Walsh: Bailout for aviation sector not sustainable

Willie Walsh is the Director-General of the International Air Transport Association (IATA), the clearing house for more than 200 global airlines. The aircraft pilot, administrator, and a former CEO of British Airways speaks to WOLE SHADARE at the end of IATA’s 78th AGM which ended in Doha, Qatar on the slow recovery of African carriers after the COVID-19 pandemic, myriads of problems confronting the aviation sector in the continent and how they can get out of the woods.

 

African airlines have been in the doldrums since the COVID-19 pandemic, how quickly do you see the aviation sector bounce back to recovery?

 

African airlines will recover in 2023 and 2024. Looking at the momentum, full recovery will be in 2024. At the global level and as an industry, it will be in 2023 but the basis is not the same everywhere. The United States is back to recovery already; the US domestic market is back to what it was in 2019. It very much depends on the market. Markets with big domestic elements are recovering faster. Russian domestic market was way ahead before 2019 before the war in Ukraine. The Chinese domestic market has been recovering strongly but obviously disrupted by the closure in Beijing. If you look at Africa, it is principally an international market and therefore the small domestic market is picking up because of all the travel restrictions that are been removed. The recovery in Africa has seen a slower pace than in other regions in the world.

Could this also be a result of slow vaccination in Africa compared to the rest of the world?

We have been saying for some time that the speed of recovery has been a high level of vaccination. The vaccination in Africa has been slower than in the rest of the world. They have not been going at the same pace. The restrictions equally had effects on recovery in the African market. 

Africa and over $ 1 billion blocked funds. What other ways do you think you can get these funds from African governments?

We are looking at ways to get these funds out. It has not. It is really having an impact on the airlines and the recovery of the market as well because airlines will be reluctant to bring capacity into markets where they can’t repatriate their money. It affects national growth and additional capacity. If you can’t get your money out, I am sorry, it is a simple business decision, you are not going to get additional capacity. Airlines are looking to recover their money and they are not going to put their funds into markets that which they have no confidence in. I think this is a significant factor against recovery in the continent. It is unfortunate because it would affect the consumers they are not going to get the choice, they are not going to get the competition and they would not be able to get the choice that they have been getting if the funds were not blocked. They are big issues, really big issues.

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Post COVID-19, most countries suffered fiscally; some governments in Africa applied to the International Monetary Fund (IMF) and some think they should hold on to airlines’ funds while there are others who are not holding on to airlines’ funds and they use it to solve their fiscal problems and later pay back. What steps do you think IATA is taking to ensure others do not follow suit?

All we need to do is to make it clear to people that it will have consequences. The idea that the industry went into bankruptcy because of closures and still lost a huge amount of money doesn’t work that way and that does not allow governments to keep airlines’ funds.  If governments believe that they would continue to maintain all of these international links and that they can’t pay for the work they are doing, it is not going to happen. Airlines are not rich. We don’t have a lot of cash. If all people do is undermine the recovery in the industry, it is going to have a direct impact on the services that they give.

There is a discrepancy in the IATA and the CBN rates; this creates a ‘fight’ all the time between IATA selling agents and the public. How do we solve this problem in the area of the exchange rate?

It is impossible to solve because these differences have existed forever. I honestly don’t see a simple solution to that. It could be good if it is made to be aligned or closely aligned. You are right. In some cases, the difference is significant. I don’t see a simple solution to it.

I am actually concerned about skyrocketing Jet A1 which is taking a toll on not only African airlines but global airlines. Could you tell us how this is impacting the operations of African airlines and how they can mitigate this?

It has a serious impact on the airlines and the price of basic commodities on the Oil Brent benchmark that we use and which has very much been influenced by what is happening in Ukraine; the sanctions against Russian oil that have driven up the price of oil quite significantly. The second aspect is the difference between a barrel of Brent and a barrel of Jet and the lack of capacity in refining. There was little demand for Jet A1 during the pandemic obviously because the value of activities by airlines had reduced. We switched attention away from Jet A1 to other products. It is not easy for them to switch back. You cannot just do it overnight. So, we need to see a return to refining capacity Ten years between 2010 and 2019, Brent averaged $80 per barrel and 17 percent on average. Jet fuel was about $93, $94 per barrel. We are looking at an average cost of 25 percent basic $100 dollars on average. So, Jet A1 is $125. Brent jumped from $80 to $100. Both of these have increased and both of these have an impact. In the same period, fuel represents 20 percent of the industry cost base. In that ten-year period in the history of the industry, the average cost was five and a half percent. Airlines do not have big profit margins and ultimately, these prices are passed on to the consumers on ticket prices. No one is avoiding that if your biggest cost escalates. The industry cannot absorb this that is why you are seeing ticket prices. Ticket prices would be highly influenced by supply and demand and in certain cases, the pace at which demand has recovered has been faster than the pace at which supply has returned to the market and that clearly leads to pushing prices up.

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How can Africa benefit from Sustainable Aviation Fuel (SAF) which is the way many countries and airlines are going in mitigating the high cost of jet fuel?

I think it is a huge opportunity for African countries. They do not need to have to rely on oil and gas to be extracted. You develop Sustainable Aviation Fuel (SAF) which is a huge demand. You have to invest in the production facilities and refining capacity. This will help you to reduce your dependence on imports for Jet A1 in the manufacturing refining and to improve environmental performance. I genuinely believe that if I was a politician, I will be looking at this huge opportunity because you have the feedstock. You can actually generate sustainable fuel in multiple sources, generate new jobs and you will be able to generate a product that you can sell and help the environment as well. If the International Civil Aviation Organisation (ICAO) is saying this to African countries, I will be saying it as well. There is no risk because the airline industry would need to save fuel. The demand for this product is huge. The demand will continue to increase in the next 10, 15 years. People are looking at opportunities to make investments. It is a great opportunity.

What do you think is the future of African airlines?

The Issue of SAF is not just an African issue for African airlines; our strong belief is that SAF can be produced in Spain, and exported to Africa. You add that to the transport cost and the carbon footprint of transporting it, it would be more useful to produce SAF in Africa. It does not only contribute to a challenge for African airlines it is a challenge for many airlines across the world. I also think it is a huge opportunity for governments and countries across the world.

Many African carriers have clamoured for a bailout which the governments responded to. Is that the solution to African airlines’ myriads of problems?

Yes, I welcome a bailout but the problem I have with the bailout is that it is not sustainable in the long term and kills innovation that is necessary. It helps airlines to navigate any crisis but it is not the most sustainable in the long term. They delay the restructure or the innovation needed that is necessary by airlines because you have got a temporary reprieve. If you don’t take the advantage of temporary reprieve, you will just be back in crisis. The only way you can guarantee your future is to drive innovation and efficiency and to make sustainable true economic planning. It is not just African countries but the African countries contribute most significantly to the industry’s platforms.

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Do you support the ongoing concession of airports by some African countries?

The only thing we can do is try to convince governments to face up to the responsibilities that they have. We have seen airlines whose funds were trapped completely leave the country like Venezuela. The rest that did not stop significantly reduce the capacity of the country and restricted sales. We can’t advise the airlines on what they should do. That is the decision for the airlines to take. Airports that are privatised do not guarantee a return because they are just going to drive costs, you are preventing innovation because it is going to just guarantee returns.

Most African countries are planning to set up national airlines, what is your take on this?

Airlines can be created by anybody at any time. We have had very successful airlines and unsuccessful airlines. I will never say to people don’t do it because definitely, you know what the challenges are.

The Single African Air Transport Market (SAATM) and air liberalisation have been described as game-changer in Africa. I want to know specifically what IATA is doing in conjunction with the African Civil Aviation Commission (AFCAC) in realizing this goal. 

The SAATM has to be an opportunity and has to do with deregulation that has benefitted consumers in other markets that had been deregulated. Europe is a great example of that. So, it gives a massive increase in connectivity, increases in the number of flights, an increase in the number of activities, and much better competition. The consumer wins. This will benefit the African consumers, the connectivity which has a huge benefit for the industry and the economies; it is the right way to go. A fragment of the market will not be sufficient as a single, open competitive market. We still have the US domestic market as a single, open competitive market which is a deregulated market; you have new entrants taking advantage of new opportunities, and fantastic for consumers. I think African economies have to concentrate most on what would benefit them from the market.    

Wole Shadare