Monday, October 1, 2012

● IATA: Outlook improves slightly for African aviation, but government interference continues to stifle growth.

The International Air Transport Association (IATA), in a revision of its Global Aviation Outlook for 2012, has said that now it expects African airlines to break even in 2012, following on from a USD100million loss in 2011.

Globally, an upward revision has been made to the overall aviation outlook for 2012 with the fall in airline profits from the USD8.4 billion that the industry earned in 2011, to be cushioned by improved airline performance this year. Airlines are expected to earn USD4.1 billion in 2012 (up $1.1 billion from the $3.0 billion forecast in June).
World Trade vs Brent Crude Oil Prices
World Trade vs Brent Crude Oil Prices (IATA)
However, as we have been seeing in the last few FY 2011/2012 announcements from African carriers, the precarious state of Europe's economy along with the slow down in the Chinese economy has had a negative impact on African aviation, particularly those who market base is tourism, but none so much has hurt as the increase in global oil prices. Overall, the forecast remains for an average oil price of USD110/barrel for the year. Jet fuel prices, however, have increased by USD1.20/barrel (in the June forecast) to USD127.70. This will add USD1billion to the industry fuel bill, bringing an anticipated USD208 billion cost for the year.

European carriers are expected to post the largest loss of any region at $1.2 billion ($0.1 billion worse than previously forecast). With a decline in the important North Atlantic premium travel market of 2.4% below previous year levels and premium travel within Europe down 3.5%, we may start to see further European investment/services to Africa in the near future. Korongo Airlines, FastJet, Gambia Bird, Air Cote d'Ivoire, EC Air Congo and a new possible Nigerian national carrier partnered with a European carrier (likely Lufthansa) are all examples of Europe's burgeoning interest in the once neglected African market.

Said Tony Tyler, IATA’s Director General and CEO:
Tony Tyler IATA
IATA Boss, Tony Tyler.
“The European sovereign debt crisis lingers on. China continues to moderate its growth. And the impact of recent quantitative easing in Japan and the US will take time to yield growth. While some of these risks have diminished slightly over recent months, they continue to take their toll on business confidence. The outlook improvement is due to airlines performing better in a difficult environment. 

Even six years ago, generating a profit with oil at $110/barrel (Brent) would have been unthinkable. The industry has re-shaped itself to cope by investing in new fleets, adopting more efficient processes, carefully managing capacity and consolidating. But despite these efforts, the industry’s profitability still balances on a knife-edge, with profit margins that do not cover the cost of capital.”

On Africa, IATA stated that African airlines are expected to break even in 2012. The region’s carriers have benefited from the strong growth being seen in many African economies, boosted in some cases by investment and trade links with China, and for some by strong oil revenues (Angola most notably). 

However, within the region airline performance continues to be very mixed.  On average load factors are the lowest in the world as many of the region’s airlines struggle to match capacity with demand. Additionally, in a previous interview with the Washington Post, Tyler allured to another looming problem: that of government interference and over taxation:
“(African) Governments can’t stop interfering and squeezing to try and get money,” he said. “They should look at aviation not as a cash cow to be milked but as an engine for economic growth which in the long run will provide much more tax revenue, employment and social development. We’ve seen that happen in Asia.” 

The bottom line is that Africa does have enormous potential. Despite common hindrances in the form of poor infrastructure, lack of expertise and a lot of the time, corruption, there certainly exists a market for intra-African travel without needing to fly to a European or Middle Eastern capital. 

Looking ahead to 2013, the overall aviation market is expected to improve moderately however most external factors will not change dramatically. Fuel prices are forecast to soften very slightly to USD105/barrel for Brent.