IN FOCUS: Fuel burdens African airlines' advances

Beijing
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For African airlines still struggling to unlock the potential of the continent's fragmented aviation market, fuel has been a heavy burden. Sub-saharan Africa's big three carriers have continued to grow, lifting revenues and traffic. But profits among Kenya Airways, South African Airways and Ethiopian Airways in their most recent financial years were curtailed by rising fuel costs.

Kenya Airways' net profits more than halved to Kenyan shillings (KSh) 1.66 billion ($18.7 million). While revenues grew a quarter, its costs jumped a third. Its fuel costs were 64% higher, the increased oil price exacerbated by the weak Kenyan shilling.

SAA and Ethiopian Airlines are still to report their most recent financial years, but during the recent IATA annual general meeting in Beijing both pointed to the weight of fuel costs. SAA chief executive Siza Mzimela says the airline has suffered despite a rise in revenue, load factors and yield in the last financial year. "Unfortunately, all of that got wiped out by the increase in costs, mainly because of fuel," she says. This means SAA's results will "not be very positive", she adds.

To address this, the airline is stepping up cost-reduction efforts, and is moving aircraft around to boost yield. It has also been reviewing its network to eliminate any weak routes, it cut Cape Town-London in August, and increasing aircraft utilisation. "There is still a lot we can do around our cost base on top of the work we did last year," says Mzimela.

Ethiopian Airlines chief executive Tewolde Gebremariam stresses that the carrier, whose financial year ends in June, is profitable, even if it "might not have been as profitable as expected" in the Vision 2025 plan, owing to fuel prices. "But growth has been beyond our expectations," he says, indicating it has achieved a traffic rise of 30% and forecasts a repeat for the next fiscal year.

The Star Alliance carrier is aiming to start Sao Paulo services this year, having identified Brazil as a crucial market, and intends to feed the flights with its Togolese operator ASKY. Gebremariam says the carrier will have a "heavy emphasis" on Brazil, China and India and says these countries will drive the "huge growth" central to its Vision 2025 strategy.

Key issues impacting carriers in the region include the continued slow progress on liberalising African skies, while at the same time combating the competition from overseas carriers. "We cannot compete with carriers from outside Africa unless we make our airlines strong by opening up the African market," says Elijah Chingosho, secretary-general of the African Airlines Association (AFRAA). "In the process, some smaller airlines are going to disappear, but it will strengthen some of our carriers to take on the world carriers.

"Our major threat comes from outside Africa. The big carriers realise that Africa is a growing market and are coming in. And opening up the market is the only way we can strengthen African airlines," he adds.

Meanwhile, carriers in North Africa continue to look for political stability after a tumultuous 2011 for many countries in the region as the Arab Spring spread. Traffic and revenues for many carriers were hard hit last year as air services were disrupted during the political upheaval.