizons to millions of people.Africa has been the exception to this trend. Legacy carriers have continued to be the dominant force and the price of flights has remained high. Some believe replicating the LCC model in Africa might be more difficult than is widely assumed. As the result, the low cost model remained elusive for the past two decades in Africa.
In its simplest meaning, the low-cost carrier, or budget airline, is a carrier that provides short haul service mostly, with on board service either limited or completely no-frills. This model appears in some Southern, Eastern and Northern African countries, but it is non-existent in West Africa. Even the fundamental principles of the low-cost model as applied by LCCs in Europe and the Americas are largely not achievable in Africa.
The success of Jet Star, Easy Jet and Ryan Air among other global examples tend to encourage more entrepreneurs to seek the benefits of low-cost airline model in Africa. However, more airlines in Africa are likely to take up the traditional full-service model than the low-cost option. Even the profit profile of existing low-cost airlines does not hold greater attraction than those of full-service carriers and many have gone extinct.
According to OAG data, low-cost carriers (LCCs) have accounted for roughly 11Pct of total capacity (domestic and international) within Africa. This compares to a system–wide LCC penetration rate of about 37Pct within Europe, 30Pct within North America, 34Pct with central/south America and 24Pct within Asia- pacific.
The main problem for the low LCC penetration rate in Africa is that, compared with other parts of the world, costs are not low. Of course, globally, costs of airline operations are generally high, but they are even higher in Africa. The high cost drivers include fuel, maintenance and repair, training financing, insurance, handling, landing, parking, navigation charges, taxes and fees.
In most countries, governments levy very high taxes on airlines and on fuel. For instance, for airlines in most regions of the world, the cost of fuel is typically around 30-35Pct of operating costs, but in Africa it is 45-55Pct. Airport development levies range from USD9 to over USD68 per passenger in some African countries and passenger taxes from USD20 to over USD70 per return ticket.
Moreover, most African airlines are charged higher insurance premiums than established airlines in other countries. This is further exacerbated by the poor safety records and sluggishness of local courts in dealing with bankruptcies raise leasing costs. For instance, leasing a five-year-old Boeing 737 might cost a European carrier USD180,000 a month, but a Nigerian carrier has to pay USD400,000. These artificial costs present a barrier to entry that makes low-cost carrier operations untenable.
There is also a lack of secondary airports, which means the model that has worked in Europe cannot be replicated in Africa. Very few cities in Africa have more than one airport, usually owned and operated by the local government. In addition, they are very inconvenient and the charges are very similar to main airports. The LCC model of operating to alternative and, therefore, cheaper airports would not be relevant.
The monopoly position of most airports, along with the inefficiency of state-operated infrastructure, has resulted in African low-cost airlines being among the weakest in the world. This is exacerbated by the relatively small number of traffic movements and passengers over which the airports can spread their costs and, therefore, poor economies of scale exist. Under such conditions it is very difficult to meet up even survival profits.
The other challenge LCCs face today is the poor implementations of liberalization. Europe’s budget-airline boom in the 1990s was made possible by an “open sky” agreement. But in Africa, although a similar treaty has existed on paper (Yamoussoukro Decision) since 1988, little has been done to enforce the agreement.
This resulted in that non-African carriers are given favorable traffic rights whilst the same is denied to African operators. Today a number of countries in Africa have refused to open their skies to each other they have opened up to carriers from other continents but in principle LCCs should rely on fair competition in order to offer a price advantage supported by a lower operating cost structure than that of competitors. This makes African Low cost carriers incapable to struggle to their counter parts.
One thing many aviation experts can agree on is that LCCs rely on high aircraft utilization in order to spread aircraft fixed costs. This requires fast turnaround times, quick maintenance, and a good daily window of operation. But, the turnaround times in Africa are typically frustratingly long due to limited or broken infrastructure, fuel shortages, lack of skills, damage to aircraft by unskilled service providers, or the need to arrange additional payments before services will be provided. And this is disabling many African airlines to really roll out the proper low-cost model.
LCCs also rely on low-cost distribution, typically via the internet. But this is really difficult for most of African LLCs, as Internet penetration and bandwidth is still very limited in many parts of Africa. This creates a narrow opportunity for low-cost carriers to widen their consumer base at a minimum distribution expense. Even on the existence of adequate internet penetration, the inability to transact on the internet is exacerbated by the limited use of credit or debit cards, and the prevalence of cash transactions. Due to this, the sector faces fundamental issues that threaten to block access to cheap flights for much of the continent’s population.
Taking into account the different challenges and problems of LCC, there is still great hope for low-cost airlines. This because of the ongoing fast improving economic status of more people in Africa may empower them to increase the demand for the aviation industry to work to promote the development of LCCs. So this is the time for Africa to work on all challenges and prospect of LCCs and aviation generally so as to bring a dynamic economic revolution and particularly to implement the African Union’s Agenda 2063 for an integrated, prosperous and peaceful Africa.

3rd Year • June 16 – July 15 2015 • No. 28


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