African commercial aviation faces both great opportunities and great chal- lenges. “There’s a lot more hope, a much more positive attitude, around Africa,” affirmed Athena Aviation managing partner Sudeep Ghai at the recent Aviation Outlook Africa 2013 conference, in Sandton, Johannesburg. (Athena Aviation is a UK-based airline consultancy.) “At least seven airlines have been started within the continent in the last 18 months. It’s a great market, with lots of potential.”

On the other hand, worldwide, aviation “is a tough industry to make money in – especially if you’re an airline”, he cautioned. “RPK (revenue passenger kilometres) growth is not necessarily an indication of profitability.” (RPK measures the number of passengers carried by an airline.) The global average airline profit margin is just 0.1%. “Fuel prices, pilot shortages and scarce human skills are going to continue to put pressure on airlines in Africa.”

Although African airlines will acquire lots more new aircraft over the next 20 years, their competitors outside the continent, especially in Asia and the Middle East, will receive even more. He highlighted the rising importance of the Middle East in commercial aviation. “Don’t lose sight of the importance of the Middle East in the aviation space. Europe is really feeling the pain from the Middle East hubs building up.” And this development of major hubs has been accompanied by the devel- opment of major airlines, such as Emirates, Qatar and Turkish.

Given the fierce competition, some African national carriers and their home countries are reluctant to open up their markets. “You have to be very careful about going down the protectionist route. Protectionism doesn’t necessarily benefit your airline or your coun-try,” he warned. “The great news is that there are moves to slowly liberalise the African [airline] market. Without a commercial approach, [African] airlines will not weather this period without destroying shareholder value.”
Often, the problems faced by African airlines are created by their own governments. “Get your governments to provide an enabling environment that is good for business,” urged Ghai. Also, Airline managements need to be made up of the right people in the right jobs with the right mindsets. “Build a diverse and talented team with the right skills in the right places – the best people for the job,” he asserted. “Accept challenge and the need for constant change.”
Ghai outlined ten steps to achieve a profitable airline. First, “know where you want to go” – be aware of your unique position in the marketplace and do not confuse your operational plan with your strategy. “Strategy is: What am I going to be doing in five, ten, years’ time?”
Second, adopt a demand-driven commercial planning process. “You need to understand the demand in your marketplace” and shape your airline to meet that demand. Third, know your customers. Investigate and analyse who they are and what they want and win the loyalty of the most valuable segments. “The reality for British Airways,” cited Ghai, “was that 7% of its customers drove 60% of its value.”
“Deliver a market-driven network and fleet demand” is the fourth step. “Market potential analysis is one key element. Airlines in Africa have no data. They just fly from A to B. And they wonder why they lose money!” Fifth, keep a focus on all the airline service components experienced by customers. Sixth, ensure that the airline is accessible on all sales channels, both direct (airline offices and websites) and indirect (travel agents and allied airlines).
“Actively manage yield,” he asserts as the seventh point. “Constantly monitor demand and adjust fare prices.” This approach can increase revenue by 6% to 10%. “Look for ancillary revenue” is step eight. “It’s not a low-cost [carrier] thing. It’s revenue beyond the sale of tickets.” It can include providing extra baggage options for a fee, online selling and selling on board the aircraft. Step nine is, when entering airline alliances, choose the right partners and do not expect it to be an easy process. Start with interline agreements and then develop closer links. Step ten? “Keep costs under control. Keep it lean and mean. Look at your costs!”