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Call for more liberal African skies

Dec 14 2017 18:14
Carin Smith

Cape Town - Governments in Africa need to make a concerted effort to further liberalise its skies in order to promote internal connectivity on the continent, according to Alexandre de Juniac, director general and CEO of the International Air Transport Association (Iata).

"The wider economic situation is improving slowly in Africa, which is hampering the financial performance of its airlines. The key Nigerian economy is only just out of recession and growth in South Africa remains extremely weak," said De Juniac.

African carriers made a collective net loss of $100m (about R1.3bn) in 2017 and are expected to face about the same loss in 2018. Due to the expectation of stronger economic growth on the continent, Iata forecasts demand growth of 8% and capacity expansion of 7.5% in the African aviation industry in 2018.

"The wider economic situation is only improving slowly in Africa, which is hampering the financial performance of its airlines," said De Juniac.

"While traffic is growing, passenger load factors for African airlines are just over 70%, which is over 10 percentage points lower than the industry average."

He said high fixed costs and low utilisation, therefore, make it very difficult for African airlines to make a profit.

Earlier this year Fin24 reported that, although in general African airlines remain in the red, the state of their financial affairs has at least not deteriorated when compared to the performance in 2016, according to Iata.

READ: African airlines set to post $100m loss - Iata

Global aviation

Iata forecasts that net profits in the global aviation industry will increase to $38.4bn in 2018, compared to an expected $34.5bn forecast for 2017. The average net profit per departing passenger is expected to be $8.90 (about R120) in 2018.

Furthermore, an increase in passenger numbers of 4.3 billion is expected on a global level (up 6% on 2017) and the amount of cargo carried in the industry in 2018 is expected to increase by 4.5% to 62.5 million tonnes. The demand for air cargo is actually at its strongest level in over a decade.

"Strong demand, efficiency and reduced interest payments will help airlines improve net profitability in 2018 despite rising costs," said De Juniac.

"Airlines are achieving sustainable levels of profitability. It's still, however, a tough business and we are being challenged on the cost front by rising fuel, labour and infrastructure expenses."

Labour costs, for instance, have increased sharply and are now a larger expense item for airlines than fuel. Labour costs are expected to be about 30.9% of airlines' cost in 2018.

He called on governments to implement global standards on security, find a reasonable level of taxation, deliver smarter regulation and build cost-effective infrastructure to accommodate growing demand.

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iata  |  africa  |  airlines  |  aviation
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