Worldwide the airline industry is having an unprecedently good run, as it is now entering its tenth year of profits and is covering its cost of capital – an excellent achievement for a capital intensive industry with thin margins.
However, in stark contrast, African airlines are still failing miserably – and if you take the privately owned airlines and outlier Ethiopian airlines out of the mix, then the picture is disastrous. African airlines will deliver a $0.1 billion loss (unchanged from 2018), continuing a weak trend into its fourth year. A recent report by the International Air Transport Association (IATA) says that the whole African airline industry – including Ethiopian and privately owned airlines, will have record losses in 2019 as they have low load factors and a high cost of operations from fuel surcharges, poor management and high passenger taxes.
IATA calculates that African airlines lose U$1.54 on every passenger they carry – which contrasts badly with the almost U$10 profit per passenger made worldwide.
The World Bank has revised its expected African economic growth down from 5.7 percent in 2018 to 4.3 percent this year. Part of the reason for this downgrade is the constraints on trade in goods and services due to the capacity and connectivity limitations of African airlines.
Adding to Africa’s woes is that the world is heading for tougher times. Global demand for airlines this year will grow by 5.0 percent, down from 7.4 percent last year. This can be expected to further constrain African airline industry growth. If the African airline industry cannot succeed in good times it is probably fair to conclude that it will fail abysmally in tougher times. The problem is two-fold: Firstly; state ownership of airlines and their resulting interference in policy and management. Secondly, the fragmentation of the African airline industry. The United States has three global carriers compared to Africa which has 161 airlines.
Ethiopian Airlines is the only African state-owned carrier which has been recording profits in the past couple of years, thanks to the state owner’s hands-off policy, plus the airline’s effective exploitation of its location as a hub and a new fuel-efficient fleet. If the state is going to own an airline and interfere with its management, whether to protect jobs, or drive a political or developmental agenda, it has to be prepared to spend taxpayers’ money subsidising rich travellers at the expense of the poor.
The South African government has become spineless in its lack of support for SAA. Without the political courage to take tough decisions it will continue to bleed the state for scarce funds. This is the swamp which forced the CEO of SAA, Mr Vuyani Jarana, to resign. I fear that his acting successor, Ms Zuks Ramasia has accepted a career ending job.