FOTOGRAFÍA COLOR African Aviation Industry - 17 April 2020 - ACI Africa
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FOTOGRAFÍA COVID-19 AVIATION COLOR BRIEFING African Aviation Industry 17 April 2020
COVID-19 Impact | African Aviation Industry
COVID-19 Outbreak. A global aviation
recession
45% Global cut off on seat offers (Week 30-03)
The COVID-19 outbreak is having a major impact on national and international aviation, and air
traffic is expected to further decline in the coming weeks. No region of the globe will escape the
depression.
Seats evolution by region (Week 30/12/2019 – Week 30/03/2020)
Seats per week (index 100)
100
80 North
America
60
Initial recovery of Indian LAC
Domestic traffic in market
40 China Asia
closed Africa
Europe
20 Africa: aligned with Europe, temporary
traffic restrictions since 16 March 2020
0
30-12 6-1 13-1 20-1 27-1 3-2 10-2 17-2 24-2 2-3 9-3 16-3 23-3 30-3
Source: OAG, flightradar24, ALG analysis
98% of the global air market is under severe confinement and flight restrictions
According to IATA COVID Financial Impact Assessment, dated March 24, in 2020 Africa will
experience one of the starkest declines in traffic. At present, many airlines in the region have
completely ceased operations as most African countries have closed their borders in order to
combat the spread of COVID-19.
Borders closed; only
national entries are allowed.
Borders partially opened;
some nationalities are
denied entry.
Arriving passengers from
several countries are placed in
quarantine.
Healthcare certificates required
Date: 10 April 2020
Enhanced screening
Source: IATA, ALG Analysis
2
COVID-19 Impact | African Aviation Industry
Unprecedented crisis for the air
transport sector
Health crisis + global economic sudden stop
For the first time since 2008, the global GDP growth for 2020 is expected to be negative.
Research from the World Travel & Tourism Council shows that, globally, up to 75 million jobs are
at immediate risk.
COVID-19
Avian flu (2005)
MERS flu (2015) Global & local
SARS (2003) Asia & Global GDP growing
Asia GDP growing downturn
Asia GDP growing
10%
1st time converging the lack
8% Asia
of passenger confidence and
6% poor economy
GLOBAL
4%
2% Forbes
USA estimates that
0% in 2020 real
-2% GDP growth will
Europe
be worse than
-4% in 2009 crisis
-6%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E
Global outbreak and uneven timing
While some parts of the world will be able to control and minimize the outbreak in a few months,
in other countries it could take longer. As a result, air services from/to some regions will resume
sooner than others in which restrictions may still apply.
Confinement
Country
1
Country
2
Country
3
100 Cases Pre-Quarantine Quarantine Tests Post-Quarantine Confinement recovery Recovery
The recovery scheme works as plates sliding at different speeds. The slowest plate (country), due to
friction (trade, trade relationship) slows down the system as a whole. As a result, the recovery rate is
defined by the country with the worst strategy against COVID-19 (longer duration of the pandemic
stages).
It is expected that domestic/enclosed markets with proper policies against COVID-19 (i.e. US
domestic or Intra-EU traffics), will recover faster than international segments. The international
traffic rebound will be harder as it will also depend on each country pair. The agreement in the
measures applied between regions will define the future of Africa-Europe/Intra-African connectivity.
3
COVID-19 Impact | African Aviation Industry
Dramatic drop in demand will impact
all sectors of the aviation industry
Commercial air transport has direct and indirect impacts in many business activities; including
manufacturers, lessors, infrastructure providers, regulators, service providers, airlines, distribution
channels based on the demand foundation, etc.
The COVID-19 outbreak has triggered a cascade effect. The fall in demand has had a direct
impact in airlines, which are simultaneously spreading their financial crisis to the whole industry.
This includes aircraft returns and requests of lease relief to lessors, cancellations of aircraft orders
to manufacturers, airports deprived of flights, passengers, and retail, generating lack of revenues,
with supporting services (handling, maintenance, cleaning) costs still to be covered.
The sustainability of the aviation sector in Africa will depend, to a large extent, on the adequacy
of the stimulation packages implemented by each of the regional governments.
– In the short term, the liquidity of airlines should be guaranteed, as they conform the weakest
link in the chain. Several countries in Africa are announcing support for the aviation sector in
order to reduce the impact of the COVID-19.
– Subsequently, measures should be implemented to reactivate the demand so that the sector's
liquidity problems do not result in solvency problems and bankruptcies.
– Airports will also require relief measures. Governments will have to consider additional
measures to rebalance the concession contracts of many airport operators.
Ground Handlers
GDSs and
Tourism agents
ANSPs
Finance institutions
Airport
Operators
MRO
Aircraft lessors &
Manufacturers
Investment Funds
Commercial
Partners
Construction Airlines
Companies
Demand Aviation
Authorities
4
COVID-19 Impact | African Aviation Industry
Africa has been hit as hard as other
affected regions
Airports capacity cut-off by market (updated 06/04)
MORE AIRCRAFTS
CMN
NBO
ADD
TUN
ALG
DSS
JNB
LOS
ABJ
CAI
0%
-10%
* * * *
ON THE GROUND
-20% THAN EVER
-30% -22%
-40% -34% -33%
-50% -44%
-60%
-70% -62%
-65%
-67%
-80% -72%
-90% -82% -82% -82%
-85% -84% -84%
-87%
-89% -90%
-100%
-97% DOM CUT INT CUT
* Airports without relevant domestic traffic
Airports are currently operating some domestic traffic
and other minor international flights under strict
disinfection measures. Specific measures have already
been adopted, such as temporary slot waiver in EU
airports, recalibration of cargo operations and charter
flights for evacuations.
Airlines capacity cut-off by market (updated 06/04)
0%
-10%
*
-20%
Seat capacity reduction
-30%
-40%
-50%
-60%
-70% -63%
-80% -75%
-90% -84%
-93%
-100% -96% -97% -96% -92%
-98% -99% -99% -99%
DOM CUT INT CUT
Source: Airlines websites, OAG schedule analyzer
The vast majority of airlines' fleet are on the
ground, keeping operations to a minimum. Airlines
plan to resume their services and achieve relative
normality at the beginning of July.
5
COVID-19 Impact | African Aviation Industry
African air market is highly exposed to
international resolutions and decisions
Air transport market supply’s segmentation by region (Jan 2019-Feb 2020)
25 Average market share
20
4% Others
Millions of seats
15 21% Middle East
10 30% Europe
6% Africa Inter reg.
5 11% Africa Intra reg.
28% Domestic
0
1 2 3 4 5 6 7 8 9 10 11 12 1 2
2019 2020
Unlike the European and US markets, where internal flights represent more than 85% of the
seats, the African market is more exposed to the international segment, where the
recovery of passengers' willingness to flight is expected to be slower.
Within the African market, domestic flights represent 28% of the seats and, as previously
discussed, recovery paths will mainly depend on each country’s responses against COVID-
19.
On the other hand, the regional market represents 17% of the commercial seats. The Single
African Air Transport Market (SAATM) is implemented differently depending on the region
and, although there have been improvements, it still is at an early stage. At present, the inter-
regional traffic accounts only for 6% of commercial seats.
The intercontinental segment represents 55% of market share, even having a higher
economical impact in airports. This market is severely threatened in the short/mid term.
From an airline perspective, this market is mainly dominated by international carriers and
therefore, its opening will be determined by European/Middle-East countries. If these
countries were under lockdown, their recovery could be delayed.
International market supply in Africa by carrier flag (% Feb 2020 seats)
98% African 34% African 33% African
carriers carriers carriers
2% Middle 67% Middle
66% European
East carriers East carriers
carriers
Source: OAG schedule analyzer, ALG analysis
The African market is more exposed to the international segment, and therefore the
international carriers’ strategy will affect its development.
6
COVID-19 Impact | African Aviation Industry
Main African airlines will face viability
risks due to liquidity issues
African airlines: Operating Margin
-15% -10% -5% 0% 5% 10%
2017
2016
2019
2018
2018
2017
African Airlines’ average 2017 - 2018 (*)
Note: Operating margin calculated as the operating profit divided by total revenues
African airlines: coverage of fixed-charges’ obligations
10 Liquidity + short-term
debt coverage
8 Only cash coverage
Months
6
4
2
0
2017
2018
2017
2018
2019
Note: The coverage of fixed-charges’ obligations represents the monthly average fixed costs that can be covered with assets (cash
and other liquidities) and short-term financial debts, according to airlines’ financial statements
Some airlines will not have enough cash reserves to manage their financials and they will be driven
to technical bankruptcy states or breached debt covenants. Governments should consider providing
financial support/aid to guarantee the survival of their local airlines.
Source: Airlines’ financial statements; (*) ALG estimation from a sample of 12 airlines
African airlines can only guarantee their survival under a commercial lockdown for a period of
1 to 5 months, if no additional aviation business support measures are implemented.
7
COVID-19 Impact | African Aviation Industry
Looking forward: different recovery
scenarios
Aviation has never faced a similar global crisis. The COVID-19 outbreak will deeply change the air
transport demand’s scheme and patterns. The depths of the change will depend on how long it
takes to overcome the pandemic. Even when the health crisis ends, the recovery of the economic
downturn and passengers’ willingness to flight will continue to impact the aviation sector.
Demand timeline
Business Pre Quarantine Open Restoring confidence Economic recovery
as usual quarantine (3-6 months) trials (months?) (years?)
First cases 100 fatalities Vaccine/Treatment
Illustrative
1
“V” recovery
Index (crisis month=1)
“U” recovery
Unlikely (short term
Base case (sudden stop &
downturn)
Global Recession)
“L” Recovery
Worst case (Global Depression)
0
Different recovery shapes depending on Markets & Travel Purposes
– Domestic/enclosed markets. They are expected to recover first if governments implement
effective social distancing initiatives.
– International markets. Different recovery rates depending on each country pair, and affected
by many unmanageable factors: policies against COVID-19, duration of the quarantine period,
availability of treatments, macroeconomic impacts, etc. We expect some countries to be
effected for longer than others.
– Travel purposes
o Business: A fast recovery is expected for businesses where mobility is a must. However,
passengers who can carry their activities via teleworking may no longer need aviation
services.
o Visiting friends and relatives: The recovery will take longer, especially for population that
have low-income and is exposed to massive layoffs.
o Tourism: The sector has been heavily hit and its recovery is expected to be delayed. The
change in passengers’ leisure trends and the effect of the economic recovery is likely to
penalize this passenger segment.
8
COVID-19 Impact | African Aviation Industry
Africa’s capacity expected to decrease
~32% in 2020 (base case scenario) -30%
-20%
-35%
-45%
-60%
Africa’s capacity cut-off estimation – “U” recovery scenario 2019 2020 % YoY
(seats 2020 v. 2019)
2.319
1.872
1.434 1.252
892 913
449 263 225 153
Asia Europe North America Latin America Africa
-19%
-27%
-32%
-38% -41%
Source: ALG Analysis
Airlines may have to implement social distancing policies. In this sense, non-African
carriers operating long-haul flights will be the most affected, whereas African carriers with
lower load factors, will be less impacted.
COVID-19 impact’s estimation by scenarios: Africa (Mseats, 2020 v. 2019)
2019 2020 – “V” recovery 2020 Base – “U” recovery 2020 – “L” recovery
-22% capacity cut -32% capacity cut -53% capacity cut
25
Seat capacity (Million)
20
15 “V” recovery
Unlikely (short term
downturn) “U” recovery
10
Base case (sudden stop &
Global Recession) “L” Recovery
Worst case
5 (Global
Depression)
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Seat capacity is expected to decrease between -22% and -53% in 2020 in African
aviation market.
The base scenario (“U” recovery) considers that the African market will require more
than 1 year to recover the pre-crisis demand levels.
9COVID-19 Impact | African Aviation Industry
Expected recovery rate segmented by
African regions
Seats by Market Seats by airline
Mseats (2019) (2019) (2019)
Highly dependent on
European traffic and tourism,
10% which is expected to be the
3% sector most affected by the
30% 4%
37% crisis.
North At present, it is the most
affected region in Africa and
Africa 50% due to the characteristics of
10%
95 Mseats its traffic, a slow recovery is
expected.
The exposure to inter-
7% continental markets is low.
28% Its recovery will depend on
31%
23% its ability to maintain the
pandemic under-control and
Central/ the survival of local airlines.
Western Africa 21%
19%
19% Hub operation risk in
Abidjan and in Lomé.
39 Mseats
At present, it is the region
least affected and with a
8% quickest response against
23% 27%
21% COVID-19.
Hub operation risk: Ethiopian
Eastern 16% and Kenyan concentrate most
14% of the supply in the region.
Africa 18%
22%
Pressure on Rwandair and
56 Mseats risk of a financial collapse in
new local airlines.
Mature domestic markets in
South Africa and quick
government’s reaction
9% 15%
against COVID-19. A fast
11% recovery is expected.
Southern 11% 52% Severe hub operation risk in
Africa 15% JNB. Moderate LCC share and
13% weak FSNC airlines: potential
49 Mseats collapse associated to those
with worse financial situation.
DOM Intra-Reg. Inter-Reg. EU ME Other FSC LCC Other Afr. Other Int.
Source: OAG schedule analyzer, ALG analysis
10COVID-19 Impact | African Aviation Industry
Expected recovery rate in selected
Aviation Nations
Seats by Market Seats by airline
Mseats (2019) (2019) (2019)
Main country in the region
with a mature domestic market
9% and a quick Gov’s reaction
10%
13% against COVID-19. A fast
recovery is expected.
8% 54%
South Africa COVID-19 can be the final
11% blow to SSA.
14%
Moderate LCC share: potential
40 Mseats collapse associated to those
with worse financial situation.
High exposure to European
LCC and leisure airlines, highly
9% 8%4% dependent on tourism, which
6% is expected to be the most
affected sector by the crisis.
22%
Strong positioning of RAM,
Morocco expected to be maintained and
even reinforced with the
31 Mseats 69%
2% appropriate Gov’s measures.
Air Arabia Maroc seriously
impacted.
Low ratio of infected
population and early
15% 16% response to the COVID-19.
Major hub in Africa,
14% 5%
18% combining solvent FSNC and
Ethiopia government support.
10% Absolute dependence on
19 Mseats 27% 2% Ethiopian airlines, that will
concentrate a higher market
share after the crisis.
Low ratio of infected
population and early response
13%
33% 26% to the COVID-19.
11% Tourism will be the segment
that is most affected by the
Kenya crisis.
14%
18% High hub operational risk: the
25%
15 Mseats recovery will mostly depend
on Kenya Airways’ ability to
survive.
DOM Intra-Reg. Inter-Reg. EU ME Other FSC LCC Other Afr. Other Int.
Source: OAG schedule analyzer, ALG analysis
11COVID-19 Impact | African Aviation Industry
Expected recovery rate in selected
African markets
Seats by Market Seats by airline
Mseats (2019) (2019) (2019)
Highly dependent on
tourism, which is expected
to be the sector that is
8%4%
3%
most affected by the crisis.
41% Fall in demand, hotel
Egypt sector stress, Egyptair
54% 28%
under pressure.
Gov’s measures adopted
38 Mseats 5%
on the touristic and
aviation sectors will be key.
The country is still
recovering from the 2016
12% economic recession.
18% Their domestic market can
11%
support the air traffic
Nigeria 13%
54% recovery if appropriate Gov’s
17%
measures are implemented.
8% A short-term capacity cut-off
12 Mseats
could lead to a potential
collapse of Arik or Air Peace.
Hub risk: high dependence
on Air Côte d’Ivoire, with
4% 39% of total volume in
19% passengers in ABJ traffic,
23%
and accounting for more
Côte d’Ivoire than 50% of the connecting
14%
59% intraregional passengers.
3.6 Mseats 7% With an inelastic
international demand, the
recovery will depend on the
survival of its FSNC.
Low ratio of infected
13% population and early
10% response to COVID-19.
13% 41% Opportunity for the
Rwanda consolidation of Rwandair,
recently participated by
2.2 Mseats 28% 3% Qatar Airways.
DOM Intra-Reg. Inter-Reg. EU ME Other FSC LCC Other Afr. Other Int.
Source: OAG schedule analyzer, ALG analysis
12COVID-19 Impact | African Aviation Industry
Different airport recovery profiles; will
the investment plans be impacted?
Top African Airports
Airport recovery profile (dependent on each
country’s policies against the pandemic) Algiers
Oran
Tangier Tunis
“U” recovery Casablanca Djerba
Alexandria
Fez Constantine Tripoli
Rabat
Agadir Marrakech
Cairo
– Major hubs combining solvent Sharm el-Sheik
Hurghada
FSNC that will tend to
concentrate a higher number Sal Nuakchott
Khartoum Asmara
of operations and are likely to DakarBamako Niamey
receive governmental support.
Ouagadougou Lagos Djibouti
Banjul Djamena
Coutonou
– Regional hubs with a balanced
Bisau Konakri
AbidjanLome Abuja
Juba
Addis
fleet to provide international Freetown
Accra
Yaoundé
Douala
Ababa
Monrovia Entebbe
services and that are likely to Malabo Mogadishu
Nairobi
Port Harcourt
receive governmental support. Libreville Kinshasa Kigali
Burundi Mombasa
Pointe Noire Kilimanjaro
Brazzaville Dar es Saalam
– Country gateways with an Zanzibar Mahe Island
Luanda
inelastic demand and with an
Comoros
international economic interest. Lusaka
Lilongwe
Harare Antananarivo
– International hubs and airports
without a solvent FSNC will Windhoek Gaborone
Saint Denis
depend on the governmental Johannesburg Maputo Mauritius
support received. Cape Town
Maseru Johan.-Lanseria
Main airports Durban
– Major/medium touristic East London
airports, especially those with a Country gateways George Port Elizabeth
high long haul services share. Secondary Airports (>1.0 Mseats)
“L” recovery Secondary Airports (COVID-19 Impact | African Aviation Industry
Airports require public support to
make the recovery process viable
Revised IATA revenue forecast (31 March 2020) estimates that impact of the pandemic now
stands at -41% fall in RPKs and minus USD15B versus the 2019’s levels for the region.
It is pivotal for Governments to start the implementation of several initiatives needed to ensure
the sustainability of the African air transport sector.
01. Provide economic, financial
and fiscal relief measures
01
05. Adoption of
02. Waive
a temporary slot 05 02 concession airport
fees (where
waiver
applicable), fees
and taxes
04 03
04. Temporary relief from 03. Delay infrastructure
compliance with quality of service investment requirements
The multilateral development banks are key in the recovery of this sector in Africa:
They need to reinforce their presence in the region with a triple objective:
1. Mobilize finance
2. Support public procurement
3. Increase technical assistance and advisory services for knowledge creation and
knowledge transfer
14COVID-19 Impact | African Aviation Industry
Airport Operator responsiveness
Business Continuity Plan
In order to deal with the health, social and economic crisis linked to COVID-19,
quarantine
most of airport operators are implementing their Business Continuity Plan.
Pre
According to the Business Continuity Management Framework for Health-related
disruptions at airports issued by ACI in 2012, a Business Continuity Plan needs to
outline how the essential operations and services are maintained and achieved,
either by establishing deeper layers of resiliency to essential operations and
services, or through alternative arrangements.
(3-6 months)
Quarantine
Smart operating models
COVID-19 can act as a catalyst to speed up the development of smart operating
models; resilient, sustainable and innovative. Biometric IT solutions (facial/iris
recognition), smart H&S and paperless resilient, collaborative, connected and
flexible processes should be adopted to minimize contact.
Open trials
Refinancing Operations
Additionally, airport’s operator companies will require refinancing packages
and loan modification programs to manage the outbreak by cutting the
financing costs.
Concession Agreement & Scheme Review
confidence
Restoring
Most of airport’s operators will require financial support/aid from
(months?)
governments. Airports under PPP scheme will apply their Force Majeure Event
clause considering the Concession Agreement Review. A review of the economic
concession model will be imperative to ensure the financial viability of the
concessionaire.
It will also be necessary to review the PPP Concession Agreement Schemes
used by some of Governments, incorporating the best practices and lessons
learned from this crisis in order to make the agreements more self-adjusting.
The revision of the contractual frameworks should focus on single/dual till
Economic
recovery
schemes to improve flexibility with respect to the demand’s behavior and
(years?)
allowing to minimize rebalancing in the event of demand outbreaks.
Based on our experience, the minimum adjustment measures that need to be
considered when rebalancing a concession are: reviewing the concession term, the
revenue share (%) and the capital project plan (size and term of the investments).
15www.alg-global.com https://algnewsletter.com
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