New Era Newspaper Namibia

African aviation industry expected to make US$100 million loss in 2018

Edgar Brandt

Geneva-While the global aviation industry’s net profit is expected to rise to over US$38 billion in 2018, up from US$34.5 billion anticipated net profit at the end of 2017, African carriers are projected to continue making losses of up to US$100 million in 2018.

According to the International Air Transport Association (IATA), African air carriers already suffered a collective net loss of US$100 million in 2017. Public Enterprises Minister, Leon Jooste, recently said that while he does not expect Air Namibia to post a profit in the short term, he does expect the national airline to significantly reduce losses, and to gradually move towards break-even, and eventually a profitable balance sheet, within an acceptable time.

Speaking at IATA’s Global Media Day here yesterday, Alexandre de Juniac, IATA’s director general and CEO, noted that stronger forecast economic growth in Africa is expected to support demand growth of eight percent in 2018, slightly outpacing the announced capacity expansion of 7.5 percent.

“The wider economic situation is only improving slowly in Africa, which hampers the financial performance of its airlines. The key Nigerian economy is only just out of recession and growth in South Africa remains extremely weak. While traffic is growing, passenger load factors for African airlines are just over 70 percent, which is over 10 percentage points lower than the industry average. With high fixed costs this low utilisation makes it very difficult to make a profit. Stronger economic growth will help in 2018, but the continent’s governments need a concerted effort to further liberalise to promote growth of intra-Africa connectivity,” said De Juniac.

He added that while prospects are slowly improving for Africa’s aviation industry and welcomed better connectivity between African countries, he cautioned that policies by African governments do not provide enough ‘openness’ to help airlines develop.

De Juniac pointed out that the major challenges for African airlines include inefficiency, high costs and low load factors.

Globally, De Juniac mentioned, strong demand, increased efficiency and reduced interest payments will help international airlines improve net profitability in 2018 despite rising costs. The year 2018 is expected to be the fourth consecutive year of sustainable profits for global airlines with a return on invested capital (9.4 percent), exceeding the industry’s average cost of capital (7.4 percent).

“These are good times for the global air transport industry. Safety performance is solid. We have a clear strategy that is delivering results on environmental performance. More people than ever are travelling. The demand for air cargo is at its strongest level in over a decade. Employment is growing. More routes are being opened. Airlines are achieving sustainable levels of profitability. It’s still, however, a tough business, and we are being challenged on the cost front by rising fuel, labour and infrastructure expenses,” said De Juniac.

“The industry also faces long-term challenges. Many of them are in the hands of governments. Aviation is the business of freedom and a catalyst for growth and development. To continue to deliver on our full potential, governments need to raise their game –implementing global standards on security, finding a reasonable level of taxation, delivering smarter regulation and building the cost-efficient infrastructure to accommodate growing demand.

The benefits of aviation are compelling – 2.7 million direct jobs and critical support for 3.5 percent of global economic activity. And the industry is ready to partner with governments to reinforce the foundations for global connectivity that are vital to modern life,” De Juniac stated.