Africa's cash-based economy has largely protected it from the financial meltdown. Trade is often based on face-to-face transactions and most conferences are government-sponsored, meaning travel budgets have remained intact. Ethiopian Airlines chief executive Girma Wake says: "Africa is in a slightly better position than the rest and therefore the mood is not as bad among African carriers." Nigerian transport minister Babatunde Omotoba agrees: "Africa remains an area of opportunity where we are still experiencing real growth."
This year African carriers are expected to rack up $200 million in operating losses, swelling to $500 million at the net level, according to the latest IATA forecast. While this outlook seems bleak, both figures have in fact been narrowed by $100 million against earlier predictions. "The global recession has hit African economies but in most cases not as badly as elsewhere," explains IATA chief economist Brian Pearce.
While the reduced loss outlook is undeniably positive, IATA is keen to play down the significance of the revised figure: "There was a small improvement which, when rounded, came out with the $100 million shift. It can be said that African travel markets are holding up marginally better than expected and when compared with the rest of the world, but the forecast does not signal that there has been any fundamental improvement in prospects for Africa's airlines."
Although traffic and yields have held up comparatively well, the local business environment is likely to remain tough -especially as fuel prices edge back up. "Another year of significant losses is expected in 2009," warns Pearce. AFRAA president and LAM Mozambique Airlines chairman Jose Viegas agrees, noting that the world financial crisis will "most certainly hit African airlines during 2009", causing record operating losses. He adds: "By and large airline profitability has been quite poor in the first quarter of 2009." Viegas is expecting traffic volumes to pick up from the third quarter of 2009 as preventive measures begin to kick in.
Despite the downturn, some of the region's airlines are thriving. Ethiopian Airlines' 2008-09 interim operating revenues shot up 54.8% to Birr6.7 billion ($600 million), yielding 9% net profit growth. It even defied the gloomy freight market, more than doubling its interim cargo volumes. Ethiopian Airlines chief executive Girma Wake says: "For Ethiopian this is going to be a record year of profit."
Tunisair is also reasonably upbeat. It posted record traffic and load factors in 2008 and Tunisair vice-president for commercial affairs Ali Miaoui says: "Despite the crisis, in 2009, we have decided to continue our expansion strategy." He expects traffic to increase 2-3% this year, with turnover remaining stable at around $850 million. But the signs of the downturn are still there. "I think we will probably break even [in 2009]," compared with a Dns32 million pre-tax and net profit in 2008.
Others have been struck by local challenges and are not faring so well. Sudan Airways general manager Al Obaid Fadl AlMoula says: "Sanctions have affected us harshly. We can't operate far because we can't get spare parts for our aircraft. It is affecting us financially and even in our relations with other airlines."
Air Zimbabwe group chief executive Peter Chikumba says his carrier is in "intensive care". He is aiming to narrow net losses from $49 million to under $10 million this year. "A good airline should be able to at least break even in Africa," says the Air Zimbabwe chief.
Southern African airlines are facing "an unprecedented crisis", says Viegas. "In the last 12 months alone, some have filed for bankruptcy. The lack of cash flow has hit the region's so called 'big brothers' too." Airlines Association of Southern Africa chief executive Chris Zweigenthal agrees his members were "certainly hit" by last year's high fuel prices: "At the moment the carriers are all under huge financial strain, there is no question about it." But he adds: "The fact that the airlines have weathered the storm until now probably means that they will continue to do so going forward. I think we are going to get through this crisis and I don't think we will see significant failures in the sub-region."
Zweigenthal is expecting the recovery to kick in towards the end of 2009, noting his members should get a boost from South Africa hosting the 2010 football World Cup. Tunisair's Miaoui, however, believes the recovery will come slightly later, from mid-2010. "If it lasts more than two years, it will become difficult for everyone," he cautions.
But the lucrative African market has not gone unnoticed. Wake says: "I think there is more focus on Africa now than ever before. Airlines would rather fly to Africa than park their aircraft. One attraction is yield, another is weak competition. Why use your aircraft on the Atlantic with strong competitors when you can move them to Africa?"
Source: Airline Business
