By Chinelo Obogo
The Acting Chief Executive of South African Airways (SAA), Matshela Seshibe, has blamed Africa’s slow air travel growth on a plethora of factors.
Top on his list is the high cost of air travel across Africa.
To fix this, he has called for urgent government action to bring it down, warning that the continent’s aviation sector cannot grow under its current tax and charges regime.
Seshibe said this on Wednesday at the May edition of the African Airlines Association (AFRAA) SkyConnect Leadership Dialogues, where he explained how cost has become a burden facing African carriers. He said a passenger flying from South Africa to São Paulo (two distinct continents) which is a 10-hour journey pays less than one flying to Harare or Dar es Salaam, within Africa.
The SAA boss also addressed the issue of blocked funds, the battle between legacy and low-cost carriers and the role of the African Continental Free Trade Area in reshaping the future of aviation on the continent.
How is SAA dealing with the element of cost, which appears to be impacting many operators on the African continent and making regional expansion particularly difficult?
It is a big disadvantage for travel within Africa. To give you an example, a passenger flying from South Africa to São Paulo, a 10-hour flight, will pay less in airport taxes than someone flying to Harare or Dar es Salaam. So you have an unsustainable environment defined by high navigation costs, airport charges, and taxes across the board.
One of our strong recommendations and appeals is to continue championing the reduction of the cost of African aviation through engagement with governments and stakeholders, in order to lower the cost of travel within Africa and make it more accessible. The infrastructure must be put in place, but it must also be made affordable so that people see aviation as a good, faster alternative. Aviation does not require roads; it does not require as much infrastructure as building bridges and highways over long distances. It is convenient and fast.
In countries where the economy and infrastructure are highly developed, flying can sometimes be cheaper or very competitive relative to other modes of transport, and that has enormous benefits for those economies.
Is South African Airways affected by the blocked funds problem in some of the African countries it operates to. Do you have revenues locked up in some countries that you cannot repatriate?
We do, and in some cases, for a very long time. IATA has identified Africa as the region most challenged by this problem. The situation varies significantly from country to country, not everyone can be placed in the same bucket. Some countries have more functional foreign exchange and banking regulations that enable a faster and freer flow of money across borders. In other cases, there are challenges in the processing of documentation, meaning that funds held in those countries become restricted.
In the worst instances, the funds are literally blocked, you know the money is in the bank account, but you are unable to repatriate it because the government will not release it or does not have the foreign exchange to do so. That has a serious cash flow impact. Imagine flying into and out of a country, selling tickets in the local currency, paying staff, and being unable to recover those costs. SAA is not spared from this problem. We are tackling it from multiple angles in collaboration with our own authorities here, including the Reserve Bank and the Ministry of Finance, as well as with in-country stakeholders where we have issues. We adopt a collaborative approach to recovering those funds, with varied levels of success.
In forums like AFRAA and through engagement with stakeholder governments, we advocate that this matter be placed firmly on the table and resolved, as it is both an enabler of faster growth and a critical inhibitor of what could be a thriving aviation industry in Africa.
South Africa has made some progress in the protocol on the free movement of people and goods as it recently signed visa waiver agreements with selected African countries, which is very positive which will boost traffic into and out of those countries, further advancing trade, the Continental Free Trade Area, and the Single African Air Transport Market agenda. Are there plans to open this up even further?
Certainly, and we encourage all stakeholders to work in concert to make it a reality. I know progress has been slow. At every conference I have attended, participants have been hammering on this point: can we get it over the line? Can we get countries that have not signed on to do so? Can we harmonise travel? Can we create strong hubs for people to travel within Africa, or excellent point-to-point connectivity through a unified approach to air travel?
There are still challenges, and I am glad AFRAA is taking this on board. Just the other day, a colleague of mine told me they were travelling to Morocco and had to route through Dubai, an eight-hour flight from South Africa. Then another eight hours to Morocco. So sixteen hours of flying, and they spent twenty hours in transit just to reach Morocco, when a direct flight might have taken ten to twelve hours at most. There are multiple opportunities on this continent to unlock its potential through collaboration.
SAA continues to operate as a legacy, full-service carrier, while the largest operator in the South African market is currently a low-cost carrier. There are also hybrid operators. How are you competing with these, or are you effectively operating in separate markets?
If you look at trends over time, even internationally, there is a convergence happening. The old classifications of full-service legacy carrier versus low-cost carrier are becoming blurred. Low-cost carriers are adopting strategies from network carriers, and network carriers are looking over the fence and adopting good strategies from low-cost carriers. There is a convergence, by design or otherwise, toward the middle.
We are also redesigning and reimagining our business to learn from low-cost carriers in terms of revenue maximisation, even as we retain our status as a premium service carrier. We know what they are good at; we know what we are good at; and in areas where we can learn from them, we will adopt their principles.
I recently observed a very successful Middle Eastern carrier that reduced its number of business class seats, expanded economy, and introduced a basic economy tier. Within a full-service carrier, that basic economy model shares many features with a low-cost carrier, you are buying a ticket, possibly in a middle seat, with no included luggage. So what I am saying is that, like everyone else, we are looking at ways to maximise revenue and minimise costs in line with our service strategy.
It also varies by route. The best segmentation is by passenger profile and journey type. For long-haul routes, we still believe a full-service model is the way to go. For shorter haul, there are simply fewer opportunities to deliver a full-service experience, a one-hour flight cannot offer the same service as an eleven-hour flight. So the route network, the customer segment, and the passenger mix will all dictate what type of service model is most appropriate.
Let us turn to the question of airline collaboration, because African airlines clearly need to work together, yet it seems enormously difficult to achieve. What is SAA doing to partner with others within the African market and across the continent?
I am only one month into this role, but I personally believe deeply in collaboration. The idea that you must own every asset you use, every route you fly, every piece of equipment, those days are behind us.
Look at Europe and how they have advanced their aviation market. You see wide-scale collaboration, even intercontinental partnerships such as Delta and Air France. Within Europe, there has been significant consolidation driven by economies of scale. There are lessons we must learn from that.
There are certain levels of operation that are simply not economically viable given the high capital requirements of running an airline. We need to reimagine those models and come together, often across borders, to develop solutions that are transnational rather than focused solely on individual markets. Collaboration is the way forward. We will achieve far more by focusing on our core competencies and capabilities through partnerships than by having everyone replicate the same thing, that only dilutes impact and reduces the chance of success.
African passengers pay close to 17 percent more for aviation compared to their counterparts elsewhere. That depresses the profitability per seat in Africa compared to a global average of seven dollars per passenger; the figure can fall as low as $1.30 here. To the degree that we can collaborate on infrastructure development, procurement, and lobbying, we should do so through associations like AFRAA, because we owe it to the African continent to open up this frontier of growth and ensure the seamless movement of goods, services, and people across the continent.
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