African airlines in intensive ward

The gathering Global aviation experts, who converged on Johannesburg, South Africa, hinged the growth of the aviation industry on sustainable airline operations.

They spoke at the 25th yearly African Aviation Finance Conference with the theme: “Air finance for Africa.” In attendance were some African leaders; representatives of aircraft giants – Boeing; Airbus; – African Airlines Association (AFRAA), Standard Chartered Bank, AfreximBank, aircraft lessors among others.

They painted a gloomy picture of the sector but were unanimous in their beliefs that the situation could be remedied only if operators were serious of a quick revival of their fortune the way South African Airways and Kenya Airways are going to stop the drift.

South Africa’s airline industry is going through tough times — the largest aviation market on the continent faces significant challenges around declining international passenger numbers, difficulty filling increased domestic passenger capacity and the slow liberalisation of the African aviation market.

The aging cargo infrastructure at most airports is also cause for concern. Nigeria’s airline industry, regarded as the second biggest aviation market behind South Africa is equally stuttering, with airlines’ results continuing to spiral down. The flag carrier airlines find it extremely difficult to fill their planes and maximise the opportunity they offer considering the market size. Kenya Airways is going through turbulent times. It is an indication that all is not well with the East African airlines.

A preliminary report from a senate committee that had been tasked with investigating the problems facing the national carrier on August 3, 2015 made some revelations into what could have actually hurt one of Africa’s most stable airlines.

The committee said that the expensive ticketing system had resulted to Kenya Airways having non-competitive tickets in the market thus leading to loss of passengers and revenue. The routine arrangement with other airlines, said the findings, resulted in Kenya Airways failing to expand its aircraft numbers in time to take advantage of growing passenger numbers.

Other issues were poor employee management system that has resulted in frequent long-drawn industrial action thus injuring its capacity to establish a healthy business environment. Among the poor decisions that resulted to losses were fuels hedging, aircraft leasing and buying through third party companies, which ultimately proved costly to Kenya Airways.

Meanwhile, there is an upbeat of revival strategy sought after a turbulent year in 2015 marked by shareholders’ despair and shocking losses. For the better part of 2015, top managers of the airline were at pains to explain the prospects of the flag carrier in the wake of successive huge losses.

It all started in March when Kenya Airways announced that it had recorded a pre-tax loss of Sh29.7 billion ($244.4 million) during the 2014-2015 financial year, compared to Sh4.8 billion loss posted in the 2013-2014 financial year.

The $244.4 million loss after tax for the period ending March, was unprecedented in Kenya’s corporate history, prompting queries on the airline’s sustainability. The dismal performance earned the national carrier the dubious distinction of being one of the highest lossmaking companies in East Africa.

Egypt Air is not any better, as it continues to make losses, which were not helped by long protracted political crisis that affected tourism. Tourism is said to be one of the biggest earners for the country.

The downturn in tourism, by extension hit the airline badly. One airline that has given Africa a pride of place is Ethiopian Airways, regarded as the most profitable and best run airline in Africa. Year in year, it continues to post incredible record of profits, renewing its fleet and setting the right examples to airlines across the continent.

Every single day the airline operates 240 flights with an efficiently designed network of connectivity through their main hub in Addis Ababa. ET now has 76 aircraft in service many of them state of the art B787 Dreamliners, the latest B737NG and B777 models and a fleet of state of the art Bombardier turboprop Q440’s. Along with their Star Alliance partners, Ethiopian is one of three African Star Alliance airlines; they effectively cover the entire world.

Convener of the summit and a former Secretary-General of AFRAA, Nick Fadugba, in his welcoming address, said, “African airline industry is in intensive ward. Africa has just 18 per cent of the entire global traffic. This is not good record. We need leadership in Africa. We are very poor at strategy and implementation for all the grand schemes.”

He pointed out that African airlines faced increased competition from lucrative business traffic from Middle East and other carriers. He added that African airlines had struggled to obtain optimally-priced fleet financing, as well as aviation insurance.

Chief Executive Officer, Airlines Association of Southern Africa (AASA), Chris Zweigenthal, lamented that out of 200 African airlines; only 34 are International Air Transport Association (IATA) members. IATA membership confers on airlines opportunity of helping to contain costs, improve cash flow and maximise efficiency.

IATA is the backbones of the global air transport industry, helping members achieve cost reductions related to air traffic control charges, fuel and taxation. He disclosed that the region accounts for less than two per cent of global airline passenger traffic and about one per cent of global airlines’ cargo.

He said that the challenges facing the African aviation industry range from strong state protectionism, lack of an enabling environment for new investors, high taxes and charges (above comparative world averages), a poor safety record due to ageing fleet and insufficient regulatory supervision.

Zweigenthal noted that the continent’s airlines are struggling with high taxes and charges, particularly levies on fuel. His words, “This has made it difficult for African carriers to charge cheaper fares. Instead, Gulf, European and Middle Eastern carriers have moved into the breach, taking the lion’s share of Africa’s air traffic business.

Foreign carriers have subsidised fares, non-interest loans, grants and other major support. “Any benefits Africa might hope to reap from the global fall in oil prices have been cancelled out by high taxes and charges as well as a strong US dollar.

National carrier Kenya Airways is among the hardest- hit African airlines, as 37 per cent of its fuel costs go to taxes and levies. Sky-high fuel taxes and other levies are going to ground Africa’s airlines sooner rather than later”.

He urged the government and other African governments to move swiftly and forego the kind of revenue that stunts growth in certain key sectors, aviation being one of them.

It makes no sense to pit African airlines against a competition that is so heavily subsidised and otherwise protected. The very notion of competitiveness itself is at risk.