Aviation Industry: Revenue Generation and Profitability

by Musa Hashim Kasibante
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Air transport(Africa’s Airlines) supports 7.7 million jobs and $63 billion in African economic activity. That is 2.2% of all employment and 2.7% of all GDP in African countries in 2018.

According to Aviation Benefits Beyond Borders, every person employed by the aviation sector directly and in aviation-enabled tourism supported another 16.5 jobs elsewhere in Africa.

Similarly, $6 of economic activity was supported elsewhere in Africa for every $1 created by the air transport sector.

In Africa, the aviation sector employed over 500,000 people directly in 2018. Analysis of these workers suggests:

  • 252,000 of those people (57% of the total) were employed by airlines or handling agents in roles such as flight crew, check-in staff, maintenance crew or head office staff
  • 45,000 (10%) had jobs with airport operators such as airport management, maintenance and security
  • 112,000 (25%) worked on-site in airports in retails outlets, restaurants and hotels
  • 17,000 (4%) were employed in civil aircraft manufacturing, including systems, components, airframes and engines
  • 13,000 (3%) worked for air navigation service providers in jobs like air traffic control and engineering

Airlines, airport operators, retailers and other on-site businesses, as well as air navigation services and civil aircraft manufacturers all, contribute to GDP in Africa. In 2018, the operations of these businesses generated $9 billion directly in GDP.

The aviation sector’s spending with suppliers is estimated to have supported a further 500,000 jobs and a $5.5 billion contribution to GDP. In addition, spending by those employed in the aviation sector and its supply chain supported 333,000 more jobs and a $4 billion contribution to Africa’s GDP.

Air travel also facilitates a substantial amount of tourism in Africa. This stimulates still more economic activity, as tourists spend their money in restaurants, hotels, shops, tour operators and on other consumer goods and services.

In 2018, spending by foreign visitors who flew to African countries supported an estimated 6.5 million jobs and contributed $44 billion to GDP.

 According to the World Economic Forum, Commercial aviation generates $6 of related economic activity for every $1 value created, providing African leaders with an opportunity to bolster economic recovery once it overcomes the aviation gap in the continent

The COVID-19 pandemic isolated the African continent and weakened critical links between neighbouring countries, adding to the existing challenges in developing Africa’s commercial aviation sector.

 A 23% increase in business travel for Africa is forecasted in 2022, a critical boost as this market represents disproportionate profit-making potential for overall travel.

To spot Africa’s path to post-pandemic economic recovery, look to the skies: no region has more to gain by making air travel and cargo movement easier, cheaper, safer and more competitive.

Through this avenue, African leaders have a tremendous opportunity to revive their economies and create jobs for their young populations, not least through the $6 of related economic activity for every $1 value commercial aviation makes.

Africa’s commercial aviation gap

Despite this potential, Africans, 17% of the world’s population, accounted for only 3% of air passenger figures in 2019 before the coronavirus outbreak. Last year, with global air travel at just 42% of 2019 levels, Africans were only 1.9% of air passengers.

Pre-pandemic, the passenger load factor and traffic for flights in Africa were the lowest in the world, reflecting both a lack of passenger confidence and affordability. Africa also ranks last regarding key “connectivity” indicators used by the International Air Transport Association (IATA) to measure the integration of countries within the global air transport network.

It shouldn’t be that way.

As a significant proportion of Africa’s road network is unpaved, air transport can uniquely connect cities and allow to flow between them key economic activity and people.

Existing challenges for the Aviation Industry  

In 2019, Africa had 352 commercial airports and 198 airlines, the Air Transport Action Group (ATAG) says. However, only 33 Africa-based carriers received Airlineratings.com safety ratings and only eight received the group’s highest rating.

Unfortunately, the pandemic isolated the African continent and weakened critical links between neighbouring countries. Businesses were cut off from key markets and consumers lost access to goods as soaring ocean freight rates prompted carriers to skip African port calls and divert ships to more profitable Asia-U.S. routes. As a result, African shipping tonnage fell 10% and countries such as Kenya lost direct connections to some foreign countries.

Even before the COVID-19 pandemic, there was broad recognition of the urgent need to pry open African air transport through sweeping deregulation.

Thirty-four (34) African countries, accounting for 80% of the continent’s aviation activity, have signed up for the Single African Air Transport Market, a 2018 open-skies initiative of the African Union. SAATM aims to harmonize aviation standards, lower air tariffs, open Africa to more flights and foreign carriers and boost air cargo competition.

This initiative is a great start, which private sector actors must continue to support. Governments can no longer protect money-losing national carriers at the cost of discouraging competition and keeping ticket prices high and service quality low.

“Air travel is too often seen as a privilege reserved for the wealthy and a source of tax revenue, not an economic multiplier to be expanded as a necessary public utility. Chronic under-investment means airport infrastructure is antiquated and fleets are comparatively old. Lengthy transit times and cumbersome visa requirements also add maddening delays and unpredictability to travel,” says Hassan El Houry the CEO of National Aviation Services.

World Economic Forum reveals that while commercial aviation’s economic footprint and impact are enormous, the sector’s growth-spurring potential in Africa is largely untapped. A study for ATAG found that commercial aviation contributed $63 billion to African GDP in 2019 – only about a third of what it added to GDP in Latin America and the Caribbean, a region with just 58% of Africa’s population.

In Europe, North America, Asia and, increasingly, the Middle East, the rise of low-cost carriers has boosted passenger traffic, flights, connections, carrier choices and cargo volumes. Competition has lowered ticket prices and democratized air travel. Investment in infrastructure, technology and staff training have produced tremendous gains in airport retail receipts, productivity, wages and government revenue.

All of these hold important lessons for Africa’s aviation sector.

Business travel in Africa appears to be recovering, however. The World Travel and Tourism Council (WTTC) says business travel spending was on pace to increase 36% in 2021 (the second-fastest growth rate after the Middle East at 49%) and it forecasts a 23% increase for Africa in 2022.

That boost in business travel is critical to the health of the industry because it represents a disproportionate share of spending and profits. Before the pandemic, business travellers made up around 12% of global travellers but accounted for a whopping 70% of revenue for high-end hotels and 55%-75% of airline profits, the WTTC says.

African governments and private sector actors in aviation must harness this momentum to make needed changes and accelerate the industry’s growth.

In addition to being a bridge to markets, investment, technology and talent, aviation is what will knit African economies together for mutual gain. For Africa to soar, it needs aviation.

African Development Bank (AfDB) in its article dubbed ‘Aviation: The next infrastructure growth frontier for Africa’ states that.

Aviation: The next infrastructure growth frontier for Africa

The air transport industry in Africa is on the resurgence and aviation is, “The next infrastructure growth frontier for Africa”. This was the message at the International Air Transport Association (IATA) Aviation Day for Africa and the Middle East held at Intercontinental Hotel in Nairobi, Kenya, on June 23-24, 2015 under the theme, “Connecting Africa: The Linkage of Regulation, Capacity and Infrastructure”

 In a 29th June article published in 2015: This gathering covered Africa and the Middle East with a focus on Africa and there will be a follow-up event in Abu Dhabi in October 2015 with a focus on the Middle East and Africa. Participants included aviation and airline industry leaders and experts as well as representatives from the African Civil Aviation Commission (AFCAC), African Airlines Association (AFRAA) and the International Civil Aviation Organization (ICAO).

The CEO of IATA, Tony Tyler, during his speech at a 2015 event, said, the African aviation industry was on the resurgence driven by among other factors, positive economic growth across Africa, growing urbanization and a growing middle class.

Tyler informed delegates that “IATA forecasts indicate that over the next 20 years, passenger growth in Africa will be the world’s fastest.”

 The Kenyan Cabinet Secretary (Minister) for Transport, James Macharia, called on African countries to improve connectivity across Africa so as to reduce the cost of doing business and facilitate air travel. He urged African countries to implement the Yamoussoukro Declaration (YD), which is the basis for creating a single airspace market for Africa. As regional integration arrangements deepen with creation of larger trade zones and as Africa links into Global Value Chains (GVCs) and Regional Value Chains (RVCs), there is high potential for growth in freight traffic across the continent.

Gabriel Negatu, the African Development Bank (AfDB) Regional Director shared insights into Bank investments in energy, transport including modern highways and ICT which he said, have had a positive impact on the aviation industry by ensuring for example, stable and reliable power supply. He cited specific Bank projects in the aviation sector such as, the US$8.7 million grant to the Secretariat of the Common Market for Eastern and Southern Africa (COMESA) to define a regional legal and institutional framework for a unified airspace in the COMESA region (the COMESA Air Surveillance System) and the new Greenfield Terminal Project (GFT) at Kenya’s Jomo Kenyatta International Airport (JKIA), one the busiest airports in Africa, to upgrade and modernize facilities. This will facilitate the efficient handling of passengers and increase overall handling capacity to 20 million passengers per year from the current 9 million.

Jomo Kenyatta International Airport, photo by The East African

By 2015, IATA was in its 70th year after having been established in 1945 and by that time, IATA was managing global mobility for 3.5 billion passengers and 50 million tonnes of cargo.

The profitability of African Airlines.

In an article published on August 22, 2022, Ethiopian Monitor revealed that Ethiopian Airlines rakes in $5billion in annual revenue.

 “Ethiopian Airlines has staged a major rebound from a pandemic slump, racking in a five billion US dollars annual revenue in the recently concluded 2021/22 Ethiopian fiscal year,” reads an excerpt from the publication.

At the height of the pandemic, the company’s revenue was seriously affected after it was forced to suspend 91 of 110 passenger flights.

The airlines quickly turned its focus on cargo and charter operations to soften the blow of the pandemic to passenger services.

The decision helped the company to pass the pandemic without a government bailout and without laying off any of its 13,000 regular employees despite a half billion US dollars income loss.

During the 2021/22 Fiscal year, however, the airlines staged a much stronger rebound, taking its annual revenue significantly higher than the target.

In an interview with a local Sheger radio station the CEO of Airlines Mesfin Tasew said the annual revenue jumped by 44% to five billion US dollars during the fiscal year that ended on July 7, 2022.

The revenue figure is also 8 percent higher than what the airlines had anticipated.

The CEO attributed the performance to the management and workers of the airlines that worked tirelessly during the period.

Increased cargo operation coupled with the passenger service has helped the airlines to record 5 billion revenue, the CEO told Sheger FM Radio station on Monday.

At least 38 passenger planes were converted to freighters to provide cargo service as part of its efforts to shore up revenue since the onset of the pandemic.

With the demand for passenger services recovering,13 have now been reinstated to their previous passenger operation.

The airline currently operates 138 planes and has 36 aircrafts on order from various plane makers.

The CEO said the airlines expect to receive 13 new aircraft, including 10 B777 Max and 2 Airbus A350 to join its young and modern fleet during the current fiscal year.

Andrew Curran in his article published on March 1, 2022 predicted a multi-billion dollar loss for Africa’s Airlines in 2022.

According to his publication, Airline trade group The African Airlines Association forecasts the continent’s passenger airlines will lose nearly US$5 billion this year (2022).

“An African airline trade group is predicting that continent’s airlines will lose revenues of US$4.9 billion this year as the industry struggles to recover from COVID-19. The African Airlines Association (AFRAA) estimates that African airlines’ capacity in February reached 64% compared to the same month in 2019. Passenger numbers are currently running at just under 50% of 2019 levels,” says the aviation report.

Nairobi-based AFRAA says passenger traffic volumes remained subdued in February 2022 due to the unilateral and uncoordinated travel health restrictions imposed by some governments following the outbreak of the omicron variant.

Global airline trade group IATA said that airline passenger numbers in Africa will recover more gradually than in other regions, reaching 76% of 2019 levels in 2022, surpassing pre-crisis levels only in 2025 (101%).

IATA attributes the slower recovery to lower COVID-19 vaccination rates across much of Africa and the impact of the virus on developing economies.

AFRAA says domestic demand across Africa was running at 45.3% of 2019 levels in February, while intra-African demand was 31.2% and intercontinental demand to and from Africa was 23.5%.

Despite Africa’s physical size and large population, the continent only accounted for 1.9% of the world’s airline passenger market last year. Before COVID-19, Africa’s global market share was usually running around 2.1%. Africa has always been a challenging place to profitably run an airline. The pandemic made it more so. Ongoing responses to the pandemic are also hampering the ability of Africa’s airlines to bounce back.

“The air travel industry continues to experience strict travel advisories, insistence on full vaccination before travel, forceful vaccination at ports of arrival, repatriation of passengers not meeting entry travel requirements, and quarantine of passengers at their own cost, including some other unusual measures being enforced by some governments,” AFRAA notes.

Like most airlines and airline trade groups, AFRAA has pushed for a relaxation of travel restrictions. But the organization is careful to put its message out in terms of risk-based and calibrated approaches.

“The travel ecosystem is reeling from the adverse impact of the reintroduction of travel restrictions and implementation of blanket travel bans since the onset of the omicron variant of the coronavirus,” AFRAA said in January.

Africa has been a difficult place for aviation companies to profitably fly in.

Simple flying reveals that the difficulties airlines face in Africa are well documented and pre-date COVID-19. Except for Ethiopian Airlines, few African airlines ever make a profit, particularly higher-profile flag carriers. Burdened by inefficient operating systems, government interference, creaky infrastructure, and a lot of competition for often limited pools of cash, these legacy-style airlines usually tend to contribute little when it comes to broadening the length and depth of African aviation.

The sheer size of Africa, the number of countries it contains and their often-varying levels of wealth, the lack of a pan-African open skies agreement, political disruption, and wars all make profitably flying in Africa even more difficult. Throw in COVID-19, and you have a formidable flying environment to make a dollar out of.

Andrew Curran, a leading aviation author and industry expert also points out that before the pandemic, airline analytics consultancy OAG argued too many airlines were operating in Africa.

It prevented airlines from building a critical mass and a solid financial and structural core to ward off competition and new entrants. COVID-19 shook out the industry somewhat, removing chronically inefficient but large operators like South African Airways. However, OAG notes Africa’s skies still need to liberalize, and airline ownership structures need to change if the continent’s airline sector is to grow and thrive in the wake of COVID-19.

According to air insight, Africa remains the biggest revenue driver of three of the continent’s prominent carriers, Ethiopian Airlines, Kenya Airways, and South African Airways.

Kenya Airways is one of Africa's Airlines Photo by hapakenya.com
Kenya Airways is one of Africa’s Airlines Photo by hapakenya.com

Their revenues highlight the important role that various countries play in keeping the carriers afloat. Industry data indicates that Kenya Airways earned KSh38 billion in revenue from its operations in Africa last year in 2021 which was a significant rise from the KSh27 billion that was realized the previous year in 2020. African routes drive revenues of the continent’s Big Three.

Ethiopian Airlines achieved a record operating profit of ETB 1.38 billion and a net profit of ETB 1.63 billion in 2021, which is higher than the results of the previous year (2020), thereby surpassing all established projections for the period in review.

Ethiopian Fleet, also one of Africa's Airlines - Photo by Airspace Africa
Ethiopian Fleet, also one of Africa’s Airlines – Photo by Airspace Africa

Within the same duration, Ethiopia recorded appreciable growth in almost all performance parameters. It generated annual revenues of ETB 16.8 billion, 38 per cent higher than that of the previous year. Capacity also grew: available seat kilometres (ASK) increased by eleven per cent (11%) and available tonne kilometres (ATK) by seventeen per cent (17%). The carrier has been outperforming other airlines for several months.

Growing connectivity and investment in other airlines

In addition to growing its hub traffic in Addis Ababa, Ethiopian Airways has added connectivity elsewhere in the continent.

Against a backdrop of political and financial restrictions, one of the best ways to do this is through investment in other airlines.

 In 2013, The Ethiopian carrier took a 49 percent (49%) stake in Malawi Airlines.

In 2018, it started working with the Zambian government to relaunch Zambia Airways (in which it took a 45 percent stake). It also has stakes in ASKY Airlines and Ethiopian Mozambique Airlines.

Ethiopian Airlines earned the most money on its network to Abidjan, Abuja, Accra, Addis Ababa, Bamako, Bahir Dar, Blantyre, Brazzaville, Bujumbura, Cairo, Cape Town, Dakar, Durban, Cotonou, Dar-Es-Salaam, Dire Dawa, Djibouti, Douala, Entebbe and Enugu.

The carrier aside dominating Africa also makes its major revenue from other destinations like, Gaborone, Goma, Harare, Hargeisa, Johannesburg, Juba, Khartoum, Kano, Kigali, Kilimanjaro, Kinshasa, Lagos, Libreville, Lilongwe, Lomé, Luanda, Lubumbashi, Lusaka, Malabo, Maputo, Mekele, Mombasa, N’Djamena, Nairobi, Ndola, Niamey, Ouagadougou, Pointe-Noire, Seychelles, Yaoundé and Zanzibar. Ethiopian Airlines operates in Lagos, Abuja, Kano, and Enugu, four key destinations that cover the entire zones of the country.

SAA afflicted by catastrophes

South African Airways (SAA) was a major competitor at a time, also developing global connections but incessant crises associated with many African national airlines have plagued it for more than three years despite enormous bailout funds from the South African government.

The carrier resumed services late last year after an almost three-year hiatus and has yet to make a profit. It has, however, relaunched flights to Nigeria where the yield is very high and one that it hopes to leverage on, just as it has equally resumed flights to some other African routes.

Africa accounts for half of Kenya’s revenues

For Kenya Airways, the earnings from Africa accounted for more than half of the total revenue that the national carrier earned from the six continents where it operates. The carrier earned Sh70 billion from all the routes where it flies in the review period, which was higher than the Ush52 billion that was realised a year earlier.

Photo by KBC

India was the worst-performing route for the carrier last year, bringing in Ush1.7 billion, down from Ush2.3 billion that was realized in 2020. Europe was the second-highest revenue earner for Kenya Airways with Ush11.3 billion, followed by the Middle East at Ush7.7 billion, and Ush4.5 billion on the American route. Revenue on the American route doubled from the previous year’s earnings of Ush2.3 billion. KQ has been weighing options on the viability of the American route after the destination took along to turn into profitability.

At the end of 2021, Kenya Airways told Parliament that it would know whether the New York route was commercially viable at the end of last year after the carrier resumed flights on the route after it had been cut short by Covid-19. Kenya Airways started direct flights to the US in October 2018, cutting the journey to fifteen hours on the long-haul route tapped as part of an effort to revive the airline’s fortunes.

Kenya’s national carrier was to start flying to Rome and Milan in June 2022 but it says the plans have been put on hold due to lower demand than it had earlier projected. According to the initial schedule, KQ was to operate two weekly flights on Wednesdays and Sundays using a large capacity aircraft Boeing 787 Dreamliner.

 In 2019, the East African carrier re-introduced flights to Rome after a seven-year interval, banking on increased traffic between the two continents and a new link in Geneva to boost its earnings.

Constricted losses in 2021

The Kenyan flyer narrowed its net loss for the year ended December 2021 by 56.58 percent on higher revenue as travel picked up with the easing of Covid-19 restrictions.

Kenya Airways also reported a net loss of KSh15.8 billion in the review period compared to a net loss of KSh36.2 billion the year before when travel restrictions hit operations hardest, including the grounding of its planes for months.

Total revenue in the review period sprang by 32.98 per cent to KSh70.22 billion, partly lifted by alternative sources such as air charter services which jumped 300 per cent and helped compensate for income lost because of travel restrictions on some routes.

In April 2022, Kenya Airways was in the news after was revealed that KQ was unable to pay interest on loans it had acquired.

Business Times Uganda

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