High costs, taxes adversely impact African airlines– IATA boss

Frenchman Alexandre de Junaic is the Director General of International Air Transport Association (IATA). He spoke to WOLE SHADARE in Geneva, Switzerland, at the just-concluded IATA Global Media Day on the sorry state of African airlines, challenges faced by the carriers and other issues drawing back aviation generally in the region. Excerpts:

Are you satisfied with Africa’s aviation infrastructure?
The infrastructure is not always there – the airport and air traffic control. For me, those are the two main issues. I told you last year that I don’t see regulation as main issue. There are other issues that I feel are more important than over regulation. Costs of operating in Africa are very high. It is not always easy to set up an airline in Africa and some other places because they have national interest, you have different groups that are always preventing. What are the challenges we face in 2018 and what do we expect in 2019? We are super connectors. You have national carriers that are doing well. For the super connectors, the traffic looks good and they have strong positions even if some of them have problems due to political issues happening in the industry. For the national carriers, it depends on the economic and political situation in the country. It is more in unstable countries much more difficult and for others it is by case-to-case situation. In the demand for traffic, it should benefit carriers that could benefit the others. Are you impressed with the Metrological programme or turbulence management or you don’t care?
You have one of our best people in front of you. She is exceptionally good. She is impressive. She is a lady in aviation or woman in aviation.

How do we assist Airlines suffering in Africa?
We have programmes. We try not to put additional costs or additional burden on the shoulders of airlines. On the contrary, all our programmes are based on cost benefit analysis that is benefitting the airline. To give you an example, the RFID for luggage is a major economic improvement. This mismanagement of luggage cost billions and hundreds of millions. For seven years period, it cost $3.5 billion to airlines. It will cost more if we continue to have problems with luggage. The RFID programme is a programme that will cost airlines $800 million over the seven year period and will bring $3.5 billion savings. It is a major improvement in the economic and financial situation of airlines in implementing the NFID programme. It is something that will not be paid for by the airlines because it is basically something for governments and for security agencies. It will, again, significantly improve boader control and security. If you ease this type of thing, it costs less. We need to convince governments on two things – on technology and from there, we are on good track. Biometric will be the technology to support, which was not the case two years ago. Now, there is general recognition of technology. Second point is to convince government with the same set of data. What type of data do you need to be efficient with security control? I had to convince them. It is not a done deal yet. Africa is an expensive place for airlines to do business. There is no shortage of examples to illustrate the heavy burden that governments extract from aviation. Jet fuel costs are 35 per cent higher than the rest of the world. User charges, as a percentage of airlines’ operating costs, are double the industry average. And taxes and charges are among the highest in the world. On top of that, $670 million of airline funds are blocked. Too many African governments view aviation as a luxury rather than a necessity. We must change that perception.

IATA has been an advocate of Open Skies. SAATM was launched in last January. There are some issues. Twenty-seven countries out of 54 have signed the agreement. Many countries have not implanted the agreement. They are denying traffic right to those who have signed. Some had arguments that deny traffic rights to each order, what is your take on that?

It is already nice. We are supporting SAATM. Secondly, we recognise that even among the signatory countries, there are implementation problem and we advocate proper implementation of SAATM agreement to open up the market. There has been reluctance from some governments from incumbent airlines, it has always existed. When you open borders, you have reluctance usually from incumbent airlines. We do see how it goes. It is enormous force to develop air traffic in these countries. The low density of the African intra-continental network makes it impossible to realize the potential benefits of a connected African economy. SAATM, if implemented, gives Africa the potential for economic transformation. History has shown that opening markets leads to rapid advances in connectivity.

What’s your take on IATA’s report on safety rating Africa as doing very well on safety improvement in the continent? Can we attribute this to IOSA programme?
Africa has had no jet hull losses for two years running and is two years free of any fatalities on any aircraft type, it’s clear that progress is being made. But more needs to be done. We urge governments to recognize the IATA Operational Safety Audit (IOSA) in their safety oversight programmes. With IOSA carriers performing three times better than airlines not on the IOSA registry, we have a convincing argument. Similarly, states must push forward greater adoption of ICAO Standards and Recommended Practices (SARPS). Africa is one of the best regions in the world now in terms of air safety. It was not so five years ago. Yes, you can say IOSA has helped them to improve on safety because it gives discipline, rigour, imaginative and clear vision of what they want to improve safety. We are not the only criteria; otherwise it will be too arrogant to consider us as the only positive factor. It has been significantly positive. Only 24 African states comply with at least 60 per cent of ICAO SARPS. That is not good enough. I encourage states to make global safety standards a top priority.

Are there in the pipeline new IATA members, specifically, African airlines? Are there also some members you intend to erase from the register if they don’t comply with standards?
First, we have 293 members, which is our record list of members. Second, we have new members that are coming with some members leaving the organisation for economic or safety reasons. We have had like 20 new members. Half of them are low cost with new model airlines. We have among the new members many companies. Many low cost are joining not the big ones like Easy Jets and Indigo. More are participating in various processes that we have put in place for members. Some are participating in BSP. They are participating in working group in the case of Easy Jet and have to be IOSA-certified. We will like to add them as new members. We will be very happy to have them. Sometimes, we get rid of some members mostly because of economic reasons or bankruptcy or safety problem if they are not able to pass the IOSA audit. It happens regularly.

What about the issue of blocked funds?
We have seen significant improvement in Africa. Egypt has been solved; Nigeria has been solved. Others are in the process of reducing blocked funds. We have some problem in Zimbabwe, Angola and Sudan. Those are our main countries. Even in Angola, we have significant reduction of blocked funds to $150 million. When I went there last January, we were above $500 million. Things are significantly improving in Africa. The most terrible situation is not in Africa, it is Venezuela where we have above $3 billion. It is a hopeless situation at this stage. It is total disaster. IATA is very active in Africa because we have the expertise. We try to fulfill our mission anyway.

Is there a programme IATA is organising to make African airlines sustainable?
We have always said this. We must lower the cost of operating in Africa. It has a negative impact on African airlines. The infrastructure has to be efficient. It is also a problem for African airlines because the infrastructure is not as efficient as it should be. The regulation practice is another one. We have to convince African governments to let the operators operate, which is not easy because they are usually state-owned companies specific to Africa that we have got in many parts of the world. All they can do is to encourage airlines to boost their operations. We are pushing for homogenous level playing field. First of all, we have to push for development of air transport in Africa.

IATA painted a scary forecast that African airlines would lose $300 million in 2019, isn’t this bad news in the New Year?
That is the forecast. Ironically, while African airlines are expected to lose $300 million in 2019, other regions’ carriers of North America, Europe, Asia-Pacific, Middle East and Latin America are to post $16.6 billion, $7.4 billion, $10.4 billion, $800 million and $700 million net profits respectively in 2019. Industry profits were expected to rise to $35.5 billion in 2019 from $32.3 billion in 2018. The precarious situation makes Africa the weakest region, as it has been over the past four years. Performance is improving, but only slowly. Losses are expected to be cut in 2019, as fuel prices decreases. The region benefits from higher-than-average yields and lower operating costs in some categories. However, a few airlines in the region are able to achieve adequate load factors to generate profits.
Passenger population was expected to reach 4.59 billion, up from 4.34 billion in 2018. Lower oil prices and solid, albeit slower, economic growth (+3.1 per cent) are extending the run of profits for the global airline industry, after profitability was squeezed by rising costs in 2018. It is expected that 2019 will be the 10th year of profit and the fifth consecutive year when airlines deliver a return on capital that exceeds the industry’s cost of capital, creating value for its investors. We had expected that rising costs would weaken profitability in 2019.But the sharp fall in oil prices and solid GDP growth projections have provided a buffer. So we are cautiously optimistic that the run of solid value creation for investors will continue for at least another year. But there are downside risks as the economic and political environments remain volatile. Few airlines in the African region are able to achieve adequate load factors to generate profits.

Wole Shadare