No easy money to be made in SA airline industry - IATA

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He said restrictive aviation policies in Africa have been one of the handicaps for the industry, despite talks on the continent for the past 20 years of liberalising African markets to African airlines. "About 80% of business going to Africa go on non-African airlines. This is a massive loss of opportunity." He added that taxes on the industry, including on aviation fuel, are very high in Africa. For example, the impact of exchange rate volatility on currencies like the rand has caused South Africa's airline industry to miss out on the rewards of the current lower oil price, according to Iata chief economist Brian Pearce.

Not measuring up

"You can never say with exchange rates, for example the South African rand. One can never say there will not be more surprises in future," Pearce said on Thursday at an Iata media briefing. "Exchange rates are impossible to forecast with certainty."

Iata data show Africa's aviation industry has had the weakest financial performance in the world for the past two years. "Losses have emerged again due to regional conflict and competitive challenges," said Pearce. "Break-even load factors are relatively low, as yields are a little higher than average and costs are lower."

However, few airlines in the region are able to achieve adequate load factors, which average the lowest globally at 56% in 2015 with the same expected for 2016. "Performance is improving, but slowly," said Pearce. Airlines in Africa are expected to be in the red for both 2015 and 2016, with losses of $300m and $100m respectively. The continent's losses per passenger make its performance even worse than that of Latin America.

According to Iata, Africa's airlines in general suffer from weak economies and stiff competition on international markets. Growth is also weak with a 0.4% capacity expansion expected for 2015, rising to 1.6% in 2016.

Tyler said at the briefing that every day about 100,000 flights take off and land safely in the world. This involves about a million people and about 150,000 tonnes of cargo over 54,000 routes. "All of this could not happen without global standards. It would be chaos - operationally, commercially and strategically," said Tyler.

Good news globally

He said the global aviation industry outlook in general is a good news story. "Our outlook for this year has improved to $33bn net profit expectation for a margin of 4.6%," said Tyler. "And profitability continues to strengthen in 2016 with the expectation of a $36.bn profit for a 5.1% net margin." The cost of capital is just under 7% and Iata's expectation is for airlines to achieve a return on capital of 8.3% in 2015, increasing to 8.6% in 2016. "So we are finally, after years of destroying capital, delivering the minimal level of profitability that an investor would expect," said Tyler.

"There is no 'easy money' profitability that is sustainable for any business. Any profit in a competitive business environment is hard-earned. Large parts of the industry are still struggling, including some making losses." The message Iata has for governments is to use aviation as an economic driver. Examples are what has been done in aviation in Singapore, China, Chile, the Gulf states and South Korea.

*Carin Smith is a guest of Iata at its global media event.

Source: Fin24