Africa: Giving Wing to Africa's Growth

opinion

Johannesburg — FREEING African air transport routes to allow competition, bring down prices and improve services could boost the continent's economic growth significantly.

As African Airlines Association secretary-general Christian Folly-Kossi told the organisation's annual general assembly in Sun City last week, air tickets in Africa are the priciest in the world.

Ticket prices are high because most African governments restrict competition to protect their national carriers. Most bilateral air-service agreements restrict the number of airlines to allowed fly each route, the frequency of flights and the number of seats allowed a week.

The bilateral agreement between SA and Angola allows only the national carrier of each country to fly the route -- and only three times a week each, so that there is not even a daily flight between the countries.

That flights are so limited can make it as expensive to fly from Johannesburg to Luanda in economy class as from Johannesburg to London, which is three times the distance.

And that's if you can get a seat.

When I phoned South African Airways (SAA) reservations last week, the first economy class seat they could offer, for R5800, was four weeks later, and then I'd have to wait 12 days for a return flight.

If I really wanted to get to Luanda sooner, they could offer me a first-class ticket departing three weeks from the day I phoned, for R13700. This at a time when investment and trade between the two countries is growing rapidly and the Angolan government is planning to build six new hotels in Luanda.

Two other constrained routes in the region are the Johannesburg-Maputo route and Johannesburg-Gaborone route, where again only one airline from each country is allowed to operate. As a result the per-kilometre cost of air tickets on these routes can be three times that of flying to Windhoek or Harare -- relatively unconstrained routes where British Airways (BA)/Comair competes with the national carriers.

Kulula.com, BA/Comair's no-frills division, has just launched services on the Johannesburg-Windhoek and Johannesburg-Harare routes. To do this, kulula is cannibalising scarce traffic rights allocated to BA/Comair as it cannot get more frequencies for itself. In a liberalised aviation market, governments make sure that airlines are safe and reliable but do not protect them from fair competition on any routes. They leave it to market forces to determine the number of airlines competing, flight frequency, seat capacity and ticket prices.

Since liberalisation enabled the launch in SA of budget airlines four years ago, the domestic air-travel market has grown more than 50%. On a recent sample of domestic flights, the budget carriers on average charged less than half the price of full-service airlines and the full-service airline prices have also come down since the launch of low-cost flights.

While regulation is intended to protect the smaller national airlines, the air service restrictions encourage inefficiency and deprive the regulating country of tourism and business spend.

The importance of tourism has also been acknowledged by the New Partnership for Africa's Development, which sees it as one of the sectors with the most potential to contribute to the economic regeneration of the continent. Figures released by the Vermont-based International Institute for Peace Through Tourism show that of the 49 least developed countries, 48 now have tourism as their largest earner of foreign exchange.

Clearly, air transport regulatory policy should take into account the net benefits to the whole economy and not just the potential threat to the national airline.

If overall air transport to and from a country grows as a result of liberalisation and the national carrier loses some passengers to the increased competition, the net economic effect is invariably a positive one due to the beneficial multiplier effects associated with a growing tourism industry.

Nevertheless, the concerns of African governments about the threat of liberalisation to their national carriers need to be addressed.

In the rationalisation process following liberalisation in the US and Europe, many legacy carriers from the regulated era struggled to adjust to free competition and some major airlines went into bankruptcy.

Other legacy carriers adapted and thrived in the new environment, borrowing from the low-cost business models of new competitors, and new entrants have not only taken up the slack but, through innovation and low costs, have generated a tremendous growth in passenger numbers.

There is no reason, other than scale, that an African carrier should not be competitive with other carriers. Scale advantages can be gained from governments allowing alliances and mergers of airlines, subject to the application of competition rules to ensure passengers benefit from the arrangements.

There is no doubt that, as in the developed economies, the transition from protected legacy carrier to a restructured, more flexible and more efficient airline able to thrive in a competitive environment is not easy. Government might need to support such restructuring, as was the case with many European carriers before privatisation.

However, the alternative to liberalisation is likely to prove much more costly in the medium term, with a continuing and probably increasing need for public subsidy and an increasing opportunity cost for development of the national economy at large.

The industry debate is usually framed as local airline protection versus more and cheaper air travel. This implies an inevitable tradeoff between the two, which need not be the case.

A better combination of strategies would be to:

â--Ease the restrictions on airlines entering and growing the air routes between Southern African Development Community countries and into the rest of Africa;

â--Improve the competitiveness of national airlines on cost, service and product;

â--Allow mergers or alliances between African airlines to achieve economies of scale; and

â--Enforce competition rules to prevent unfair competition and ensure that passengers continue to benefit from the liberalisation of air routes.

A combination of these strategies can create a win-win solution for increased air travel, generating benefits in economic growth and job creation, and stronger local airlines.

â--Richman is co-author of The ComMark Trust report, The Economic Benefits of Liberalising Regional Air Transport -- A Review of Global Experience.

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