Why Africa isnt Ready for the Low Cost Airline Revolution
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Transcript of Why Africa isnt Ready for the Low Cost Airline Revolution
WHY AFRICA ISN’T YET READY FOR THE LOW COST AIRLINE REVOLUTION
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@FlightBuff
THE GDP & INCOME REASON
• The lead influence in Air Travel growth is Income / GDP. Globally, Air Travel has grown at approximately double the GDP growth rate in the recent years (IATA).
• As at 2013, Africa accounted for a very small portion of the global GDP @ 4% (IMF). Likewise, Africa also accounted for a proportionately meager 3% of the Global Aviation in 2013 (IATA).
• Though Africa’s economic growth rate leads the world currently, the base of this growth is too small (4% of world GDP). It will be long before Africa attains an economic base that is significant relative to the developed world.
• Air Travel in Africa is “Staple” driven, small in volume, inelastic to price cuts (at economic price levels) and thus a misfit for the “Low Cost” model that thrives on “Discretionary” travel that is responsive to fare discount stimulation.
• The “Discretionary” component of Africa’s Air Travel is also too small on account of GDP and Incomes. The maximum potential is below the threshold levels required to sustain a viable Low Cost airline industry.
• The “African Middle Class” which is supposed to drive Africas’Low Cost airline segment is too small and has a spending power that is approximately 1/10 (one tenth) when compared to the spending power of the Middle Class in the developed world (Source McKinsey)
• All of the above limit Traffic Density to levels below the threshold required for a sustainable Low Cost Airline segment.
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OTHER REASONS
• Intra-Africa trade is too small and Africa in fact trades much more with other continents. This limits the volume of trade driven Air travel within Africa.
• Only 30% of Air Travel on African Airlines is intra-Africa (AFRAA). This statistic needs to be much higher and on a much bigger travel base for a thriving Low Cost model
• Africa’s skies are restricted and this removes the flexibility needed to • Africa’s aviation is stifled by Hard and Soft infrastructure challenges• Fuel Cost, Insurance Cost, Financing Costs and Taxation Rates are significantly
higher in Africa – as high as 30% above the levels prevailing in the mature aviation markets.
• At approximately 35%, Africa’s urbanization rate is significantly below the levels required to drive a thriving low cost airline segment. This statistic needs to be at least 75% like is the case for Europe.
• etc.
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