Embraer sees a lot of potential in Africa – here’s why
As the global aviation industry recovers, it’s no secret that the airline industry is turning to Africa. One of the most underdeveloped air markets in the world, Africa also has a reputation as one of the most difficult air markets in the world. However, Embraer sees a lot of potential in this vast continent. Here’s why.
A lack of air connection on the continent
At the start of its African Market Outlook for 2021, Embraer notes the continent’s lack of connectivity. Before the pandemic, only 9% of Africa’s air traffic was between African countries.
These are not necessarily passengers in total, but direct connections. According to Embraer, it is not uncommon in Africa for passengers traveling from one country to another to connect at a major hub in Europe or the Middle East.
More importantly, there is a complete shortage of intra-regional roads in Africa. Before the crisis, there were only 500 intra-regional African roads across the entire continent. During this time, intercontinental routes numbered 800.
More roads connect Africa to another continent than there are intra-regional roads in Africa. This is helping to boost some of the need for connections in another continent for flights between Africa.
According to Embraer, Africa’s 9% of intra-regional routes compare to 21% in Asia, 60% in Europe and 19% in the Middle East. This means that these regions had developed a much better regional network for short and medium-haul operations than Africa.
Growing infrastructure supports economic growth
Generally speaking, air transport provides additional infrastructure connections that support countries. Airlines around the world help provide vital freight and business routes. With easier methods of transportation between two points, industries and businesses can expand their operations into new markets and send their employees or cargo there with relative ease.
One of the greatest shortages in Africa is in full-fledged transport systems. For example, it is quite easy for freight to reach smaller destinations by traveling on a mixture of trains, planes and automobiles in rural parts of the United States.
In Africa, rail networks and highways remain underdeveloped. This made it much more difficult to transport goods from smaller points on the continent to larger destinations.
Air transport can help combat this. Even though airlines use a regional jet, that jet can at least carry some cargo that would otherwise be unsustainable for transport in a train or truck that would have to navigate Africa’s underdeveloped infrastructure system.
Additionally, regional jets can help unlock routes that can later be improved. While air travel may provide the initial impetus for economic expansion of domestic destinations, it may ultimately lead to industry and population expansion which may lead to an increase in the initial regional jet operating the route. to a bigger plane that can carry more stomach cargo and more passengers.
At the moment, the African market is incredibly difficult
While it might sound like an interesting idea to develop African air infrastructure and might sound like a method of gaining instant profits, the opposite turned out to be. For example, Embraer notes that African carriers were struggling even before the crisis hit.
According to the Brazilian aircraft manufacturer, African carriers lost an average of $ 1.09 for each passenger carried. While this may seem like a small sum, it adds up when you consider all the flights an airline operates in a year.
At a low in 2016, African carriers lost an average of $ 2.10 per passenger carried. If you consider the accumulation of losses, it is clear why African carriers face so many difficulties.
In addition, the continent regularly sees load factors for any region of the world well below breakeven points. According to Embraer, African load factors hover around 71-72%, while the rest of the world typically sees loads ten points higher at 81-82%. Balance load factors are typically around 75%, but may vary from carrier to carrier.
Embraer believes airlines will need to review their networks and fleet strategies to achieve profitability. For that, airlines will need to fly smaller jets, and Embraer’s planes seem perfect for doing it. Some airlines have already benefited from the use of Embraer aircraft on the continent.
The right plane for the continent
According to Embraer’s research, 14% of all intra-African flights are carried out on wide-body aircraft. This is an incredible statistic that shows the size of the continent and points to some potential pitfalls for airlines on the continent.
If an airline cannot fill a widebody, then every flight becomes a costly loss machine. Lowering fares is not always the solution, because at some point airlines will sell more tickets below cost than they will sell above cost.
In addition, Embraer notes that 99% of intra-regional African flights with wide-body aircraft fly over areas less than 4,500 km (~ 2,800 miles). This is where the automaker believes airlines can target more efficient operations by using smaller “crossover” narrow-body planes in the 120 to 150 seat range.
Embraer also sees the potential to improve many roads in Africa. 48.5% of the flights operated on turboprop engines in Africa are carried out on routes of more than 500 km (~ 311 miles), it is at this moment that these planes begin to lose in efficiency and comfort.
Embraer sees an opportunity to upgrade these flights and upgrade some routes taken with smaller regional jets to larger regional jets, like its portfolio of 50 to 150 seat aircraft.
Add to that the right sizing of the 99% of the routes operated by widebody in Africa, Embraer thinks they have the right aircraft to serve the continent.
Embraer largely launches its E-Jets, which are the crown jewel of the airline in passenger aviation. In particular, Embraer sees opportunities for its E2 series of E-Jets, which is the manufacturer’s next-generation regional jet offering.
Considering the development of the airline market in the United States, E-Jets have played a phenomenal role in helping many small communities stay connected. Airlines that couldn’t fill the bigger Airbus A320s or Boeing 737s on regional routes turned to E-Jets to add new points to their network.
Embraer will have to wait for this to materialize
While there is a compelling case for Embraer’s optimism in the African market, the automaker also has to grapple with the fact that airlines are currently in a difficult position.
While some airlines in Africa have already ordered or operate E-Jets, most are still waiting for better financial luck. Many African carriers are in difficulty.
For example, if you look at Air Namibia, South African Airways, Kenya Airways and many more have closed their doors, started some form of restructuring or are engaged in a long-term restructuring plan to return to the profitability.
Without cash, airlines cannot go out and order E-Jets, even though these planes are the right ones for many markets. Nonetheless, once these airlines are back up and running (or new airlines arrive to fill the void), Embraer could start to see more orders from these companies start to come in.
Do you think there are a lot of opportunities for Embraer in Africa? Let us know in the comments!