International Air Transport Association (IATA) Regional Vice President for Africa, Lance Brogden, says the deepening global recession has cast a pall on aviation in Africa.
Speaking at the Aviation Outlook Africa conference in Cape Town, he said
African airlines will this year post losses of at least $300 million and the global industry $2.5 billion.
Recapping recent events, Brodgen says last year was a roller coaster that saw fuel prices peak in July at US$147 a barrel. Even when oil prices plunged to below $40, hedging meant it still averaged US$100 a barrel.
“We didn`t have time to catch our breath” before the US credit crunch escalated and caused a meltdown that toppled financial institutions worldwide, Brodgen says.
He says the crises has wreaked havoc on consumer confidence and depressed the demand for air travel.
“In 2008 international passenger traffic growth slowed to a crawl globally at 1.6% while Africa contracted 4%. Cargo traffic ended the year down 4%. Africa fared a bit better with a contraction of 2.5%.”
Brodgen says the turbulence also hurt the bottom line: Airlines ended the year
with a US$8 billion loss. “Carriers in this region lost $300 million.” He says the outlook for 2009 isn`t any better.
“Oil prices will ease to an average of $60 per barrel but the recession will take a further bite out of demand,” he warns. “Globally passenger traffic will decline 3%, air freight will fall 5%, yield will also drop by 5%, while industry revenues will shrink by $35 billion.
“January traffic results show that even these projections may be optimistic.
“Passenger demand dropped 5.6%, while cargo fell off a cliff again with a 23.2% decrease.” The IATA regional chief notes 35% of the value of all goods traded internationally is shipped by air. “This is a clear indicator that global trade is falling and the worst is yet to come. In Africa passenger demand dropped 2.6% and cargo by almost 20%.
To survive, airlines need to adopt an agenda for change with four core key components:
Ø Improved efficiency
Ø An effective approach to environment
Ø And increased commercial freedoms
“Our top priority is safety and we have delivered impressive results. Air is the safest way to travel. Industry-wide in 2008 we had one accident for every 1.2 million flights. For IATA members it was one accident for every 1.9 million flights.
“However this region …[along with Soviet Union successor states, the Middle East ad Latin America] have accident rates than the global average. In 2008 the African accident rate was 2.5 times the world average with one accident per 471 000 flights – but not one involved an IATA member!
“This tells us that there we have some work to do. But compared to 2005, when we had an accident for every 109 000 flights it shows a remarkable improvement. The way forward is in global standards. Our commitment to safety is global and the application of safety standards must also be global
and that includes Africa.
“Globally, safer skies have resulted thanks to the partnership of governments and industry working with global standards. However, in Africa we continue to see inconsistent implementation of international standards and inconsistent use of safety management systems.
“Safety oversight must improve. That combined with skills training at every level and investment in infrastructure are the most critical factors in bringing African safety levels up to global standards.
“Not a single African carrier that is a member of IATA had a hull loss or fatal accident in 2008.”
Over the past seven years this industry has changed tremendously. “Since 2001, airlines have delivered impressive efficiencies. Non-fuel unit costs down 13%, productivity improved 61%, sales and distribution costs dropped 13% and fuel efficiency is up 19%.
Brogden says electronic ticketing has kick-started a revolution in air travel. “In 48 months we delivered US$3 billion in industry savings with e-ticketing.” He adds that technology and process changes can safe industry a further US$11 billion.
“Our ‘Fast Travel` programme will expand the range of self-service options for check-in, document scanning, bag drop, self-boarding and baggage claims. Fast travel gives passengers more control over their journey. It helps airports make better use of space and it cuts costs.
“Airports are also busy switching over technology to support the industry conversion to bar coded boarding passes, finally ridding ourselves of expensive ATB printers. Twenty airlines in Africa are printing BCBP. But we need everyone on board by the end of 2010. This will save $1.5 billion per year.
“Baggage is another area of opportunity. Currently mishandlings costs the industry $3.8 billion per year. IATA`s ‘Baggage Improvement Programme` will cut mishandlings and the associated costs in half by diagnosing problems and providing a toolkit of solutions. Successful trials were held with nine airlines and nine airports last year.
“In 2009 will be pushing it out to the top 20 airports worldwide. Africa risks falling behind in terms of technology. This hurts efficiency and service.
“Simplifying the Business is a clear example of the importance of stakeholder cooperation
Our fates are intertwined. That`s why it is so critical airline efficiency gains are matched by its suppliers. In July we wrote 133 airports and 66 ANSPs asking for urgent action in light of the crisis. Some responded positively. Unfortunately some other partners don`t share our sense of urgency.”
“Environment is not at the top of the political agenda in Africa, but it is on the rise. For aviation it sits right next to safety and security as a top priority. Why? Because every drop of fuel is critical to our bottom line” Brogden says.
“Air transport has a strong track record on the environment and a vision for carbon-neutral growth leading to a carbon-free future. That vision is powered by our four pillar strategy:
Ø invest in technology
Ø fly planes efficiently
Ø build efficient infrastructure
Ø and use positive economic measures
“The strategy has been endorsed by all 179 ICAO member states and the industry has rallied behind it with a commitment signed by the CEOs of aircraft and engine manufacturers. Our common target is to achieve a 25% improvement in fuel efficiency by 2020 compared to 2005
We are backing our words up with results and airlines are doing their part ordering new, fuel-efficient aircraft.
“IATA is also playing a role. Since 2004 globally we have delivered US$12 billion and 59 million tonnes of CO2 savings by shortening routes, enhancing operational procedures and sharing best practices. Last year in Africa we delivered US$151 million in savings.
Brogden says reforms are needed to allow pilots to take full advantage of the technologies they have on board to improve safety while reducing fuel burn.
“We must look at user-preferred air routes optimising the regional air route structure and implementing performance-based navigation procedures for all phases of flight. And environmental costs don`t stop there. There has been a rash of environmental taxes, particularly in Europe. They issue taxes that pad their budgets but do nothing for the environment.
“As environment rises to the top of the political agenda we must avoid this trend by making governments aware of our impressive track record, our aggressive vision and the fact that taxes only hurt airlines` ability to invest in cleaner aircraft.
“Another threat our industry faces is outdated regulations that limit airlines` ability to do business. The bilateral system is the problem. Airlines cannot serve markets until governments negotiate access and they cannot merge or consolidate across borders because of foreign ownership restrictions.
“Airlines are businesses suffering from the economic downturn, like all others. But we do not have the tools to manage the crisis that other businesses take for granted – and it constrains growth.
“Airlines that have consolidated are making money: LH/Swissair, AF/KLM.
“In October of last year we held an Agenda for Freedom Summit in Istanbul with the EU and 14 governments including Morocco and Mauritius. We found common ground and common vision among the participants and we are working with them on several proposals.
“Changing 3,500 bilateral agreements overnight may not be realistic. But the pace of change must increase. Our vision is for governments to ensure a level playing field and effectively regulate safety, security, monopolies and environmental standards so airlines can do business…like any other business.