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ANALYSIS: African carriers struggle to deliver on profits

Some of African aviation's perennial problems - high fuel costs, weak currencies and competition from foreign carriers - affected the fortunes of the continent's carriers during the past year, causing major problems at South African Airways, while even success story Kenya Airways recorded a loss.

Revenues generated in weak home currencies but with overheads paid in US dollars or euros - coupled with fuel prices which IATA says are 21% higher on the continent than the world average - means African airlines are often at a disadvantage to foreign competitors on intercontinental routes.


Speaking at the IATA AGM in Cape Town, Elijah Chingosho, secretary general of the African Airlines Association (AFRAA), said that for airlines in most regions of the world, the cost of fuel is typically about 30-35% of operating costs.

However, he adds, in Africa it is 45-55% because of charges. He says this is "because governments levy very high taxes on fuel" as well as the airlines themselves, leading to high operating costs

State-owned South African Airways was forced to borrow R1.5 billion ($159 million) to cover its near-term operating costs. The loan, secured against 2012's R5 billion government guarantee, is being used as working capital while the flag carrier implements its latest turnaround plan - the ninth such strategy put before its shareholder. In October 2012, the airline posted an operating loss of R1.3 billion for the 2011-2012 fiscal year.

"SAA has become dependent on state aid due to its inability to sufficiently address challenges, including its high cost structure, unprofitable long-haul routes, inefficient aircraft fleet, overstaffing, management instability, and its lack of success in forging strong partnerships within Africa," says Nick Fadugba, chief executive of African Aviation Services and a former AFRAA secretary general.

Kenya Airways slipped to a net loss of KSh7.9 billion ($91 million) for the year to March 2013 as demand and yields were hit by geopolitical uncertainty, compounding high fuel prices and the slow European economy.

It attributed the loss, which compares with a profit of KSh1.6 billion in 2012, to constricted passenger traffic caused by "advisories issued against travel to Kenya by key market sources in the West due to fears of retaliatory attacks from the Al-Shabbab terror group", together with the unpredictable electioneering process.

In southern Africa, Air Namibia and Air Zimbabwe are relying on government bailouts to stay afloat, while South African low-cost and charter carrier 1time ceased operations in November 2012 after posting a first-half loss of R35.4 million ($4.1 million), compared with a loss of R21.3 million during the same period in 2012.

It attributed this partly to the carrier's failed launch of two new routes in early 2012 - Lanseria and Mombasa.

Africa's market characteristics have also proved problematic for low-cost start-up Fastjet, which has indefinitely postponed the launch of South African domestic services due to start in July.

While predictions of huge passenger growth in Africa have yet to come to fruition, there is still optimism that some of its airlines can realise that potential and benefit financially from it. Ethiopian Airlines, in particular, is expecting to post record profits following massive growth in revenue and passenger numbers. And all this comes despite the grounding of its four Boeing 787s earlier this year for about three months.

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