(Posted 12th December 2022)
Good morning and thank you for inviting me to your annual general assembly. It’s
wonderful to meet here in Dakar, in person.
In fact, resilience is what has allowed us to be here today. It’s the mantra to repeat
as we put distance between us and the pandemic-triggered crisis that shocked and
disrupted our lives. It may have been our biggest crisis, but it was not the first or our
last. As we continually demonstrate, our industry is resilient; and we also know that
we can do much more together to make it even more so.
Economic Overview
Last year, airlines worldwide lost a combined $42 billion. IATA’s outlook sees the
global loss reduced to $6.9 billion for 2022 and, any other shocks notwithstanding, a
return to industry-wide profit in 2023 where we forecast a $4.7 billion profit on $779
billion worth of revenues. As you can see, the net profit margin is wafer-thin, with
average yields per ticket not even enough to cover a takeaway coffee.
As we predicted, the recovery is moving at different speeds in the various markets
around the world.
Africa’s airlines are on track to post a combined $638 million loss this year, with
demand still 32.3% lower than 2019 and capacity 31.1% off the 2019 high-tide.
Nevertheless, in the face of macro-economic headwinds and the increased
vulnerability of several African economies, the continent’s airlines should reduce
these losses by about two-thirds, falling to $213 million, next year. We see this
being driven by a 27.4% rebound in passenger traffic and capacity increasing by
21.9%. By the time we gather for the 2023 AFRAA assembly, traffic should have
recovered to 86% of pre-COVID levels.
Of course, this is a forecast for the entire continent, but we know each sub-region
moves at its own pace, reflecting its unique advantages and obstacles. Some have
seen demand return faster than others.
With economic uncertainty, the cargo markets, which achieved unprecedented highs
during COVID, will come under increased pressure in 2023. IATA is anticipating
volumes to fall to 57.7 million tonnes (from a 65 million tonne peak in 2021), a $52
billion slide in revenues and yields contracting by 22.6% as passenger markets
recover and belly space on passenger jets once again fills up.
In June cargo demand was 111.7% higher than 2019 levels., but it will end the year
at 98.4% of those levels.
As with most markets, the cargo picture in Africa has reversed. Our latest analysis
points to a deepening year-on-year contraction which was down to -8.3%. in
October.
The region’s performance does not indicate tepid demand. Far from it. Airlines in
the region are experiencing unprecedented load factors and many are operating at,
or near to, maximum capacity.
However, the current state of the industry in Africa is indicative of some key regional
challenges. With this in mind, I am going to address the following priorities:
– Connectivity, market access and regulatory reform
– Taxes, charges and rising costs
– Environmental sustainability
– Safety
Connectivity, market access and regulatory reform
Context is everything and while most of the traffic numbers are encouraging, Africa is
one of the most populated places on Earth, yet it accounts for just 1,9% of global
passenger and cargo traffic, thanks largely to the dearth of intra-African connectivity
and barriers to market access. It is a reminder of how much work we have to do and
the urgency with which we need to accomplish it.
The latest AFCAC Pilot Implementation Programme (PIP) is a welcome initiative and
if it enjoys sufficient buy-in and fair-play between its 17 participating countries, then it
should be a powerful demonstration to the continent’s other 38 nations, of the
commercial, economic and social benefits that are waiting.
But let us not kid ourselves and get carried away patting ourselves on our backs.
The PIP is a step towards the Single Africa Air Transport Market. Fifth freedom
traffic rights are the most visible and attractive component of SAATM, but the devil is
in the detail. Not only do we require a common understanding of what these market
freedoms are, but also of how they are to be applied and administered. It requires
just as much commitment to removing other protectionist instruments such as
inconsistent and differential charges as well as administrative obstacles, that run
counter to the spirit and intentions of SAATM.
If we zoom out and consider inter-continental markets, it is distressing to see certain
African carriers failing to operate key routes on which they are the sole designated
airline for their countries. Despite the reciprocal countries carriers expanding their
operations, they can only do so up to the limits set out in the bilaterals. This is
leaving many markets under-served. By choking capacity in this way, commercial
opportunities are being squandered and slowing the recovery of lucrative long-haul
foreign source-markets for tourism and trade. In turn, this is delaying the delivery of
socio-economic benefits and attainment of many of the UN Sustainable
Development Goals in the region.
The solution is not necessarily to start or prop-up unviable airlines. It is to reform the
current regulatory regime and replace it with one that is fit for purpose.
Infrastructure, taxes and charges:
Another threat to Africa’s traffic recovery and future growth is poor or inadequate
infrastructure, resulting in sub-standard passenger service.
Some of Africa’s largest airports have recently completed, or are currently
undertaking major expansion programmes, many of them are positive. However,
from the airlines’ perspective, such CAPEX projects should be concluded
collaboratively between airports and airlines. They require demonstrated cost-
benefit analyses and a robust interrogation of asset efficiencies as these
infrastructure plans will impact on future user-charges.
Regulation is also needed to prevent abuse of market power and to ensure that
providers’ capacity plans are aligned with market realities.
Every member of the air transport value chain experienced pain during the
pandemic.
But now is also not the right time to be increasing levies, hiking carbon taxes or
introducing new taxes on air transport, trade or tourism. We are mutually co-
dependent on each other. Every increase deters increasingly cost-sensitive
customers, resulting in fewer travellers and even less revenue, not just for airlines,
but for all stakeholders across the value chain including airports, ground handlers,
suppliers and air navigation services. Ultimately, they set back economic growth and
curtail opportunities to create and support jobs and livelihoods.
Rising costs
This is especially important against a backdrop of high oil prices. Although oil prices
have retreated from mid-year peaks, the average price of jet fuel so far this year has
been US$138.8 a barrel. This means airlines will collectively pay an extra US$222
billion for fuel this year compared with 2021. Fuel accounts for 30% of airline costs.
Most disconcerting is the widening gap, or crack, between the price of crude and jet
fuel. Historically this held at about US$20 a barrel, but since this February it has
opened up to around US$45, indicating how refiners and suppliers are holding back
supplies to artificially keep prices high.
The message here is simple: governments’ adherence to ICAO’s policies on charges
and infrastructure through a process of consultation with airlines and industry is
paramount to ensuring fairness and a cost-effective operational environment.
And here I want to draw out the example set by South Africa where the Government,
through the regulatory process, brings together aviation stakeholders for open and
transparent consultations when setting aeronautical user charges, both for ATNS
and ACSA. We encourage more Governments in the Africa region to follow this
example on how to engage users for an effective consultation by implementing
robust economic regulations on aviation, with an independent arbitrator.
Sustainability and SAF
There should be no doubt that climate change is real and represents our biggest and
most fundamental challenge.
We applaud the unanimous adoption of a Long-Term Aspirational Goal to achieve
net zero CO2 emissions by 2050, at the recently-held ICAO assembly. This is
significant moment as it compels governments and the aviation industry to rapidly
implement far stronger, deeper and greater decarbonisation initiatives, including
increasing production of Sustainable Aviation Fuels.
SAF production is moving in the right direction and should reach at least 300 million
liters by the end of this year – that’s a 200% increase on 2021 production.
Ultimately the air transport industry will require 450 billion litres of fuel annually in
2050.
The fuel industry will not get there on its own. This also requires governments move
swiftly to put in place the right supporting policies and incentives. The ICAO
Assembly also reinforced its commitment to the Carbon Offsetting and Reduction
Scheme for International Aviation (CORSIA) and increased its ambition by agreeing
to stabilize emissions of international aviation at 85% of the 2019 level. In agreeing
this, many governments emphasized CORSIA’s role as the only economic measure
applied to manage the carbon footprint of international aviation.
But we need to hold governments accountable for their CORSIA commitments. Too
many states are introducing aviation carbon taxes that could undermine CORSIA..
The lower CORSIA baseline will already place a significantly greater cost burden on
airlines. It is critical that governments do not chip away at the cement which binds
CORSIA, especially as they have already agreed to it as the only economic measure
to manage the carbon footprint of international aviation.
Safety
When it comes to Safety there is no room for compromise. While in 2021, African
airlines on the IOSA registry had zero accidents, incidents across Africa by regional
and global operators continue to be experienced. Regrettably the region’s accident
rate remains the highest.
This should serve as sharp reminders that we need to work together towards:
? Enhanced safety oversight particularly in the areas of reporting and
investigation of incidents and accidents
? Adopting a more aggressive approach to addressing the highest recurring
operational risks
? Prioritising Safety data and information exchange by all stakeholders is a
must, not a nice to have, in order to build an accurate picture across the
continent
? Promoting the understanding of the critical importance of aeronautical
information (NOTAM/AIP etc) to aviation safety, addressing as priority the
regional deficiencies, with a clear commitment to improve by all States and
stakeholders
? Focusing on operational Resilience; the region is fraught with disruption to
flight operations bringing with it operational risk. It is essential we review the
processes for Contingency Coordination for the region, not only to ensure
minimum operational disruption, but to ensure at no point there is any
degradation to service provision or safety.
Closing
In closing, allow me to raise these calls for action:
We are in recovery mode, but we could be tripped up. Proper planning, coordination
and the provision of adequate staff and appropriate resources by airports, ANSPs
and other service providers are crucial.
Aviation and tourism are not to be treated as easy targets for collecting taxes and
charges without reinvesting in improved infrastructure, training or service delivery.
Some of the most expensive airports in Africa are also ones with the lowest service
levels and infrastructure. This disparity between cost and quality is unacceptable.
Connectivity is precious. The pandemic demonstrated that everybody suffers when
aviation stops. It also dispelled the myth that flying only benefits the rich. A
financially viable air transport sector, in a fit-for-purpose and enabling regulatory
environment supports jobs, promotes transformation and will be a driving force for
Africa’s economic recovery and future growth.
And finally, Safety is paramount and the focus on this must be unwavering.
We call on Africa’s governments and industry to work closely with each other to drive
a harmonized agenda for air transport. In doing so, we will unlock even greater
economic prosperity throughout the region.
Thank you.
