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Geneva – African airlines are expected to deliver the weakest financial performance in the world in 2017, according to Brian Pearce, chief economist of the International Air Transport Association (Iata).
African carriers are expected to make a net loss of about $800m – about the same as the expected net loss for 2016.
“For each passenger flown this amounts to an average loss of $9.97,“ said Pearce during an industry update at Iata’s Global Media Day. In contrast, the global average for the aviation industry for 2017 is expected to be retention of $7.54 for every passenger carried.
The capacity of airlines in Africa is expected to grow by 4.7% in 2017 and growth in demand is expected to be 4.5%.
“The region’s weak performance is being driven by regional conflict and the impact of low commodity prices,” said Pearce.
According to Iata CEO Alexandre de Juniac, African airlines have suffered from increased competition, security concerns and an increase in cost levels. That explains in his view why the results of African airlines are below the rest of the world.
At the same time he sees the African aviation industry as having enormous potential, but it has to be properly approached.
By contrast, Iata expects the global airline industry to make a net profit in 2017 of $29.8bn. It expects total revenues of $736bn, which represents a 4.1% net profit margin. This is despite expected difficult global conditions expected in 2017 due to, among other factors, expected rising oil prices.
Fuel is expected to account for 18.7% of the aviation industry’s cost structure in 2017 – compared to, for instance the peak of 33.2% in 2012 to 2013.
“This will be the third consecutive year – and the third year in the industry’s history – in which airlines will make a return on invested capital (7.9%). This is above the weighted average cost of capital (6.9%),” said Pearce.
According to De Juniac, risks are, however, abundant in the aviation industry. These include political, economic and security factors. Controlling costs also remain a constant battle in the very competitive aviation industry, he pointed out.
He emphasised that profits are also not evenly spread across the globe, with the strongest performance of airlines concentrated in North America.
Due to slower growth in global gross domestic product (GDP) and rising costs, Iata has now expects global airline profitability for 2016 will be R35.6bn. It still expects 2016 to be a record year for global aviation profitability.
According to Iata, the demand stimulus from lower oil prices will taper off in 2017, slowing traffic growth to 5.1% - from 5.9% in 2016. Industry capacity expansion is also expected to slow to 5.6% - down from 6.2% in 2016.
Capacity growth is expected to outstrip the increase in demand, lowering the global passenger load factor to 79.8% - from 80.2% in 2016. The negative impact of a lower load factor is expected to be offset somewhat by a strengthening of global economic growth.
Another important factor raised by De Juniac is that, in his opinion, governments do not make it easy for the aviation industry.
“The global tax bill has ballooned to $123bn. Over 60% of countries put visa barriers in the way of travel. And the total number of ticket taxes exceeds 230. Billions of dollars are wasted in direct costs and lost productivity as a result of inefficient infrastructure,” said De Juniac.
“These are only some of the hurdles which confront airlines. Our aim is to work in partnership to help governments better understand and fully maximise the social and economic benefits of efficient global air links.”
Iata expects the average return airfare in 2017 will be $351 – 63% below the levels in 1995. Airlines are expected to take delivery of about 1 700 new aircraft in 2017. About half of these will replace older and less fuel-efficient aircraft. This will expand the global commercial fleet by 3.6% to 28 700. It also expects airlines to operate 38.4 million flights in 2017 – up 4.9%.
* Fin24 is the guest of Iata at its Global Media Day.
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