Greedy airports strangling airlines

Governments need to more to protect airlines against the greed of monopoly airport companies and stop what amounts to “sky-way robbery”.

That’s the message the International Air Transport Association’s regional vice president for Africa, Lance Brogden, had for CEOs, executives of Southern African airlines, government officials and heads of air transport industry service providers attending the annual conference of the Airlines Association of Southern Africa in George on the Cape south coast.  

Brogden says airlines have generated US$32 billion in profit in the last 60 years worldwide based on revenues of US$11 trillion – an average margin of just 0.3%. “Last year airlines made US$5.6 billion, but African carriers lost US$400 million and the financial situation will deteriorate further this year.”
The IATA executive said brutally high fuel costs will total US$186 billion this year, “that`s four times what it was in 2003” and the global credit crunch was putting the brakes on economic expansion and air traffic  demand.
In the year to date “we have seen a sharp drop off in demand in our region” of -1.9 % for passengers and -6.6% for cargo, he added. Brogden says the recent drop in oil price offers some relief, “but remember that is a tell tale sign of a slowing economy, so whatever operational savings airlines generate will likely be surpassed by revenue lost.
“For 2008 we expect losses of US$5.2 billion, US$700 million of that on this continent, making Africa the most unprofitable place to run an airline.”

Brogden says this means the greater aerospace family must close ranks. At its June AGM in Istanbul, Turkey, IATA members airlines agreed on an agenda for change that included engaging labour and governments.

“Labour must realise the jobs disappear when costs don`t come down; airports and air navigation service providers must deliver greater efficiencies and governments have a long [to-do] list” that includes:
·         stopping “crazy taxation”
·         effectively regulating monopoly suppliers
·         fixing infrastructure
·         and giving airlines the freedom to do business

The IATA regional VP adds that IATA has since then been fighting for cost cutting, improved operational efficiency and trade liberalisation.

Regarding costs, he said IATA last year managed to save member airlines US$3.7 billion in charges, fees and taxation, USD270 million of that in Africa. This year they are trying harder, but while some authorities and airports have responded, others are still making vast profits, including OR Tambo International Airport that ranked seventh in the world in terms of earnings before interest and taxes (49.5%). 
“Can you imagine any airline making that kind of margin? Still governments stand by and watch this ‘sky-way robbery` go on,” Brogden told his audience. “We are in crisis. It`s time for all governments to get serious about regulating monopolies and it`s time for our partners to match our efforts in delivering cost efficiency and good service.
Making savings
Brogden says several cost saving intiatives are working. The conversion to e-ticketing earlier this year
will save US$3 billion a year. “This was an incredible achievement, especially in Africa where implementation hurdles were highest.
But more money can be saved. He says bar-coded boarding passes also offers quick savings with minimal investment – at least US$5 per passenger for a start. Common User Self-Service (CUSS) technology is also delivering savings of US$2.50 per check-in. At the moment four SA airports are using CUSS kiosks, including OR Tambo.
The biggest saving will come from liberalising airline ownership and business rules, Brogden adds. “In the longer term we need fundamental structural change. On the supplier side, airlines do business with a handful of conglomerates or state-protected monopolies, all of which keeps costs up. Meanwhile a thousand plus airlines battle tooth-and-nail for every customer, which keeps revenues low.
“Airlines are the meat in a very unsatisfying sandwich.” Brogden blames the situation on the 60-year old bilateral air transport agreement system. 
“It prevents airlines from acting like normal businesses. Airlines cannot serve markets until governments negotiate access and we cannot merge or consolidate across borders because of foreign ownership restrictions. Who cares who owns an airline so long as it is safe and provides efficient service?” 
Airlines that have consolidated are making money, he adds, citing Lufthansa/Swiss and Air France/KLM as examples.
“The longer we wait, the sicker this industry becomes. At the end of this month IATA will be holding an Agenda for Freedom Summit where we will facilitate a discussion among progressive governments. The vision is to work within the bilateral system to give airlines greater commercial freedoms. While governments retain responsibility for ensuring a level playing field and effectively regulating safety, security, monopolies and environmental standards, the goal is to allow airlines to operate like any other business.