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Profitability is top of the bill

Posted 23 October 2017 · Add Comment

The African Airlines Association (AFRAA) will hold its 49th annual general assembly (AGA) in Kigali, Rwanda on November 12-14. Victoria Moores caught up with outgoing AFRAA secretary general, Dr Elijah Chingosho, to find out what's in store.

What is the theme of this year’s AGA and what do you hope to achieve?
The theme is ‘rethinking strategies for African airlines’ profitability’.
According to IATA, the global air transport industry will report a $34.8 billion net profit for 2016 and $31.4 billion for 2017.
In stark contrast to global trends, African airlines made a record $1 billion loss in 2015, followed by a $100 million loss in 2016. The outlook for 2017 is for another $100 million loss. In light of this, the CEOs will share ideas on strategies to turn around the poor financial performance of the African airline industry, to make it viable, competitive and profitable.

What concrete progress has there been since last year’s AGA?
One major achievement was that in 2016 there were zero safety-related fatal airline accidents in Africa, the first time the continent has achieved this. The challenge now is to avoid complacency and to keep the momentum up.
There has also been some progress on the single African air transport market; the number of states that have committed to fully open their skies has increased to 22 in July 2017, from 11 in January 2015. This constitutes more than 80% of international traffic to and from Africa.

Liberalisation was meant to have already happened. How far along is the process and what are the next steps?
The launch of the single African air transport market was originally scheduled for mid-2017, but has now been moved to January 2018. The delay was largely due to some regulatory texts that need to be finalised, but it is our belief that the liberalisation process is now irreversible.
Although full liberalisation has not yet been achieved, there has been slow but significant progress over the years. Airlines enjoy fifth-freedom traffic rights in most African states and there has been progress in relaxing visa requirements in a number of countries, including Rwanda, Benin, Seychelles and Ghana.

What external challenges are your member airlines currently facing?
One major challenge is blocked funds, where money from foreign operations cannot be moved from that country to another, adversely affecting airline cashflow.
Some governments, notably those largely reliant on oil exports for their foreign currency earnings, were significantly affected by oil prices falling steeply from an average of $116.60 per barrel in 2014 to around $50.00, one time dipping as low as $30.00.
In Africa, the worst-affected countries are Angola, Algeria, Nigeria and Sudan. Our combined lobbying efforts with IATA and various stakeholders have had some impact. Egypt, which used to be among the states with the highest amounts owed, cleared its arrears in May 2017 and Nigeria has significantly reduced its amounts, as shown in the table.
With continued low commodity prices, more countries are having foreign currency challenges and this may increase the number of states where airlines cannot repatriate funds. Some countries, such as Tunisia, Uganda and Zambia, have been included in the IATA watchlist, based on different indicators (bank reserves, country credit rating downgrades, credit default swap movements and forward curve).

What do you think will happen to African airlines in 2017-18?
We will continue to see some airlines in Africa – those that are committed to full liberalisation of African skies, are bold and do not fear competition – prosper in an increasingly liberalised operating environment. These include Ethiopian Airlines, RwandAir and Royal Air Maroc, among others.
Restructuring in some airlines will also bear fruit. As a result, we foresee more routes being opened between African cities, improved connectivity and better-harmonised networks, as African carriers cooperate for their mutual benefit.

What still needs to change for African airlines to succeed?
African airlines have made significant losses since 2014, when globally airlines have been making significant profits. The causes of these losses need to be urgently addressed. These include costs – such as passenger and fuel taxes, fees and charges – well above the global average.
Blocked funds need to be urgently addressed and liberalisation needs to be completed, facilitating consolidation.
Most government-owned airlines suffer frequent top management changes and several airlines, large and small, are headed by acting CEOs for long periods. Top management stability is critical to allow the CEO to come up with strategies and implement them.
Load factors, at around 68%, are well below the 80% global average, because some airlines use large aircraft for thin routes, rather than smaller regional aircraft performing more frequencies.
Infrastructure at some airports also needs to improve, ensuring that international airports are open 24 hours a day and have uninterrupted power.

This will be your last AGA before you step down. What changes have you seen among African airlines since you became secretary general in January 2011?
I have witnessed a significant improvement of safety standards, culminating in 2016 having zero safety-related accidents, as well as increased willingness among airlines to cooperate.
In the past, some airlines viewed liberalisation as a threat to their existence. The majority now view liberalisation as critical to the development of the industry.
AFRAA member airlines are also much more demanding in terms of tangible results, so I came up with a business plan with key performance indicators for the first time, including joint projects to enhance airline revenues and reduce airline costs.
AFRAA launched a fuel project for African airlines in 2012, followed by a ground-handling project in 2014, a network coordination and collaboration project in 2015 and a cargo cooperation project in 2016.
Joint training, under the auspices of AFRAA, has allowed experts from African airlines to help in all areas of airline operations.

How is the search for a new secretary general progressing?
The post was advertised in April 2017 and employment agency Spencer Stuart is helping the AFRAA committee identify the right person to take over. My replacement will be announced in the next few weeks/months.



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