Whereas the International Air Transport Association (IATA) says the global industry net profit will rise to $38.4bn in 2018, chances of African airlines earning from the glut may be limited by very slow improvement in African economies.
While North America is expected to generate the strongest financial performance with net profits of $16.4bn in 2018 up from $15.6bn in 2017, African carriers are expected to continue to make small losses of $100m in 2018 following a collective net loss of $100m in 2017.
According to IATA, stronger forecast economic growth in the region is expected to support demand growth of 8.0 per cent in 2018, slightly outpacing the announced capacity expansion of 7.5 per cent in the region.
The association stated, “The wider economic situation is only improving slowly in Africa, which is hampering the financial performance of its airlines. The key Nigerian economy is only just out of recession and growth in South Africa remains extremely weak. While traffic is growing, passenger load factors for African airlines are just over 70 per cent which is over 10 percentage points lower than the industry average.
“With high fixed costs, this low utilization makes it very difficult to make a profit. Stronger economic growth will help in 2018, but the continent’s governments need a concerted effort to further liberalise to promote growth of intra-Africa connectivity.”
The IATA’s Director-General, Alexandre de Junaic, said these were good times for the global air transport industry, stressing that “Safety performance is solid. We have a clear strategy that is delivering results on environmental performance. More people than ever are travelling. The demand for air cargo is at its strongest level in over a decade. Employment is growing.
“More routes are being opened. Airlines are achieving sustainable levels of profitability. It’s still, however, a tough business; and we are being challenged on the cost front by rising fuel, labour and infrastructure expenses.”
“Aviation is the business of freedom and a catalyst for growth and development. To continue to deliver on our full potential, governments need to raise their game, implementing global standards on security, finding a reasonable level of taxation, delivering smarter regulation and building the cost-efficient infrastructure to accommodate growing demand,” he said.
2018 was expected to be the fourth consecutive year of sustainable profits with a return on invested capital of 9.4 per cent, exceeding the industry’s average cost of capital 7.4 per cent.