In his opening Address to this year’s Airline Association of Southern Africa (AASA) conference AASA CEO Chris Zweigenthal addressed the key question: “What’s stopping us? What’s not?” This is an edited version of his address presented in a question and answer format.
HOW IS THE AIRLINE INDUSTRY DOING?
The International Air Transport Association (IATA) expects the global airline industry to achieve a US$ 28 billion profit this year. Although down from a US$ 35 billion profit in 2018, it is a positive result. Contrast this with Africa, where airlines are collectively expected to lose another US$ 300 million in 2019.
It’s a re-run of 2018 and the ninth straight year of losses for the continent. The picture is similar for our sub-region. For almost a decade we have failed to turn the red ink to black.
WHY ARE AFRICAN AIRLINES PERFORMING SO POORLY?
Consider the current status of our region’s airlines: The Southern Africa region comprises 17 states : 16 SADC members and Reunion. It is home to 25 scheduled commercial airlines or which 13 are state-owned, 3 have joint public/private owners and 9 are privately owned. Of these, just 6 are profitable of which two are state-owned. That means 9 are unprofitable. The performance of the remaining 10 is not known as their financial results are not public. They may be profitable, but most likely only marginally.
WHAT IS AFRICA’S AIRLINE GROWTH?
Globally, passenger growth has slowed from 6.6% in 2018 to 5.6% this year. In contrast in Africa, average growth has accelerated by 2.8% this year, compared with 2.3% in 2018. August 2019 data released on 9 October 2019 reflect a 3.3% growth globally and a 4.1% growth in Africa, slightly below the annual trend. Over the long term, annual passenger traffic growth is forecast to average 4.4% globally and 5.6% for Africa by 2035.
Regarding airfreight, global trade tensions are unfortunately driving a negative global trend of 3.5% in 2019 with Africa interestingly deriving some benefit with a marginally positive growth of around 2% in 2019. August 2019 data released on 9 October 2019 reflect a 3.9% decline globally yet an 8% growth in Africa, reflecting Africa having the fastest growth worldwide.
WHAT ABOUT LOW COST CARRIERS IN AFRICA?
Low cost airlines are increasing their presence, operating in 28 of the 55 African States. They occupy about 65.4% of South Africa’s domestic market – and growing. But they only account for 16% of the entire African market, and a 33% market share globally.
THE THEME OF THIS ASSEMBLY IS “WHAT’S STOPPING US?” – WHAT IS?
I am unconvinced that Africa’s leaders fully appreciate aviation’s strategic importance and the benefits it delivers. AASA, in conjunction with IATA, the Air Transport Action Group (ATAG) and ICAO, persistently draws government authorities, regulators and policy-makers’ attention to these benefits. Our aim is to encourage collaboration and achieve mutually beneficial solutions.
WHAT ABOUT DEVELOPMENTS SUCH AS THE AFRICAN CONTINENTAL FREE TRADE AREA?
Inconsistent policies within and between states must be addressed. A positive development is the African Union’s attempt to establish the Africa Continental Free Trade Area. When fully implemented, it will be the world’s largest single trading bloc. Aviation, trade and tourism are among its key pillars.
Trade and Tourism will flourish if people and goods can move freely throughout the continent in a visa-free and streamlined customs environment. Visa waivers or visas on arrival are a step in the right direction, but meaningful progress on both fronts is frustratingly slow.
WHAT ABOUT LIBERALISATION AND THE SINGLE AFRICA AIR TRANSPORT MARKET?
Aviation’s most important contribution is to connect markets. In this respect, reforming Africa’s air transport regulatory framework remains critical. The African Union’s Single Africa Air Transport Market (SAATM) initiative, intended to operationalise the Yamoussoukro Decision of 1999, is intended to help governments leverage sustainable economic growth by opening up and connecting trade and tourism markets with expanded air services. For airlines it should reduce unit costs while increasing revenue. For travellers and shippers it means greater choice and reducing the cost of doing travel and business.
However, there are differing views on SAATM. Most are born out of concerns on the impact of SAATM on their businesses. In addition, some airlines and regulators fear what they see as uneven playing fields, especially with respect to the process of granting fifth freedom rights, sometimes without reciprocity, allowing airlines of one country to fly passengers and goods between two other countries.
Through the African Civil Aviation Commission as the Executing Agency, the AU must convene a meeting of concerned states and airlines (including some that have committed to SAATM), to identify and thrash out the problems. Africa’s credibility is on the line.
IS AFRICA’S AIRLINE INDUSTRY SUSTAINABLE?
For airlines to be profitable, revenue must exceed costs. In Africa the revenue generated reflects the competitive state of play. Yields are generally higher on regional flights and lower for international flights. This is a result of the intense competition provided by airlines from beyond Africa.
African airlines unit costs remain high. Many are dollar based, including aircraft leasing and financing, distribution, maintenance, some infrastructure service provider costs, and fuel, which sells at an average 35% premium compared with global average prices.
While African airlines cannot influence currency exchange rates, they must narrow the delta between costs and revenues by increasing aircraft utilisation, raising productivity and reducing other unit costs. This would enable them to offer competitive services to sell at fares that cover their costs, a move towards sustainability.
WHAT IS THE INDUSTRY DOING RIGHT – WHAT; “IS NOT STOPPING US”?
Our industry has been dominated by men, but our region is making some progress in righting the gender imbalance. In South Africa, about 52% of all airline employees are women. While most are in the lower management and staff, three of the eight airline CEO’s (38%) are women. Across the SADC region it is 15%. This compares favourably with the rest of the world, where, according to IATA, just 3% of scheduled commercial airlines’ CEOs are women.
However, in the specialist fields, including pilots, aviation engineers and technicians the statistics paint a gloomy picture. In South Africa, women account for just 10% of airline pilots and 10.5% of technicians and engineers. As a high-profile sector, there is much work still to be done.
“What is also not stopping us” is the availability of hungry young talent, ready to take up the positions in our industry. About half of Africa’s 1.2 billion inhabitants are aged between 19 and 25. It is why Africa is the continent with the highest growth potential; but this is not something to brag about. It’s a ticking time-bomb. We have to turn potential into actual growth.
Skills development and mentorship programmes must be implemented so we can transfer the necessary knowledge, expertise and skills, knowing, when it is time to pass the baton, that we can place it in capable hands.
IS CLIMATE CHANGE A THREAT?
Climate Change should not hold us back. The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) was reaffirmed at the ICAO Assembly. Ten African countries, including three SADC nations, have volunteered for the pilot and first phase of CORSIA. All states operating international flights above a certain threshold, must comply with an emission reporting programme to their States. This commenced on 1 January 2019 and generates an awareness and need for carbon emission reduction by airlines.
HOW IS THE CONTINENT DOING WITH REGARD TO SAFETY?
Historically, Africa’s safety record was dire, but remarkable progress was made over the past decade and it should no longer hold us back. 2017 and 2018 were unblemished by any fatalities or hull losses involving scheduled airline operations in Africa. The tragic loss of the Ethiopian Airlines Boeing 737 MAX this March not only brought this run to an end, but has raised serious questions about aircraft design, technology and certification, pilot training and recruiting standards and human factors on the flight deck across the board. It also prompted a worldwide crisis of confidence in the airworthiness certification model that has been in place and served the industry for decades.
Our entire industry needs certainty from the safety regulators in each state, on how they will recognise airworthiness certification programmes run by authorities in other countries. This is of particular importance in countries, including those in Africa and our region – which until now – have relied on their counterparts in the US, Europe, Canada and Brazil (representing the countries where the major airframe and engine manufacturers are based) to vouch for the safety of new aircraft and their engines. We cannot have a patchwork situation where commercial airliners and engines are deemed safe and fit for purpose in one jurisdiction, but not in others. Trust must be restored.
HOW DOES THE AIRLINE INDUSTRY ACCOMMODATE DRONES ?
Changes to the safety, regulatory and airspace management systems are also required to accommodate the increasing fleet of unmanned airborne systems as they take on more commercial air transport roles. This is not only about safely sharing airspace, but also how we share the commercial space.
We are no longer talking about gimmicky Christmas toys, but sophisticated aircraft capable of carrying heavy cargo loads over relatively long distances. They are about to revolutionise the logistics industry in tandem with a boom in e-Commerce and online shopping. Airbus, Boeing, Embraer, Amazon and numerous start-ups are also developing and testing passenger and cargo carrying UAS concepts. Rwanda and Ghana are global pioneers, hosting sophisticated UAS systems that deliver medicines from the main centres to remote communities. Visionary airspace design and management ensures they operate safely.
HOW IS AFRICA DEALING WITH CYBERSECURITY?
Data-driven technologies represent additional opportunities for African airlines to unlock additional value, especially if they take the hassle out of travel for passengers and make doing business more efficient.
The flip-side is an imperative for vigilance and continual investment in robust protection and data security systems. Securely preserving the integrity and privacy of data is crucial, especially in the air transport and allied sectors where transactions are done with people and businesses in numerous jurisdictions and covered by various laws.
A case in point occurred this July, when the United Kingdom’s Information Commissioner slapped British Airways and its parent, International Airlines Group, with a record £183 million fine – representing about 1.5% of their turnover. This was a penalty issued under the EU’s General Data Protection Regulation, for a data breach that affected 500 000 BA customers browsing and booking tickets online. GDPR applies to any business that processes European citizens’ personal data – regardless of where in the world they may be domiciled and operating.
AND IN CONCLUSION?
I have looked back past state of the industry addresses, which have often concluded that “we need to do something about our situation, but progress is slow”. We’ve all seen this movie before. It is time we stopped hitting “Repeat” and press “Play” to start a new episode – the one which sees new partnerships and alliances formed, opportunities created (and taken), with a vibrant and heroic Africa emerging.