As the global aviation industry recovers, it is no secret that the airline industry is looking at Africa. One of the world’s most under-developed air markets, Africa also has a reputation for being one of the toughest air markets in the world. However, Embraer sees a lot of potential in this vast continent. Here is why.
A lack of air connection on the continent
At the start of its African Market Perspectives for 2021, Embraer notes the continent’s lack of connectivity. Pre-pandemic, only 9% of Africa’s air traffic was between African countries.
That is not necessarily passengers in total, but direct connections. According to Embraer, it is not a rarity in Africa for passengers going from one country to another to connect in a major hub in Europe or the Middle East.
More importantly, there is a complete dearth of intra-regional routes within Africa. Pre-crisis, there were only 500 intra-regional African routes across the entire continent. Meanwhile, intercontinental routes numbered 800.
More routes are connecting Africa to another continent than there are intra-regional routes in Africa. This is what helps drive some of the need for connections in another continent for flights between Africa.
According to Embraer, Africa’s 9% of intra-regional routes compare to 21% in Asia, 60% in Europe, and 19% in the Middle East. This means that those regions had a developed a far better regional network for short- and medium-haul operations than Africa.
A growth in infrastructure supports growth in the economy
Generally speaking, air travel provides additional infrastructure connections that support countries. Around the world, airlines help provide vital cargo and business links. With easier methods of transport between two points, industries and business can expand their operations into new markets and send their employees or cargo there with relative ease.
One of the biggest dearths in Africa is full-fledged transportations systems. For example, it is fairly easy for cargo to reach smaller destinations via travel on a mix of trains, planes, and automobiles in the rural United States.
In Africa, train networks and highways remain under-developed. This has made it much harder to transport cargo from smaller points in the continent to larger destinations.
Air transportation can help combat that. Even if airlines fly a regional jet, that jet can at least carry some cargo that would be otherwise unviable for transportation on a train or truck that would have to navigate the under-developed infrastructure system in Africa.
Plus, regional jets can help unlock routes that later on can be upgauged. While air travel can bring the initial impetus for economic expansion in interior destinations, that can lead to, down the road, an expansion of industry and population that can lead to an upgauge of the initial regional jet operating the route to a larger aircraft that can carry more belly cargo and more passengers.
Right now, the African market is incredibly difficult
While it may sound like an interesting idea to grow African air infrastructure and may sound like a method to earning instant profits, the opposite has come true. For example, Embraer notes that African carriers were struggling heavily before the crisis even hit.
According to the Brazilian aircraft manufacturer, African carriers lost an average of $1.09 for every passenger flown. While that may seem like a small sum, it adds up when you consider all of the flights an airline operates in a year.
At a low point in 2016, African carriers lost, on average, $2.10 per passenger they flew. If you consider the accumulation of losses, then it is clear why African carriers face many difficulties.
In addition, the continent routinely sees load factors of any world region well below break-even factors. According to Embraer, African load factors hover at around 71-72%, while the rest of the world generally sees loads ten points higher at 81-82%. Break-even load factors are usually around 75% but can vary from carrier to carrier.
Embraer believes that airlines will need to look at their networks and fleet strategies to get to profitability. For that, airlines will need to fly smaller jets, and Embraer’s aircraft appear perfect to do that. Some airlines have already benefited from flying Embraer aircraft on the continent.
The right aircraft for the continent
According to Embraer’s research, 14% of all intra-African flights are operated on widebody aircraft. This is an incredible statistic that shows the sheer size of the continent and indicates some potential pitfalls for airlines on the continent.
If an airline cannot fill a widebody, then each flight becomes a costly loss-making machine. Lowering fares is not always the solution, as at some point, airlines will be selling more tickets below cost than they are selling above their cost.
Moreover, Embraer notes that 99% of African intra-regional flights flown with widebodies fly on sectors under 4,500km (~2,800 miles). This is where the manufacturer believes airlines can target more efficient operations by using smaller “crossover” narrowbody aircraft in the 120-150 seat range.
Embraer sees potential for upgauging many routes in Africa as well. 48.5% of flights operated on turboprops in Africa run on routes longer than 500 km (~311 miles), which is when those aircraft start to lose out on efficiency and comfort.
Embraer sees an opportunity to upgrade those flights and upgrade certain routes flown with the smallest regional jets to larger regional aircraft, like its 50 to 150-seat aircraft portfolio.
Couple this with the right-sizing of the 99% of widebody-operated routes in Africa, Embraer believes it has the right aircraft to service the continent.
Embraer is largely pitching its E-Jets, which are the airline’s crown jewel in passenger aviation. In particular, Embraer sees opportunities for its E2 series of the E-Jets, which is the manufacturer’s next-generation offering of regional jets.
Considering the development of the air market in the US, then the E-Jets have had a phenomenal role in helping keep many smaller communities connected. Airlines that could not fill up larger Airbus A320 or Boeing 737 on regional routes have turned to the E-Jets to add new points to their network.
Embraer will need to wait for this to materialize
While there is a compelling argument for Embraer’s optimism in the African market, the manufacturer also has to contend with the fact that airlines are in a challenging position right now.
While some airlines in Africa have already ordered E-Jets or operate them, most are still waiting for better financial fortunes. A lot of African carriers are struggling.
For example, looking at Air Namibia, South African Airways, Kenya Airways, and more have either shut down, entered into some form of restructuring, or are engaged in a long-term restructuring plan to return to profitability.
Without cash, airlines cannot go out and order E-Jets, even if those aircraft are the right ones for many markets. Nevertheless, once those airlines do get back up and running (or new airlines come in to fill in the gap), Embraer could start to see more orders from these companies start to come in.
Do you think that there is a lot of opportunity for Embraer in Africa? Let us know in the comments!
from Simple Flying https://ift.tt/3z4SOIB
via IFTTT
Comments
Post a Comment