Africa is an expensive place for airlines to do business

15th May 2019 | Elizabeth Sasu

African airlines continue to struggle to turn a profit and as such airlines on the continent on average lose US$1.55 (almost N$22) for every passenger carried. This is in stark contrast to the rest of the global airline industry that has recorded an average profit per passenger of US$7.45 (about N$105) showing that air transport can indeed yield a return greater than the cost of capital.

These figures were released on Monday by Raphael Kuuchi, the International Air Transport Association’s (IATA) Special Envoy on Aero-Political Affairs during an African Airline Association’s stakeholder convention in Mauritius.

“There are many reasons for the poor performance of African airlines. Africa is an expensive place for airlines to do business,” said Kuuchi, adding, “Too many African governments tax aviation as a luxury rather than a necessity. We must change that perception. The value of aviation for governments is not in the tax receipts that can be squeezed from it. It is in the economic growth and job creation that aviation supports.”

Examples of how expensive the aviation industry is in Africa include jet fuel, which costs 35 per cent higher on the continent than the rest of the world, African aircraft departure fees are 30 per cent above the global average and African taxes and fees are among the highest in the world.

Kuuchi emphasised that there is no shortage of examples illustrating the heavy burden governments and service providers exert on aviation. For instance, in Niger, US$80 (about N$1,120) from each ticket is paid to the government in fees, taxes and charges. Cameroon recently added a US$37 (about N$518) development tax per passenger and the Democratic Republic of Congo charges every arriving passenger US$15 (about N$210) to promote tourism, which Kuuchi said was “rather counter-productive if you think of it”.

IATA’s Special Envoy added that another important element of competitiveness for airlines is the ability to reliably repatriate earnings, in line with international treaty obligations. “So, the African countries blocking over US$1 billion (more than N$14 billion) of airline funds are a big concern. Many of these countries are facing severe economic challenges. But blocking airline funds puts connectivity at risk.

And that invites even broader economic problems. It is in everybody’s interest to ensure that airlines are paid on-time, at fair exchange rates and in full. And when problems are on the horizon, an urgent dialogue is the first step,” Kuuchi advised.

He pointed out that IATA has achieved success in Nigeria and Egypt where government actions completely cleared the backlog of funds and said some gains have also been made in Angola.
Commenting on Africa’s aviation infrastructure, Kuuchi stated that sufficient runways, terminals, airspace capacity to meet demand, technical and commercial service quality aligned with airline needs and affordability are what largely lacks in Africa. Said Kuuchi: “In Africa, we have problems in two extremes. At one end, when infrastructure is built, too often we see unnecessary and unfit infrastructure with a hefty price tag.

The strategy to avoid this is dialogue from the earliest stages of any infrastructure project. The other extreme is where we see the need for critical capacity to be built. Ghana, Senegal, South Africa have taken a collaborative approach to infrastructure—including pricing—that is producing positive results for all stakeholders. But there are critical bottlenecks in other major cities. If planes cannot land, the economic benefits that they bring will fly elsewhere.”

Regarding airport privatisation, the global aviation industry passed a resolution at the last IATA annual general meeting calling on governments to be cautious when considering airport privatisation and urged broad and rigorous consultation to make the right decisions and ensure they gain the best long-term economic and social benefits.

“We are putting the resolution into practice in some countries where governments are considering a private-public partnership in the future development of airports. IATA is providing guidance to the governments, including the economic regulation that will be needed to make them a success for all stakeholders and provide the connectivity that the countries need to develop,” Kuuchi concluded.

Source: neweralive