INTERNATIONAL Air Transport Association (IATA) says airlines in Africa have continued to be weighed down by high operational costs, coupled with unsustainable government taxes.
In its airline industry performance report for 2019 and 2020 forecast, IATA said African airlines will continue to suffer despite a relatively good economic growth in the region.
“African carriers continue to suffer structural problems of high costs—in large part owing to government taxes and fees–and low load factors.
“Economic growth in the region has been relatively good and is expected to rise in 2020, but markets are extremely fragmented and inefficiently served in the absence, so far, of a Single African Air Transport Market.
“As a result, they are projected to show a loss of $200 million, similar to 2019.
Most airlines in Africa such as Air Zimbabwe and South Africa Airways among others have had to depend on bailout from their governments.
Countries such as Zambia are banking on a partnership with Ethiopian Airways after failing to effectively run their own airlines.
Meanwhile, IATA revealed that globally economic performance in 2019 was weaker than had been anticipated at the time of the June forecast. This aligns with weaker global GDP growth of 2.5% (versus 2.7% forecast in June) and world trade growth of just 0.9% (down from 2.5% forecast in June).
According to IATA, these negative
developments contributed to softer passenger and cargo demand and corresponding
weaker revenue growth, as passenger yields fell 3.0% and cargo yields dropped
5.0% compared to 2018.
Operating expenses did not rise as much as anticipated (3.8% vs. 7.4% June
forecast) largely owing to lower-than-expected fuel costs; but this was not
enough to offset the softness in revenue.
IATA director general and chief executive officer Alexandre de Juniac said “slowing
economic growth, trade wars, geopolitical tensions and social unrest, plus
continuing uncertainty over Brexit all came together to create a tougher than
anticipated business environment for airlines.
“Yet the industry managed to achieve a decade in the black, as restructuring and cost-cutting continued to pay dividends. It appears that 2019 will be the bottom of the current economic cycle and the forecast for 2020 is somewhat brighter.
“The big question for 2020 is how capacity will develop, particularly when, as expected, the grounded 737 MAX aircraft return to service and delayed deliveries arrive,”.
Below is what the associations is forecasting the operating environment will be like for airlines in 2020
Performance Drivers for 2020
Economic Growth: GDP is forecast to expand by 2.7% in 2020 (marginally above the 2.5% growth in 2019). World trade growth is expected to rebound to 3.3% from 0.9% in 2019, as election year pressures in the USA contribute to reduced trade tensions. Growth is supported by actions from central banks as well as easing fiscal policy.
Fuel Costs: Slower-than-expected global economic growth in 2019 contributed to lower energy demand, with crude oil prices averaging around $65 per barrel (Brent), compared to $71.60 in 2018. Oil supply is also plentiful, boosting inventories. As a result, oil prices are expected to dip further in 2020 to $63 (Brent). Jet kerosene prices are also expected to dip, averaging $75.60 per barrel versus $77 per barrel in 2019. The expected industry fuel bill of $182 billion will represent 22.1% of expenses, down from $188 billion or 23.7% of expenses in 2019.
Labour: Total employment by airlines is expected to reach 2.95 million in 2020, up 1.6% on 2019. Productivity (ATKs/employee) is expected to rise 2.9% over 2019 as capacity growth picks up. Unit labor cost ($/ATK) is expected to be virtually flat at $0.12, as better productivity offsets increasing wages.
Passenger: Passenger demand (RPKs) is expected to grow 4.1% in 2020, in line with 4.2% growth in 2019. In fact, this masks a GDP-growth-driven pick-up since the underlying growth rate fell to less than 4.0% in 2019. However, whereas passenger capacity (ASKs) rose 3.5% in 2019, it is forecast to grow 4.7% in 2020 – as aircraft deliveries rise significantly, causing load factors to slide to 82% from 82.4% in 2019. This will maintain pressure on yields, which are expected to slide 1.5% after falling 3.0% in 2019. Passenger revenues, excluding ancillaries, are expected to reach $581 billion (up 2.5% from $567 billion in 2019).
Cargo: Cargo traffic turned negative last year for the first time since 2012. The 3.3% annual decline in demand was the steepest drop since 2009 during the Global Financial Crisis. Freight carriage, meanwhile, slipped to 61.2 million tonnes from 63.3 million tonnes in 2018. Cargo traffic is expected to rebound moderately with 2.0% growth in 2020, with tonnes forecast to reach 62.4 million, which is still below the 2018 result. Yields will continue to slide with a 3.0% decline forecast for 2020, an improvement from a 5.0% decline in 2019. Cargo revenues will slip for a third year in 2020 with revenues expected to total $101.2 billion, down 1.1% from 2019.
