Published On: July 25th, 2019By Categories: Editions, Feature, News7.8 min read
new rules

Report by Airlines Association of Southern Africa chief executive officer Chris Zweigenthal

The past year has been filled with intrigue and uncertainty with global political leaders continuing to keep the world’s population on edge.  The Western Allies, notably the USA and the EU seem to be at odds on how to deal with globalisation with the rise of populism leading to the promotion of self-interest above multilateral co-operation particularly in the area of trade.  In addition, new political relationships between previously estranged states confuse traditional allies.  There are new developments every day, and it is important to consider how they impact our lives and our industry.

The aviation industry is not unaffected by all these developments.  According to IATA, since the onset of trade tensions between the USA and China, international global trade has dropped from an annual 4% per annum growth rate to a 0% growth currently.  This is reflected in a decline of 5% per annum in freight carried by airlines globally compared to the same period in 2018.  This is reflected in the Southern African region as noted by South Africa’s Air Cargo Operator’s Committee which has reported declines in freight carried in South Africa and the region.  From a passenger perspective, global growth has slowed from 6.6% to 5.3% per annum from 2018 to 2019 whilst in Africa, (and this is reflected in Southern African statistics), the growth rate is currently at 4.3% compared to just over 6% in 2018.  In South Africa, the passenger growth rate is lower being just over 2% per annum for both 2018 and 2019. The above slow-down has resulted in IATA projecting a 2019 global aviation profit of (US) $28 billion compared to the 2018 profit of (US) $30 billion, down from a high of (US) $37.6 billion profit in 2017.  We estimate Africa will record a (US) $300 million loss in 2019, compared to a (US) $100 million loss in 2018.

The International Monetary Fund projects varying GDP growth rates for African states, between -5.2% to +8.8% per annum.  The SADC states are at the lower end of the scale from -5.2% to +5.2% with South Africa at 1.2%, around the average for the region.  This is one of the main reasons for the slower growth of the airline industry in the Southern African region.  The aviation industry remains critical to Southern Africa’s economic recovery and growth.  It promotes investment, facilitates trade and promotes tourism.  Africa, including the Southern African region, should be achieving close to, if not greater than double-digit growth, should economic recovery and appropriate growth strategies be effective.

Probably the biggest single focus of the majority of African airlines is to achieve and maintain profitability on a sustainable basis.  Within the SADC region, we have approximately 25 commercial scheduled airlines.  Of these only five are known to be profitable.  Seven are known to be unprofitable, as reported in the media, and the other airlines’ status is not known as their results have not been published.  These statistics reflect in the Africa airline profitability figures noted above.  Airlines continue to implement turnaround strategies with a focus on accessing finance and finding ways to service and restructure debt.   Many smaller airlines continue to struggle due to intense competition, often not helped by small fleets, high unit costs and small markets particularly from hubs to secondary markets.  International airlines continue to dominate the international market carrying over 80% of international passengers as opposed to less than 20% by African airlines.

The high unit costs also reflect the higher operating costs prevalent in Africa.  These include particular costs which need to be paid in a hard currency such as jet fuel (35% higher in Africa compared to the global average), ownership and leasing costs for aircraft, maintenance, distribution and infrastructure service provider costs.  In respect of user charges and taxes, AASA continues to advocate for reasonable user charges based on service provided, reductions where necessary and the removal of and non-addition of taxes on international flights (in line with ICAO provisions) and the extension of this to domestic aviation.

In respect of taxes, AASA has objected to the imposition of carbon taxes in South Africa.  However, the Carbon Tax Act became effective on 1 June 2019 across all business sectors in South Africa.  AASA full endorses the initiatives to reduce carbon emissions in support of the global climate change initiative.  However, AASA remains of the view that the imposition of carbon taxes which are punitive in nature, will not reduce carbon emissions, but will only serve to increase revenue to the fiscus.  There are no guarantees that these taxes will be ringfenced for environmental improvement projects.  AASA is supportive of the Carbon Offsetting Reduction Scheme for International Aviation (CORSIA), which was endorsed by all 192 ICAO member states at its 2016 Assembly and believes that such a carbon offsetting scheme will incentivize even greater reduction of carbon emissions than taxes.  Notwithstanding the growth in the airline business, the industry has achieved a significant reduction of carbon emissions with the implementation of many initiatives supported by ICAO, IATA and the aviation industry as a whole, such as new more fuel-efficient aircraft, infrastructure and flight procedure efficiency improvements.   AASA and the airline industry are about to enter into discussions with the South African authorities to ensure compliance with South African legislation and to ensure that, in the meantime, implementation of both CORSIA and Carbon Taxes can be aligned particularly in respect of administrative and reporting processes.

Liberalisation and the implementation of the Single African Air Transport Market (SAATM) to operationalise the Yamoussoukro Decision (YD), is a major focus for the African Union, African Civil Aviation Commission, states and international organizations such as IATA, AFRAA and AASA.  Currently, implementing provisions, including competition rules and dispute resolution mechanisms are being developed.  With 28 out of 54 States have signed the commitment to participate in SAATM, it is clear that a number of states are more cautious to commit if compared to the previous 44 signatories to the YD.   It is important that Africa does not to lose focus and impetus on this project.  Several states that have both signed and not signed have some concerns on the practical implications of the implementation of SAATM.  Some are concerned about the potential impact of SAATM on smaller airlines, and others on the assurance that reciprocity in respect of the exchange of rights and value as appropriate is achieved.   It is critical for these issues to be identified, discussed and resolved.  Without such buy-in, implementation of SAATM on a continental-wide basis will be difficult to achieve.

One area which can make a difference in the growth and development of the airline industry in Africa is co-operation and collaboration between African airlines.  Several African airlines have joined the global alliances and this is essential for global expansion.  African airlines are in some cases more ready to enter into partnerships with international airlines with their African neighbours.   For intra-African growth, partnerships with neighbours is important to build a base for the development of an integrated network.

Work is also still required to resolve other regulatory constraints which impede the growth and development of air transport in Africa.  These include removing constraints from immigration regulations imposed by states, the introduction of an AU passport (which should bring with it the removal of visa regimes, where applicable) and the practical implementation of the Africa Continental Free Trade Area (ACFTA).  This would lead to growth in investment, tourism and trade and make the double-digit growth Africa should aspire to, possible.

For commercial jet operations, Africa has in the past few years achieved a safety record compared with the rest of the world.  For 2017 and 2018, Africa recorded a 0% hull loss rate, better than the global average.  This is a reward for a focus on the AFI Safety Plan initiative developed in 2012 targeting such improvements.  Unfortunately, with the loss of the Ethiopian Airlines B737 MAX earlier in 2019, this record will not be maintained.  There is still some work to do on the Africa safety record for turbo prop operations, where Africa is still higher than the global average.

With the attraction of overseas destinations for Africa’s skilled aviation professionals due to an increasing global skills shortage, Africa must focus on skills development and retention strategies to stem this tide.  This not only includes our pilots, aviation engineers and technicians and air traffic controllers but the retention of talent and expertise in many aviation specialist fields, including top executives, forecasters, pricing and revenue management specialists, IT and e-commerce, scheduling and ground handling experts.  Initiatives must be put in place to identify potential future aviation professionals in all school grades and where possible to guide and mentor such candidates to a career in their chosen area of expertise.  In South Africa, the transformation of the industry is imperative with focus necessary on transforming the workforce in pilots and aviation technicians as well as in leadership of the industry.  Aircraft manufacturers as well as IATA are projecting a doubling of the global industry activity by 2035 and of the African market by 2031 based on 2018 figures.  New aircraft to cater for this demand will need suitably qualified crew and maintenance engineers, supported by the airline aviation specialists noted earlier.

The above provides a synopsis of the status of the African, including the Southern African aviation industry, in 2019.  Whilst there are a number of challenges, African Aviation needs to focus on opportunities and be united in its quest to grow even faster that it is currently projected to achieve.