Interview: Monwabisi Kalawe
What impact have tariffs and fuel costs had on passenger demand and profitability?
MONWABISI KALAWE: The biggest challenges to airliner profitability and passenger demand are exchange rate volatility, rising fuel costs and sluggish economic growth. The South African rand has weakened substantially against the dollar in the past year or so, which has had a direct impact on fuel prices as well as maintenance and other foreign supplier costs. Many airlines, like SAA, have dollar-denominated aircraft whose spare parts are also bought in foreign currency. Fuel costs, already an issue when prices go upwards of $100 a barrel, are exacerbated by the devaluation of the rand. As for passenger demand, growth in the aviation sector is tightly correlated with economic growth and the size of a country’s middle class. So where there is a slowdown in the economy, passenger numbers tend to decline.
In light of these challenges, airlines must pursue efficiencies to become more profitable and avoid passing costs to the customer. Because fuel costs make up a sizable portion of total operating costs, at least for SAA, fleets must be restructured and new-generation planes introduced. This will reduce fuel consumption and provide more seating, which is especially critical for intercontinental flights.
What steps must African airlines take to meet the rising demand for air travel?
KALAWE: Africa continues to be one of the fastest growing regions in the world, so the continent’s airline industry must be prepared to cater to rising demand and ensure that the infrastructure is in place to facilitate trade and movement. Four key factors we must focus on are safety, tariffs, open skies and skills development.
On the first of these, Africa is often cited as the worst region in the world in terms of safety performance. This must change as we look to implement international safety standards and ensure that pilots respect safety requirements. Secondly, tariff adjustments must be considered. In some African countries, tariffs are much higher than in the rest of the world. Additional costs make it very hard for airlines to operate profitably, so governments must ensure that fees and fuel prices are globally competitive, and must avoid adding unnecessary charges on ticket fares. Third, we must speed up the implementation of the Yamoussoukro Declaration to open up the skies in Africa. This will allow for greater connectivity and boost the industry.
Lastly, the development of skilled human capital is essential to ensure that we have enough pilots over the next couple of decades. This begins at a fundamental education level; it is no secret that South Africa in particular must fast-track maths and science. Then Africa should put in place a programme to fast-track pilot training, not just for the continent but for the world; the shortage of pilots is global.
What are the main challenges to expansion in Africa, and what role can partnerships play in this?
KALAWE: The challenge is the protection of national carriers, especially in smaller African countries. We will have to manage the process of opening up the skies to ensure that smaller airlines, in some cases national carriers, are not grossly disadvantaged by liberalisation. Going forward, I suspect that some of the bigger airlines in Africa will have to form close partnerships to be able to drive traffic growth and movement. This is not only to facilitate continental trade and tourism agendas, but also to compete with global carriers, especially from the Middle East, that have large new-generation fleets and are looking for new places to deploy them. Their cost structures are aggressive on price and will prompt African airlines to develop strong networks to compete. Also, as passengers in the region become more price sensitive, we will see some shift from fullservice to low-cost offerings, so expect to see low-cost carriers play a role, especially in western and southern Africa. As a result, these factors may lead to some partnerships and consolidation, but at this stage big African airlines still see themselves as direct competitors.
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