48 African Business January 2016

January 2016 African Business 49

Aviation

$1.3bn

Cross-border liberalisation would open up the airline

industry but it is long overdue. And if it were to come,
would it disrupt the existing state airlines?

Open skies still

up in the air

he African Union is as old as the European Union. The European Union has
achieved a lot, and the African Union
has not achieved as much. So said Tewolde GebreMariam, chief executive of
Ethiopian Airlines, during the annual
meeting of the African Airlines Association (AFRAA)
in Congo Brazzaville in November.
GebreMariam has earned the right to pass judgement. Since taking the reins at Ethiopias flag carrier
in 2011, he has continued and expanded the ambitious growth strategy designed by Girma Wake, his
illustrious predecessor, who laid the groundwork for
Addis Ababa to become the continents pre-eminent
aviation hub. Today, the only thing growing faster than
Ethiopian Airlines fleet is its bottom line net profits
have quadrupled over the past four years.
Elsewhere on the continent, however, aviation
success stories are few and far between. The African

Above: Ethiopian
Airlines profits are
flying high.

Union must accept some of the blame.

In 1999, 44 of its members promised to tear down
the bilateral restrictions that curtail flying rights between African countries. Their pledge, the so-called
Yamoussoukro Decision (YD), was to create a single
air transport market across Africa by 2002, mirroring
the open-skies movement in Europe that fostered the
growth of low-cost carriers Ryanair and easyJet. More
than a decade on, little has changed.
The virtuous circle that deregulation catalyses is
well understood by all: tough competition between
airlines boosts efficiency, pushes down airfares, and
stimulates latent price-sensitive demand. As more people travel, economic output rises and yet more demand
for leisure and business travel is created. According to
IATA, an industry trade group, cross-border liberalisation between just 12 African countries would create
5m new passengers, $1.3bn in annual GDP and 155,000
jobs. Yet still Africas skies remain closed.

Hopes for long-overdue reforms started rising in

April, when the African Civil Aviation Commission
(AFCAC) announced that 11 countries have reaffirmed
their commitment to implementing YD by 2017. That
figure has since risen to 13. The new drive is partly
down to lobbying by GebreMariam, whose airline has
the most to gain from liberalisation given its marketleading position on the continent.
We went to the African Union and said this is not
correct, because if Africa is going to grow, if Africa is
going to see its vision of peaceful, prosperous Africa
by 2063, air connectivity is a critical, essential part
of that equation, he told delegates at the conference.
We asked the African Union to copy the European
model for aviation.
For Henok Teferra, chief executive of ASKY Airlines, the multinational West African carrier partowned by Ethiopian Airlines, bilateral liberalisation
is just the first step towards a fully open marketplace.
When it is eventually implemented, YDs initial focus will be on the so-called third and fourth freedoms
of the air: the right to fly from ones home nation to a
foreign country (for an outbound journey), and from
a foreign country back home (for a return journey). In
West Africa, however, thin demand on many routes
forces ASKY to lean on the fifth freedom of the air:
the right to fly from one foreign country to another
foreign country (for an onward journey). Convincing governments to approve fifth-freedom rights is
particularly challenging. And even this, Teferra said,
is not enough.
We are beyond fifth-freedom, he told African
Business. It should be cabotage [the right to fly domestically within a foreign country] Thats how
Ryanair fly, thats how easyJet fly. We are always one
battle behind in Africa, unfortunately.
Many in the industry echo Teferras downbeat assessment, sensing that the prospects of liberalisation
have been overstated by AFCAC. Their cynicism is
justified. Empowering the private sector, although
beneficial in the long term, tends to have a disruptive short-term effect on the public sector. Today,
the reality is that most African flag carriers still rely
on state bailouts and restrictive bilateral agreements
to shield them from competition. Open skies would
instantly tear down the latter while gradually drying
up the former, pushing these parastatals towards either
painful restructuring or bankruptcy.
It is a market evolution that has already run its
course in the West. Deregulation in Europe precipitated the failure of state-owned flag-carriers like
Hungarys Malev, Belgiums Sabena and Swissair.

Cross-border
liberalisation
between just 12
African countries
would create 5m new
passengers, $1.3bn
in annual GDP and
155,000 jobs.

Others, such as British Airways, changed their ways

and transformed into strong airlines.

If Africa
is going to
see its vision
of peaceful,
prosperous
Africa by
2063, air
connectivity
is a critical,
essential
part of that
equation.

Unstoppable?
But for countries like Kenya, South Africa and Egypt
three of the 13 states now promising to take the
plunge there is little evidence of words being backed
by actions. In Kenya, privately-owned fastjet has just
been denied an international licence after years of
stonewalling. In South Africa, privately-owned Comair has repeatedly taken the government to court
over its bailouts for South African Airways, which it
says distort the competitive playing field. In Egypt,
Sherif Fathy, the new boss of EgyptAir, openly admits
that he has been advised not to pursue YD.
Airline protectionism is easy to spot elsewhere on
the continent, particularly in Algeria, Angola and Namibia. Even Morocco, which has signed an open skies
deal with Europe, protects its flag carrier by denying
Air Arabia Maroc the right to serve West Africa.
Small wonder that many airline bosses therefore
prefer pragmatism over optimism. Teferra supports
the latest YD push, but he has no intention of waiting
for the big day. Confirming his interest in launching
domestic Nigerian flights, he said ASKY may ultimately have to set up a joint-venture with local partners. The ideal is to have countries understand [the
benefits of liberalisation] and create a single African
market, he affirmed. But if that does not materialise,
then there are other routes we would look at We
could establish, for example, an ASKY Nigeria.
The joint-venture model is already favoured by
fastjet and FlyAfrica, the continents two pan-regional
low-cost carriers, both of which have struggled to
secure traffic rights independently. Other airlines are
rallying behind the benefits of commercial cooperation, primarily by signing codeshare agreements that
allow them to sell tickets for each others flights.
If we dont adapt, if we want to fly alone, all for
ourselves we will not get anywhere, Wake stressed.
We have to accept that fact that we have to work
together.
Alongside his call for partnerships, the industry
veteran also had a warning for those inefficient flagcarriers that have impeded reforms: Our heads of
state... may give you money to survive for some time,
but two years from now, three years from now, when
the losses increase, they are going to come back to
you and say: I have other priorities, find money from
anywhere else. I dont think you should wait for that.
You cannot stop the liberalisation in Africa.


Martin Rivers