By Hilka Birns/CAPE TOWN

Dangerously low profit margins are threatening the future of airlines in Southern Africa as low yields from domestic services and excessive levies imposed by government-owned monopolies take their toll, according to the Airline Association of Southern Africa (AASA).

Airlines in the region are reporting net profits which amounted to only 0.5% of revenue last year. While the productivity of African airlines grew by 7% during the period, net profitability slumped by 43%. Several carriers in the region have gone to the wall in recent years - the best known probably being Zambian Airways.

AASA chief executive John Morrison, speaking at the Association's annual congress, said that a recent survey shows that the average South African domestic air fare is 50% lower than fares charged in countries such as Australia, Malaysia and the USA, while regional fares are 35% lower.

He says that state-owned or parastatal monopolies regard the Southern African aviation industry as a soft target for excessive charges and levies.

Morrison used South Africa to demonstrate the problems faced in the region. Jet fuel, which is subject to government levies amounting to more than R200 million ($33.3 million) annually, is 25% more expensive in Johannesburg than at 100 similar airports worldwide. The Association has urged the South African Government to abandon the pricing structure - which has been in place for more than 20 years - but so far without success.

Levies imposed by the state-owned Airports Company (ACSA) and Air Traffic and Navigation Services have also become heavy burdens on airlines. While ACSA has a capital requirement of R15 billion between 2002 and 2017, the South African airline industry, even adopting International Air Transport Association projected rates of return on turnover, can anticipate maximum after-tax profits of about R500 million a year. Morrison says a joint industry finance committee has been established to review ACSA's long term capital requirements and methods of funding.

Morrison also lists a host of new levies imposed or proposed for airlines in South Africa. A new charge is payable to the restructured Civil Aviation Authority that came into being on October 1. This takes the form of increased licensing and airworthiness charges, plus either a levy on passenger tickets or a jet fuel surcharge, or possibly a combination of both. Among other proposed charges are those for an additional levy, equal to 1% of turnover, to assist in international marketing of South Africa.

He says the African Airlines Association recently reported that it required R43 billion to replace old aircraft. "Against the background of at best marginal profits, one wonders how such investment can be justified or even financed," he concludes.

Source: Flight International