CAPA Live: COVID-19 crisis could prompt overdue change in Africa

Summary

• Africa's prospects had been looking promising
• The continent has managed COVID-19 better than expected, but opening up again is challenging
• The disruption of the system could jolt Africa out of its rigid access regime problems
• The closure of the nation's flag carrier South African Airways, though sad, would be a positive step
• Predictions suggest up to half of the industry's employees will lose their jobs
• Recovery begun in Jul-2020 has now plateaued
• Now the Single Africa Air Transport Market (SAATM) needs to be implemented

Africa is seemingly always on the verge of its next great step

Africa is seemingly always on the verge of its next great step. A quarterly economic update for the Continent for the finance profession from The Institute of Chartered Accountants ahead of COVID-19's spread had described Africa's medium-term tourism prospects as "promising," supported by improvements in infrastructure, better air transport connectivity and easing visa regulations.

That could still be the case. More African countries are also prioritising tourism promotion as part of their economic diversification strategies… and they had been making progress. However, the coronavirus issues do not just extend to infections across Africa, but also have broader implications for the continent, as a result of slower growth in China.

The Continent had a debt problem prior to COVID-19; its development will rely on unilateral and negotiated debt relief from global lenders, plus China. China's growth prospects will hold major implications for Africa, given the continent's close ties to the Asian giant.

The IMF projects that Africa's GDP will plunge from 3.2% to -2.8% in 2020, while the Continent will lose between USD53 billion and USD120 billion in contributions to its GDP in 2020 because of the crash in tourism alone, according to the World Travel and Tourism Council (WTTC). Collapses in the oil price and lofty declines in demand for agricultural exports have devastated economies across the Continent.

Africa had been expected to bear the brunt of the COVID-19 pandemic

Africa was expected to bear the brunt of the COVID-19 pandemic. Scientists still see it potentially as a "ticking time bomb" for the continent due to the fragility of some countries' healthcare systems, and the existing big public health issues, namely malaria, TB and HIV. In May-2020 the World Health Organization had predicted that nearly a quarter of a billion people across Africa would get infected due to being home to a population disproportionately affected by infectious diseases.

Fortunately, until now that has not happened. The slower spread of COVID-19 across Africa is perhaps correlated to its reduced air connectivity to the rest of the world, or perhaps it is the limited intra-Africa connectivity that has slowed its spread across the continent. Regardless, thanks to strong public health interventions and a young population, the more than 1.6 million cases have resulted in less than 40,000 deaths, according to Africa Centre for Disease Control and Prevention (CDC) data.

Opening borders is provoking a rise in infections

Like the rest of the world, Africa is currently walking the tightrope between opening up economies and minimising COVID-19 spread. Its success in controlling infections had been due to the strong measures introduced among its nations, but infections are now on the rise in North, Central and East Africa with Morocco, South Africa, Tunisia, Libya and Ethiopia the main countries driving the increase as countries ease restrictions and re-open borders and schools.

These rises in numbers of reported deaths though could simply be due to an improvement in African countries' ability to document deaths from coronavirus, according to the Africa Centres for Disease Control and Prevention.

First steps in South Africa provide some encouragement

The world is a very different place now. At the start of Oct-2020, South Africa reopened its international borders with all travellers from Africa welcome due to the continent's low COVID-19 infection rates. However, those from many developed countries, who had previously easily passed through its borders now face severe entry restrictions.

The closure of the nation's flag carrier South African Airways (SAA) is also a positive step. The ailing airline had managed to survive numerous previous hurdles, but COVID-19 proved to be one crisis too far for the state-controlled carrier, although last minute steps are being taken to try to rescue it. A new national entity, born-again from scratch, should deliver a business that can support South Africa's rise.

South Africa seems to have kept COVID cases controlled over the past couple of months and air capacity has been on a slow rise, dominated by its extensive domestic market, but clearly impacted by the stability of its local airlines. This journey started at levels of just 4% of last year through May-2020. According to CAPA's Air Capacity Models capacity will reach lees than a quarter (23%) of last year's by year-end, growing to up to a third by the mid-point of 2021.

Source: CAPA - Centre for Aviation and OAG

Africa continues to lag the rest of world aviation

Africa continues to lag the rest of world aviation. Even before the pandemic it had the fewest annual seats, the smallest fleet of narrowbody and widebody jets, the lowest number of aircraft on order, and weakest passenger load factor of all world regions. When it comes to profitability there is Ethiopian Airlines on the one side and pretty much the rest of Africa's operators on the other.

IATA has warned the impact on the Africa aviation industry and on economies caused by the shutdown of air traffic due to the COVID-19 pandemic will be significant. It says job losses in aviation and related industries could grow to 3.5 million which is more than half of the region's 6.2 million aviation-related employment. GDP supported by aviation in the region could fall by up to USD35 billion, up from USD28 billion previously.

The prognosis from Air Transport Action Group is worse - 5 million African jobs will be lost in aviation and industries supported by aviation in 2020, it claims. Similarly, 172,00 jobs will be lost in aviation alone in 2020, it says. This is about 40% of the region's 440,000 aviation.

Air travel in Africa collapsed; loads hit the floor

Restrictions are slowly lifting and there are some significant domestic markets that can help Africa's recovery, but significant clouds remain. A closer look at international travel shows African airlines' international traffic sank more than -98% in May-2020 and Jun-2020.

Load factors dived, with just 8.9% of seats being filled, lowest among all regions of the world - that is one in 11 seats; that's four passengers on an ATR42, seven on a Dash 8Q-400, or just 17 on a 737-800 - that's almost two rows to yourself! IATA has warned that full-year 2020 traffic is expected to plummet by 54% compared to 2019.

On the road to recovery, but it is a long road

Africa has seen a faster rate of RPK recovery in Aug-2020 and it will be interesting to see the soon to be released Sep-2020 data to see if that growth has continued or stalled. However, it remains a long road to recovery with levels still down beyond 80%.

Total RPK growth: 2017 to Aug-2020

Source: CAPA - Centre for Aviation and IATA

LCC penetration in Africa had been on the rise in the 2010s despite struggles to make the model work across the Continent. This was dominated in the north and south though with Morocco and South Africa the standout markets and this sector is clearly supporting the recovery.

In 2019, CAPA data shows that LCCs accounted for 18% of capacity to/from Africa and 14% of intra-Africa levels. Year-to-date those figures stand at 20% and 12%, while in Aug-2020 the variation was more significant, up to 24% share of capacity in and out of Africa (driven by LCC operations into the North), but with intra-African capacity down to just 6%.

Aircraft are returning to the air, but remain below half of pre-COVID levels

Africa is now in a different position than at the end of Mar-2020 when lockdowns brought the in-service fleet in the region to around 40% of the total fleet. A smaller trough, more like a paddling pool when compared to the big drop originally seen in Mar-2020, had seen around a further 10% reduction in the active fleet through May-2020 and Jun-2020.

The recovery began at the start of Jul-2020 as African nations started to rebuild domestic capacity, but a subsequent plateauing through the remainder of the month was seen, continuing through Aug-2020 and Sep-2020. This still remains below the 50% level as we have entered Oct-2020, sitting at 42% for full month data for Sep-2020.

FSC, LCC and regional airlines' in service vs inactive fleet: 31-Dec-2019 to 29-Sep-2020

Source: CAPA Fleet Database

Yamoussoukro has now been long forgotten; focus now on SAATM

While domestic activity will deliver a fillip, Africa is at a significant disadvantage due to its severe limits on intra-Africa connectivity. Getting from one side of Africa to another often can involve a connection via the Middle East or even Europe. It continues to live in the shadow of the Yamoussoukro declaration which was supposed to transform the continent through a liberalisation, but never evolved into the significant milestone it was supposed to become.

It is now confined to the history books and now effectively forgotten - an undelivered promise. Its successor, the Single Africa Air Transport Market (SAATM), is starting to make progress. Most of Africa has signed up to SAATM in principle but only Benin, Burkina Faso, Cabo Verde, Ghana, Mozambique, Niger, Republic of Congo, Rwanda, The Gambia and Togo have fully implemented concrete measures.

Africa had been slowly breaking down barriers - it needs to continue

Africa had been slowly breaking down barriers between countries as it seeks to final deliver a long promised liberalisation. This year, it has been following the rest of the world in putting them back in place, closing ports of entry and imposing travel bans. Hopefully, these will be just a short-term measure in the fight against a virus that still has the potential to ravage the continent.

Safely re-establishing the continent's air connectivity is essential to re-building battered economies and the choice is revert to normal or use the current situation to finally reinvent Africa's air transport strategy and look to the future.