17 May 2017

East Africa: Protectionist Policies Are Killing EAC's Aviation Sector, Warn Experts

East Africa's governments have to decide whether to open up their airspace to competition or continue protecting national airlines that are struggling to remain airborne.

Protectionism, which has been sustaining local carriers, has impeded the growth of the aviation industry and has been blamed for the current exorbitant airfares. And now, regional governments are faced with the hard decision of opening the skies or maintaining the status quo.

Although Kenya, Tanzania, Uganda, Rwanda and Burundi are part of the 44 African states that adopted the Yamoussoukro Declaration, which calls for open skies across the continent, the East Africa Community states have been reluctant to comply for fear of killing local airlines.

The Yamoussoukro Declaration, named after the Ivorian city in which it was agreed in 1999, calls for full liberalisation of the intra-African air transport market by removing all restrictions on access, prices, frequency and capacity.

But the refusal by the EAC bloc to liberalise regional skies is impacting not only the growth of the sector but also tourism and trade, investment, productivity, employment and economic growth.

Benefits of open skies

A new study by consulting firm InterVISTAS on the costs and benefits of open skies in the EAC shows that while aviation in other parts of the world has been recording growth due to liberalisation, in the region it is growing at a snail's pace.

Over the past decade, intra-EAC traffic has grown by an annual average of 3.4 per cent, compared with an average GDP growth of 7 per cent per annum over the same period.

Although other factors such as regulation, taxes and infrastructure have contributed to the slow growth, the failure by governments to open up their skies has denied the region the benefits that come with market-driven competition.

Experts say liberalisation of East Africa's airspace would contribute $200 million annually to the bloc's GDP and create an additional 46,320 jobs. Passenger traffic would also increase at an average of 46 per cent annually.

"Air service liberalisation leads to increased air service levels and lower fares, which in turn stimulates additional traffic volumes and can bring about increased economic growth and employment," said Rick Russell, InterVISTAS vice-president for aviation services.

Mr Russell pointed to sectors such as telecommunications, utilities, railways and other sectors, where liberalisation has brought about competition and benefits to the economy.

Costly domestic air travel

In East Africa, the domestic air transport market remains protected, translating into low accessibility and affordability.

"Air transport in East Africa is expensive, with high airfares and freight charges," said Lilian Awinja, executive director of the East Africa Business Council. For instance, a return ticket between Dar es Salaam and Bujumbura costs $988, compared with $850 for a return ticket between Dar es Salaam and Dubai, and $1,410 between Dar es Salaam and New York.

Worse still, one cannot fly directly from Bujumbura to Dar es Salaam; it takes six hours to connect via Nairobi. At times, the journey takes 13 hours, involving three connections.

Currently, Kenya Airways and its budget carrier JamboJet dominate the regional skies, flying to 12 routes out of the 22. The Kenyan national carrier which last week appointed Polish national Sebastian Mikosz as chief executive officer to spearhead its turnaround after several years of tottering on the brink of insolvency.

Late last year, Air Tanzania, which for many years has performed poorly, due to lack of aircraft, was given a shot in the arm when President John Magufuli announced it will in June 2017 acquire a B787-8 to begin longhaul flights to the United States, China, and Russia.

"Governments have a duty to protect their airlines and that is why we are not able to walk the talk in the implementation of the Yamoussoukro Decision," said Daniel Malanga, acting director of economic regulation at the Tanzania Civil Aviation Authority.

To ensure that local airlines are protected from global carriers seeking to exploit opportunities in the region, governments have opted for bilateral air services agreements, through which they impose exorbitant taxes, landing fees and air navigation charges. Across the region, passengers pay an average of $45 in taxes in each country while airlines pay an average of $350 for an Airbus 320 in the main international airports.

The high cost of air travel in the region has significantly contributed to the stunting of the growth of intra-EAC traffic, with the total existing demand being 2.6 million passengers, excluding domestic services.

While liberalisation will allow new carriers to enter the EAC market, it will offer local airlines a means to restructure and increase profitability by expanding into new markets and gaining access to a wider pool of investment.

LIBERALISATION BENEFITS

AIRFARES IN East Africa could go as low as 9 per cent, if partner states fully liberalise their airspace, according to a new study. This will in turn stimulate passenger demand and increase flight frequencies within the region by 41 per cent.

The study, Costs and Benefits of Open Skies in the East African Community, conducted by the EAC Secretariat and the East African Business Council in collaboration with the Department for International Development and the East African Research Fund estimates that liberalisation of airspace could result in an additional jobs and GDP growth. Other studies have found that liberalisation has led to increased traffic volumes, greater connectivity and choice and lower fares.

Sectors such as tourism are highly dependent on good air access, and East Africa Tourism Association is calling for affordable air transport for the EAC residents. "It is time to recognise the potential of East Africa as a source market. EAC residents should be encouraged to travel within their own countries and region," the association said.The study recommends open skies and harmonisation of taxation of air passengers and air service charges in the EAC. Other recommendations are improvement aviation infrastructure and security, training of aviation professionals, more private sector investments and removal of foreign ownership restrictions.

By Christabel Ligami

East Africa

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