GENEVA – Similar to 2019 performance, African airlines are again expected to make a massive collective loss of US$200 million (about N$3 billion) in 2020 mainly due to structural problems of high costs mostly as a result of government taxes and fees as well as low load factors. This is according to the latest International Air Transport Association (IATA) forecast for next year.
IATA’s Chief Economist, Brian Pierce, yesterday said while Africa as a whole has produced relatively good economic growth, the continent’s aviation markets are extremely fragmented and are inefficiently served in the absence of the implementation and acceptance of the Single African Air Transport Market (SAATM).
Pierce called SAATM a key enabler for African development and said he sees SAATM as a key for Africa’s economic growth. “African airlines need to invest in capacity and need to improve efficiency,” Pierce said during IATA’s Global Media Day in Geneva, Switzerland.
Echoing Pierce’s sentiments, IATA’s Director General and CEO, Alexandre de Juniac, called on African airlines to focus on efficient and safe operations and to push harder to reduce costs. “The costs of operations in Africa is too high and governments need to implement what they have signed. We have a lot of signatories to SAATM but no implementation,” said a disappointed De Juniac.
As of middle November 2019, only 31 African countries have signed SAATM and only nine have included it into national laws.
Regarding cost competitiveness, African airlines are hampered by high costs. Jet fuel costs on the continent remains staggeringly high at 35 percent above the global average. In addition, airline user charges make up 11.4 percent of the operating costs of African airlines, which is 100 percent higher than the average for the global industry. This combined with the “plethora” of taxes and charges of African aviation operators, including some that are found nowhere else, astronomically pushes up the cost of aviation operations on the African continent to the extent that African airlines lose US$1.54 (N$23.10) for every passenger they carry.
Africa’s extremely bleak aviation performance is in stark contrast with the rest of the global industry which is projected to make a net profit of US$29.3 billion (almost N$440 billion) in 2020, which is a significant improvement of US$25.9 billion (N$388.5 billion) expected to be made in 2019. If achieved, 2020 will mark the global industry’s 11th consecutive year of profit making.
Africa’s dismal performance is not entirely isolated as both the Middle East and Latin American regions are also expected to lose money in 2019. However, unlike Africa, Latin American carriers are expected to return to profit in 2020 as their regional economies strengthen.
Meanwhile, airlines in North America continue to lead in terms of financial performance, accounting for 64 percent of the industry’s profits in 2019 and about 56 percent of aggregate earnings in 2020. Financial performance is expected to improve or remain the same compared to 2019 in all regions except for North America where expected capacity growth, owing to new aircraft deliveries could put pressure on earnings.
IATA is the trade association for airlines around the world whose 290 members represent 82 percent of total aviation traffic. Through its members, IATA supports US$2.7 trillion (N$40.5 trillion) of annual global economic activity.