Walsh: Taxation Takes Away Investment In Africa’s Aviation Sector

Willie Walsh, Director General, International Air Transport Association (IATA), in this interview with WOLE SHADARE at the just concluded annual IATA AGM in Boston, Massachusetts, speaks on Africa’s great aviation potential, high taxation, PCR, and how ‘Open Skies’ could benefit Nigeria and the African continent

What do you make of South African Airways that does not have modern aircraft?

South African Airways has been in a financial crisis for many years. You cannot survive today except you adapt to competition… if you look at the changing nature of the airline industry. I look back at when I was flying; I think South African Airways was one of the big airlines that have been affected by competition. To survive in this industry, you have to face competition.

How has change been because when you look at SAA, it has gone through so many changes in the past, and surprisingly, it is not making the required changes, what could be responsible for that?

 

IATA Director-General, Willie Walsh

International competition is one of the reasons. SA is served by a lot of airlines and they have invested a lot in their products. It doesn’t stop them from catching up. SA is a fantastic market and SAA has to adapt to the competition. It happens in a lot of countries. It is sad, but it shows that SA would continue to be served. South Africa, as a market, is a fantastic market, but South African Airways couldn’t adapt to the competition and crisis set in. But it isn’t a surprise because it started years back. It was not sudden; it did not happen overnight. It happens in many countries and to African airlines. It is sad. It is sad to see. Consumers in South Africa will continue to be served.

But that seems to be the same pattern with so many African airlines. Many African airlines show promise, but after some time, they begin to show signs of weakness, what could be responsible for that?

 

It is a great question actually. I suppose what makes European airlines much more efficient is the Open Skies environment in Europe, which gave opportunities to new airlines and forced so-called legacy airlines to adapt to that competition and consumers have hugely benefitted from that and I think everybody’s performance was raised with Open Skies and Africa needs the same environment for Open Skies that will also be beneficial for Africa, which will be hugely fantastic. If you are restricted, you don’t have economics of scales like you have a bigger market and that highlights one issue and that is the opportunity that exists in Africa and if there are Open Skies in Africa it will benefit more African carriers to develop and grow. You don’t have the same economies as much as you have. You have a much bigger market. If there was one issue, it is the opportunity that exists in Africa. If there is an open aviation area and Open Skies in Africa, a lot more African carriers will develop and grow more than they are today.

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What do you make of protectionism by African governments to their carriers against any other competition in their area?  I want you to look at Nigeria as a case study…

If it is the government’s policy, it is government policy. We don’t necessarily have a position on that. I am personally concerned about it as regards competition. I think airlines benefit from competition because it makes them better rather than competing against themselves. I speak from my past experience; the market in Africa is a very attractive market, although it comes with its challenges like infrastructure.

The infrastructure isn’t always great. It is emerging. You have fuel supply issues with so many natural resources. It is surprising for a country that has so many natural resources.

Taxation is huge, costs of operation, which makes the cost of profits marginal or nonexistent. I think what they do is to look at the revenue line, but they failed to recognise costs associated with operations in this industry.

The profitability of the industry is way too small and profit almost non-existent. They get taxed because they are looking at the revenue line rather than the profitability.

All of these have certainly not helped carriers’ operations in Africa and certainly taken away viability. Taxation is not going to improve the situation. Taxation just really takes away investment in new products, investment in expanding. We would encourage government to look again at the issue of taxation.

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On intra-African connectivity, don’t you think Africa needs to look internally?

If you look at Europe, Europe has grown because of its ability to fly within Europe, thereby increasing domestic connectivity within Europe and also increasing international connectivity in Europe. Domestic connectivity within Europe is good, same with international connectivity.

While we have the widest connectivity in Europe that has been made possible because of the European Open Skies and that is where growth has come from and that’s where consumers’ benefits come from in terms of prices because of the introduction of competition to the market. If you have only one airline operating in the market, what would they do?

They get more opportunities and you also get more efficient airline systems. That’s why I think there is huge potential in Africa as a market. I suppose it would happen at some stage. But it is sad to see Kenya Airways and others…As for Nigeria now, where are Nigerian airlines? It is a huge market. The competition, opening up the market, allowing people to expand, will certainly help.

How about regulations?

Regulation has a role to play in the area of safety and security absolutely. We talk about regulation in terms of who can fly, in terms of how much they can charge, how much capacity to operate. I am not saying regulation should be removed, but if you are going to introduce regulations, you have to maintain regulation to ensure safety and security.

A few airlines in Africa are members of IATA. Nigeria has one of the largest markets and we don’t have airlines registered with IATA, are there specific steps IATA is taking towards that?

Yes. There are a few things we are doing. We have, for many years, been helping the industry to develop technical and safety points of view. I think one of the issues that some of the carriers in Africa tend towards being a member of IATA, which is not expensive and that’s one of the things I am looking at. You have to go through the IOSA safety registration.

You have to go through the safety audit. There are a number of measures we are looking at to encourage more members of IATA. We have something that adds value to them. We want to make sure we have something that adds value to them. I think that is one of the things – we have to make sure that we change the perception in Africa that we are for some organisations. It is not prohibitively expensive for them to be part of IATA. I love to see more airlines from Africa become part of IATA and I think it will be good. African aviation will benefit. I have been actually making proposals on the changes that we could make and they are being reviewed at the moment.

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How have you handled the last 18 months?

Since I joined IATA, it has certainly been different from what I was doing in IAG. I listened to the guys yesterday and some of them said they had to make decisions quickly. To make decisions is better than not making decisions.  That pressure is incredible because when you are in Europe running an airline group and you are facing a crisis like this, you have to be under a lot of pressure. The pressure for me in IATA is quite different from when I was in British Airways or IAG. I enjoyed it and I think it helped me in taking some decisions and, by my training as a pilot. As a pilot, you have to make decisions. For some people, they keep analysing, analysing. Yes, I have enjoyed the last few months. I was genuinely surprised that I have had it easier. I thought I would struggle. I was due to retire in January and stand in there till the end of March but extended to September. I eased easily into the job, working 12 hours a day. The 9th of September, which was the first day seating up in the morning; was a beautiful day, looking out on the balcony. I am enjoying it, enjoying IATA. It is nice. We have challenges. It is a good organisation. The reason I am doing this is that I think I can add value. I know the challenges airlines are facing.

Wole Shadare