What is wrong with African airlines and how can they be fixed?

What is wrong with African airlines and how can they be fixed?

The African aviation industry is projected to make a loss of US$100 million in 2017 and the International Air Transport Association (IATA) expects the trend to continue into 2018 as airlines on the continent are forecast to lose another US$100 million in 2018. These dismal figures are expected as the rest of the world’s aviation industry is set to make a net profit of over US$38 billion in 2018. What is wrong with African airlines and why can’t the majority of them break even, much less make a profit? New Era’s Senior Business Reporter, Edgar Brandt, together with journalists from across the continent, sat down with Alexandre de Juniac (AdJ), IATA’s Director General and CEO, at the organisation’s offices in Geneva, Switzerland, to get some answers. IATA’s mission is to represent, lead, and serve the global airline industry.

NE: Why are African airlines still struggling to break even or make a profit?
AdJ: The main challenges are safety, security and infrastructure. Also, in some African countries we want governments to pass laws or enact policies that encourage airlines to develop. In some countries there are still some regulations or laws that are preventing or limiting the growth of airlines, especially in terms of taxation and cost.

NE: Are you making any progress on blocked funds in some African countries?
AdJ: We have seen problems in repatriating funds in some countries, mainly in oil-producing countries, due to the fall in oil prices. But we are working with those governments to repatriate those funds. The nine African countries where airlines are struggling to get their money out are Angola, Algeria, Eritrea, Ethiopia, Libya, Mozambique, Nigeria, Sudan and Zimbabwe.

NE: IATA has been lobbying African governments for the release of blocked funds. How successful have you been?
AdJ: IATA has been quite successful, specifically in Nigeria and totally successful in Egypt. Our actions have been effective and efficient, partly thanks to the recovery of the oil price. Usually the blocked funds are managed by the central banks that have problems with their foreign reserves.

NE: Does IATA have a view on African airline ownership?
AdJ: Our position is that the governments can issue provisions for foreign ownership; that is their right. However, the more you limit foreign ownership, the more you limit the possibility for consolidation. These types of limitations exist in many countries all over the world, even in places such as the US (United States), the EU (European Union), India and China, everywhere. When you think about this industry, which is capital-intensive and labour-intensive with low margins, generally the rational economic answer to this type of constraint is consolidation.

NE: Should governments start privatising airlines?
AdJ: We have no doctrine on that. They can do whatever they like, knowing that if they privatise then they should privatise totally. They can do whatever they like. We don’t see any interest in that. The option is up to them to allow foreign ownership. But keep in mind that the more the limitations then the less chance of consolidation.

NE: Some of the infrastructure in Africa desperately needs to be modernised and in many cases this can only happen through privatisation. Does IATA support this notion?
AdJ: Our policy is that we tell governments to be careful before privatising. Privatisation is only one tool they have in their toolboxes but it is not the only tool. Also, when you privatise your should be very clear on what you are privatising. Are you selling everything or are you selling partly? Do you subcontract or do you give concession contracts? Governments should conduct extensive studies and make the correct decisions.

For instance, in India the winner of the privatisation contest was the one who could give back the most amount of money to government, which in India is 46 percent of airport revenue that is given back to government. In addition, there are some structures that we think are detrimental to the aviation industry, such as the double till system.

We clearly favour the single till system.

We fully understand that some governments need to have a complement coming from the private sector. But in principle, we are not against privatisation; all we are saying is that governments should be careful when embarking on this exercise. Governments should think about it carefully. In many countries privatisation is done due to budget constraints but this is a big mistake because the aviation interest should come first. The aviation interest should be the first element when considering privatisation. When you privatise the government should keep an eye on the infrastructure because it is the national, critical infrastructure for the country.

NE: What are the dangers of privatisation?
AdJ: The danger first of all is cost. In almost every country where the airline has been privatised the costs have skyrocketed and the service has not improved accordingly. When you look at airports around the world then the best airports are those that have been privatised. These include, Singapore, Hong Kong. Amsterdam; these airports are all in private hands.

NE: When do you see your recent agreement with the African Development Bank bearing fruit?
AdJ: In the coming two to three years and not before. We are an industry that has long-term issues. We don’t expect the agreement to bear fruit overnight.

NE: Many African countries are reluctant to liberalise their markets. What is your advice to them?
AdJ: Do it! You can be cautious to safeguard your national carriers but the fact is that wherever aviation has been liberalised the industry has benefitted significantly. The more you open your borders the better it is for your aviation industry and the more traffic you will have resulting in more goods being traded.

NE: You had tremendous success with the IOSA (IATA Operational Safety Audit) programme. Would it be possible for IATA to consider some other types of intervention to reduce the skills shortage on the African continent?
AdJ: We do a lot of training in Africa. We train so many people to acquire new skills. We should perhaps work with the education or transport ministries to train more professionals for the airline business.

NE: Do you think the industry is over regulated in Africa?
AdJ: I’m not sure. It is not always well regulated but this happens all over the world.

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