African Airlines Target $100m Profit In 2014
— March 18, 2014
African airlines are expected to post a $100 million profit this year unchanged from the previous forecast, but reversing the $100 million loss in 2013, according to the International Air Transport Association (IATA).
Economic growth and network development by a handful of African airlines is leading growth, but profitability is far from being evenly spread across the continent.
While African governments are committed to achieving world-class safety levels by 2015, the continent suffers from the lack of a holistic vision for the development of connectivity across its vast distances.
Poor regulation and high infrastructure costs and an array of taxes and charges continue to hinder development. And intra-Africa connectivity is hampered by market access restrictions despite the commitments to liberalise recorded in the Yamoussoukro Declaration.
However, the IATA said the global airline industry remained on track to deliver a second consecutive year of improved profitability. This is despite a slight downward revision to its industry outlook for 2014 to an industry profit of $18.7 billion from the previously forecast $19.7 billion.
The main driver of the downward revision is higher oil prices which are now expected to average $108.0/barrel (Brent) which is $3.5/barrel above previous projections. The $3 billion added cost on the industry’s fuel bill is expected to be largely offset by stronger demand, especially for cargo, which is being supported by a strengthening global economy.
Overall industry revenues are expected to rise to $745 billion ($2 billion greater than previously projected).
“In general, the outlook is positive. The cyclical economic upturn is supporting a strong demand environment. And that is compensating for the challenges of higher fuel costs related to geo-political instability. Overall, industry returns, however, remain at an unsatisfactory level with a net profit margin of just 2.5 per cent,” the IATA director-general and CEO, Tony Tyler, said.
The aviation industry retains on average, $5.65/passenger in net profit. This is improved from $2.05 in 2012 and $4.13 in 2013. But it is below the $6.45 achieved in 2010.
“The efficiencies of improved industry structure through consolidation and joint ventures is providing more value to passengers and helping airlines to remain profitable even in difficult trading conditions. But we still need governments to understand the link between aviation-friendly policies and broader economic benefits. In many parts of the world, the industry’s innate power to drive prosperity through connectivity is compromised by high taxes, insufficient infrastructure and onerous regulation,” said Tyler.
Fuel currently accounts for some 30 per cent of the average airline cost structure. Recent tensions, including in the Ukraine, have sparked an upward trend. Oil prices are now expected to average $108/barrel (Brent) which is $3.5 higher than previously forecast. Jet fuel prices are also expected to be higher at $124.6/barrel which is a $1.7/barrel increase from previously forecast (and unchanged from 2013). Overall, fuel costs are expected to rise by some $3 billion to $213 billion compared to the December forecast.
Air travel demand remains strong and now demand for air cargo is growing said IATA.
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