The fact that North American carriers are currently driving global airline profitability cannot simply be ascribed to the fact that they are private-sector companies, International Air Transport Association (Iata) director-general and CEO Tony Tyler has cautioned in a collective interview with several African aviation journalists. “I don’t think so. If you looked five years ago, when North American was doing the worst, you could have cited that they were privately owned and were doing worse than State-owned airlines. And there are a lot of privately owned airlines in [less well performing] Europe, Latin America and Asia.”
However, he notes that State-owned airlines can have decisions made for them for political reasons. Among other things, this creates market distortions. Regarding South Africa’s State-owned flag carrier, South African Airways (SAA), he says: “I think it’s unfortunate there’s been a lot of instability in the senior management of SAA.” “These things are not helpful to big companies. What would be helpful would be to appoint someone for the long term and leave them to run the company without political interference.”
In general, African airlines are performing poorly. Iata last month reported that African airlines were expected to make a loss both last year and this year. This would make Africa one of only two Iata regions to make a loss in 2015 – the other being Latin America. And Latin America is expected to move back into profit, albeit just about, this year. African carriers are expected to make losses of $300-million for 2015. The losses for Latin America are also expected to be $300-million. “[Africa’s] losses per passenger make its performance in 2015 worse than Latin America’s,” states Iata in a press release. Moreover, African carriers are forecast to make an aggregate loss of $100-million in 2016, whereas Latin American airlines should make a net profit of $400-million.
African carriers’ net margin for 2015 is expected to be –2.1% and profit per passenger –$3.84. This year, their net margin is forecast to be –0.5% and profit per passenger –$0.93. “Political instability is impacting on important tourism markets in North Africa,” states Iata. “The continent’s carriers, in general, suffer from weak economies and stiff competition on international markets. Growth is also weak, with a 0.4% capacity expansion expected for 2015, increasing to 1.6% in 2016.”
“Because too many African states adopt protectionist [aviation] policies, you don’t get strong networks within the region that would support international operators,” Tyler points out. “In West Africa, the nearest thing to a hub is Lagos. If you look at North America, you have massive domestic networks. And the same goes [for] China, India and [elsewhere in] Asia. If African airlines could build up [regional] networks, they could create hubs and compete internationally.”
While the African Union (AU) and African countries say the right things, they have not yet converted their words into action. “A lot of [African] states certainly talk a good game, about liberalisation,” he noted. “And about safety, which is also important on the continent.” The AU has stated that it will make it compulsory for all African airlines to undergo the Iata Operational Safety Audit. “We are seeing movement in the right direction. But things like fuel taxes and other [aviation-related] taxes are too high. I think all African governments are guilty of this.” Too many focus on short-term tax revenues and fail to grasp the potential of aviation to develop their countries.
There are, however, important exceptions. “There’s certainly a number [of African countries] moving in the right direction, liberalising air transport,” he highlights. “Ethiopia stands out as a country that really understands aviation and uses it well to develop the economy. I’d like to add Kenya, but Kenya has security problems with its north-east border, which is really causing problems for the country and the airline. But Kenya gets a lot of things right and has the right intentions.”