African airlines need to improve their safety standards and operating environment, according to the International Air Transport Association (IATA).
With a few exceptions, African airlines have been regarded as having a poor safety record, mainly as a result of publicity given to the large number of crashes involving airline and cargo aircraft (mainly those manufactured in the former USSR).
Globally airlines averaged one accident for every five million flights in 2012 on Western-built jet aircraft. Africa lost one jet for every 270 000 flights. The European Union (EU) has even gone as far as to ban a large number of African airlines from operating within the UE due to safety concerns from alleged poor maintenance and regulatory oversight.
Speaking to the Cape Town Press Club on Thursday, ahead of the IATA Annual General Meeting and World Air Transport Summit to be held in Cape Town in early June, Tony Tyler, Director General and CEO of IATA, says that safety is the biggest challenge for air transport in Africa.
“Looking at accidents involving all aircraft types and levels of damage, there were 75 in 2012 and 13 of these were in Africa,” Tyler notes, “Africa is about 3% of global traffic and 17% of accidents. So, my first message is that there is a safety problem that must be fixed.”
Last year saw a remarkable achievement in aviation safety. There were no hull loss accidents with Western built jet aircraft among airlines on the registry of the IATA Operational Safety Audit (IOSA) during 2012. IOSA covers more than 380 airlines, which includes all 240 IATA member airlines for which IOSA is mandatory. The IOSA registry includes 25 airlines in sub-Saharan Africa.
With a clear connection between safety performance and IOSA registration, Tyler says “world-class safety is possible in Africa and IOSA can play a major role.”
In a positive move, African ministers for transport adopted the Abuja Declaration and the Aviation Safety Improvement Action Plan for Africa in July last year. This commits both African governments and industry to achieve a safety performance on par with the global average by the end of 2015. Earlier this year it was endorsed by the African Union Summit. This, IATA says, shows recognition of the importance of aviation safety at the very highest levels of government in the continent.
The commitment covers the establishment of independent and sufficiently funded civil aviation authorities, implementation of effective and transparent safety oversight systems by all African states and completion of an IOSA by all African carriers.
IATA recognises that getting all African airlines onto the IOSA registry by 2015 will be a challenge. Tyler says that IATA’s strategy is to work directly with carriers not on the registry to help them prepare. An initial group of ten airlines were announced earlier this week.
With the reputational damage of the EU banned list extended across Africa, Tyler feels that the EU’s approach is wrong because it lacks transparency and does not improve safety.
The global airline industry produces $2.2 trillion in economic activity and employs 57 million people. Put in an African context, that is 6.7 million jobs and $68 billion in revenues. The South Africa figures are a R74 billion contribution to GDP and over 230 000 jobs.
Aviation is a tough business and IATA estimates that airlines will turn a combined profit of some $10.6 billion in 2013, a net profit margin of only 1.6%. This is a very narrow margin when compared to other industries.
The performance of the African industry parallels the global trend. Tyler says that “for 2013 we expect the continent’s airlines to earn about $100 million profit. And this equates to an earnings before interest and taxes margin of just 1.0%.”
The two factors that drive airline profitability are economic growth and the price of oil.
Reflecting on its important role in development, the airline industry tends to expand at twice the rate of GDP. “But there is a stall speed,” Tyler notes, “historically, when global GDP growth has dropped below 2%, airlines have lost money.”
Tyler says that “global GDP growth is forecast at 2.4%. It is above the stall speed…but not with much of a buffer.”
“Countries that adopt aviation friendly policies tend to find that the connectivity that generates helps boost growth, increases the size of the economy, increases the number of jobs and generally makes their economies wealthier. We like to encourage governments to follow those sorts of policies,” says Tyler.
With fuel accounting for a third of the industry’s cost structure, the price of oil and aviation fuel has a significant impact on the bottom line of airlines.
“On average fuel uplift in Africa is 21% more expensive than in other parts of the world,” says Tyler, “This is a huge penalty for airlines operating in Africa and particularly, of course, for airlines based in Africa. In Africa fuel accounts for 44% of costs.”
However, Tyler believes that much of the financial problems African airlines face is because government policies in Africa tend to see aviation as an “elite” product, rather than as a critical component of the continent’s economic infrastructure.
Declares Tyler: “As a result it is heavily taxed, often in violation of international principles which prohibit the taxation of jet fuel for international operations.”
“We are campaigning across Africa for governments to review the situation,” Tyler continues. “We have had some success in Angola, Uganda and Ghana. But there is a lot more work to be done.”
Airlines in Africa are growing faster than the global average because their economies are growing faster.
“Generally,” Tyler says, “aviation progress correlates with GDP growth, so there are great opportunities.”
Aviation in general faces high levels of taxation as it is seen as a soft target for governments. IATA is working to convince African governments that the combination of Solidarity Taxes, VAT and tourism taxes is limiting the economic benefits that aviation could bring.
Solidarity taxes were started by France in 2006 to charge air travellers for the cost of fighting diseases such as HIV/AIDS, tuberculosis, malaria etc. IATA notes that the global community recognized that singling out air travellers to fund such causes, however worthy, was not the right way forward, with only 11 countries followed France’s lead.
“The trouble is that nine of them are in Africa,” complained Tyler. “Chad was the latest to implement. And we hear rumours that Namibia and Kenya are considering such action. I urge all these countries to re-think their positions around voluntary contributions.”
Airlines face significant challenges, particularly those operating in Africa. “These financial challenges have not prevented the industry from moving forward to meet its targets on improving safety and security, environmental sustainability, and cost-efficiency,” concludes Tyler.