A potential hub: With demand on the rise, the country is looking to boost capacity

After experiencing significant growth over the past 12 months, Ghana’s air transport sector potential is beginning to be realised, with volumes up for both the international and domestic markets. However, this success has brought its own challenges in terms of capacity constraints, while more could be done to encourage further growth and fully develop the sector.

ON THE RISE: Both passenger and freight traffic have been growing rapidly at Ghana’s one international airport, Kotoka. In 2011 passenger numbers rose by 14.3% to 1.59m, while freight also grew by 9.4% to 50,260 tonnes, according to the Ghana Civil Aviation Authority (GCAA). Europe accounted for the greatest share of passengers (33.3%), and West Africa had the second highest, with 27.8%. As Ghana continues to develop and diversify, moving towards middle-income status, these figures are only likely to grow further. “On a strategic level, SAA considers Ghana a growing market. Looking at the larger economic indicators, we expect the economy to do well in 2012, so this should have an impact on the carriers’ performance,” said Gloria Yirenkyi, the country manager for South African Airways (SAA).

For SAA, 2011 was a good year in Ghana, nourished by businesspeople looking at investment opportunities in the Ghanaian market. The corporate segment accounts for 60% of the company’s business on the route and has become a key focus. According to Yirenkyi, “We have a growing demand for business class capacity because Accra is predominantly a corporate route. The corporate traveller needs more frequency to give them flexibility and adequate capacity in the cabin.” As such, the carrier increased operations from five to six flights a week in August 2012, partly on the back of a 20% rise in business class capacity in the first quarter of 2012.

The average load factor for SAA in 2011-12 was 72% for business class and 62% for economy class, a strong performance that Yirenkyi expects the company to exceed in 2012-13. However, the trend of demand for SAA is not necessarily the norm of the market. “Flights to Europe have more demand for economy class seats, with a lot more leisure travellers on these routes. The middle class, such as club class for British Airways, does quite well on load factors,” Yirenkyi said. Despite variations in operating models, the Ghanaian market seems to be performing well for most operators. It is also leading the way in several segments. “Ghana is leading the way in West Africa for marine and terrestrial logistics. We are ahead in automated services, and have better cargo security than neighbouring countries,” said Frank Tony Eshun, the managing director of DAMCO.

INTERNATIONAL FLIGHTS: There are currently 27 scheduled international airlines flying to Kotoka International Airport, according to the GCAA, but other carriers are eyeing the market. Spanish carrier Iberia began flights to Accra in July 2012, while Royal Jordanian and Qatar Airways are in the process of obtaining licences to enter the market. With the entry of these carriers, as well as others, the Ghana Airports Company (GAC) projects a growth in passenger numbers of 10% to 1.74m in 2012 and a further 10% increase in 2013.

DOMESTIC MARKET: It is not only the international market that is flourishing. With the introduction of flights by local airline Starbow in September 2011, domestic passenger numbers have shot up. Domestic passenger figures grew by 50.3% in 2011 to 199,073. However, it was the second half of the year that saw the most dramatic growth, a trend that continued into the beginning of 2012. According to GAC statistics, passenger figures for the first four months of 2012 had already topped the 2010 results, with 147,662 passengers by April. “Passenger numbers have risen because Starbow came in and reduced its fares, which led to other competitors reducing fares as well,” said Bright Adjokatcher, the GCAA’s corporate planning manager.

Although two of the three other domestic carriers – Citylink and Antrak – brought an injunction request that is still pending against Starbow’s operations in September 2011, on improper licensing grounds, Starbow continues to thrive, and competition in the local and regional market looks set to rise. According to the GCAA, at least one further operator is likely to be licensed for domestic and sub-regional services in 2012. “We don’t want to let the domestic front become choked. The authority wants to push it as much as possible into the sub-regional market,” said Adjokatcher.

REGIONAL CARRIERS: The regional market may largely be virgin, but several carriers are contemplating bringing the low-cost model to Ghana and West Africa. Yirenkyi believes this could be a success, stating, “A low-cost model replicated on the regional level might create big gains.” The next entrant may well be Fastjet, the new brand of Rubicon Diversified Investments and easyGroup, the company of easyJet founder Stelios Haji-Ioannou. Indeed, in June 2012 it was announced that the two firms had formed a partnership to acquire the aviation business of Africa-focused firm Lonrho, which operates flights out of Ghana, Tanzania, Kenya and Angola as Fly540. The major factor determining Fastjet’s entrance to the Ghanaian market is likely to be the tax regime in place, with Yirenkyi saying, “a low-cost carrier could only thrive with a fairly flexible tax structure.”

Though the assessment of the market remains reasonably upbeat, there are certain issues hampering further growth and expansion. According to Yirenkyi, “The dominant factors for pricing are aviation fuel cost and ground handling charges among others, with passenger service charges also contributing.” Passenger service charges were raised under the 2011 budget from $75 to a varied rate of $100-200 depending on class of travel for international passengers. For regional passengers, the fee was increased from $50 to $60 and for domestic passengers from $0.70 to $3.33.

COSTS: Such tariffs have become part of a significant debate in Ghana. In March 2012 air commodore Kwame Mamphey, the director-general of the GCAA, told local press, “Airlines that ply the Ghana route enjoy similar, or in some cases even better, air navigation and regulatory services as in Europe and the Americas but pay relatively very little for such services. It is, however, ironic that even with the low charges, Ghanaian passengers still pay comparatively high fares.” While Ghana is relatively cheaper for navigation fees and other regulatory fees, passenger rates “are not the cheapest and are slightly higher than the sub-region,” said Edward Forson, the corporate planning manager of GAC.

The other main determinant of high ticket prices, according to Yirenkyi, is the depreciation of the cedi, particularly considering fares in the system are computed in dollars and then converted to cedi. While there have been calls for a reduction in passenger service charges to limit ticket prices, such rates are a crucial revenue stream for GAC, the owner and manager of all Ghana’s airports, as it looks to expand capacity. According to a March 2012 GAC proposal for public and private financial support, some $741.2m is required for airport development, $21m of which will come from GAC. This includes $405m for Kotoka International Airport to expand the terminals, extend the runway and upgrade terminal handling equipment.

MEETING DEMAND: However, it is Kotoka that requires the most urgent attention. The current growth in passenger numbers has “made the infrastructure inadequate to meet demand. While the operator [GAC] is aware that there are infrastructural challenges, there is also a challenge concerning funds. It is certainly receiving attention, but the challenge is how soon and where to find the funds to do it,” said Yirenkyi.

The 2012 budget announced that Phase 3 of plans to rehabilitate Kotoka is already under way. According to GAC, the $87.3m phase will take three years to complete and will include the expansion of parking bays, the terminal and terminal equipment upgrades. While GAC is not in a position to estimate what this will do for overall annual passenger capacity, Forson said it will increase the floor space of the terminals by 83.6% to 92,680 sq metres, allowing the airport to cater for 3276 passengers during peak hours.

This will be welcome news for the carriers, as the current terminal is experiencing overcapacity at peak times. In the short term, several options are being weighed. “There is a debate over whether to charge additional fees for night flights, but these haven’t materialised yet,” Forson said. However, most carriers do not consider this an adequate solution for easing congestion. “Increasing fees is not a solution. All carriers are trying to feed and defeed their networks from their hubs. For example, SAA hubs have all international and regional banks coming in the morning and then distributing during the day. If you raise fees, that might not be enough for us to change our flight schedule,” Yirenkyi said.

The lack of parking bays and refuelling options are also a concern for carriers as this dramatically increases turnaround times. The government, however, is aware of these problems and is trying to remedy them in a bid to become a regional hub, Adjokatcher said.

This will be the main challenge in the coming years. As passenger numbers increase, and the domestic and regional routes continue to thrive, the government will have to find the funding required to expand Ghana’s capacity. If it succeeds, the realisation of its ambition of becoming a regional hub may be soon to follow.