The International Air Transport Association (IATA) is demanding that Nigeria alongside other Africa states take steps to reduce cost of doing business in its aviation sector if it hopes to unlock dormant potential in the sector for national growth and prosperity.
Director General/CEO of IATA, Mr. Alexandre de Juniac who addressed African aviation correspondents at the just concluded Global Media Day in Geneva, Switzerland lamented that “it has become so costly to operate in Africa” with exorbitant and multiple taxes eroding the profits of local airlines.
According to data from the Airlines Operators of Nigeria (AON), in the last three decades, over 50 indigenous scheduled commercial airlines that sprung up in the country ended up not celebrating their 10th anniversary owing to unfriendly government fiscal policies. Today, Nigeria has only eight domestic airlines with none strong enough to compete effectively in the international market.
“The owners of these 50 defunct airlines have all been success stories in other business endeavours but not in aviation,” said AON President, Capt. Noggie Megison.
“Could all of them have been responsible for the failure of their airlines? The answer is ‘NO’. Rather, it is the myriad of unfriendly policies and the very harsh operating environment that have been the bane of the growth of aviation in Nigeria,” Meggison added.
IATA’s CEO, de Juniac who in his forecast for 2019 said African airlines will record a net loss of $300 million demanded the lowering of operating cost as well as the upgrading of quality of infrastructure to boost the operations of local airlines.
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“All regions in the world, except Africa, are expected to report profits in 2018 and 2019,” Juniac said. We must lower the cost of operations for airlines in Africa which has negatively affected the profit of the airlines,” said Juniac.
According to him, policy stability ad tax incentives were key elements required to secure long term investments to grow aviation in African states like Nigeria. Juniac also listed Nigeria among countries with airport bottle-necks and demanded that investments be made to improve airport infrastructure to support the operations of airlines.
“And the infrastructure has to be efficient and effective because this is a big problem. And the government must also encourage the operation of local airlines not owned by the state,” he added.
Why tax incentives
Juniac said the government must be willing to grant tax incentives to encourage investments in the industry, especially the airlines given the slim profit margins it offers to airline owners.
“The point is that the buffer between profit and loss is thin and a dollar for a new tax, an increase in charges or shift in oil price can eat away at a $7.75 per passenger profit very quickly,” said Junaic.
“In aviation, we are in a different league from Apple Inc, for example which makes $400 for every iPhone XS sold. Governments should not view aviation better financial footing as a blanket bill of health, nor a blank check. To keep delivering the economic and social benefits that only aviation can, it needs a business-friendly policy framework that supports competitiveness,” he added.
Benefits of aviation
Juniac said no country should relax in investment efforts and in evolving friendly policies to grow it’s aviation industry noting that “aviation had become the business of freedom as it liberates people to explore, develop, trade, learn, find business opportunities and live better lives.”
“Aviation is a very relevant part of the global economy. If you look at the UN’s sustainability development goals aviation contributes to them all – starting with the top goal of eradicating poverty. Over a billion people have been lifted from poverty through globalisation and our global world would not exist without aviation,” Juniac added.
The IATA boss said infrastructure plays an important role in the service airlines provide to their customers, affective the experience, the timeliness of the journey and its cost.
He however noted that the direct cost paid for using infrastructure has increasingly been transferred to passengers.
In Nigeria for instance, the government wants to increase charges paid for using federal airports (know passenger service charges PSC) from the present N1,000 to an amount that it’s yet to be agreed.
Juniac lamented the high cost of using airports and air navigational services by passengers and airlines noting the difficulty in reducing cost of airport infrastructure given that “competitive pressures are very weak in this part of the supply chain.”
He however revealed that in a poll conducted recently by IATA, air travellers are not too comfortable with the quality of infrastructure at airports and they would appreciate if investments are made to improve and expand airport facilities.
“70 per cent of travellers polled sense the overcrowding of airports and over half would support plans to expand their community’s airports,” said Juniac.
“Airlines cannot connect the world without airports and air traffic management and we are approaching an infrastructure crisis. Getting it right is a difficult long-term challenge. Decisions must be made today if we want infrastructure to be in place a decade from now. And planning by most governments is not ambitious enough to meet that demand as far as we see these days,” said Juniac.
Finally, he described the cost of aviation fuel as impacting negatively on airlines overhead. In Nigeria the cost of Jet A1 accounts for more than 45 per cent of operational cost for airlines.
“Next year (2019) we forecast that the global airlines fuel will rise to $200billion, which will will represent 24.2 per cent of average operating cost. This rise is due to the delaying effect of hedging,” Juniac said. He said the way out of this was for airlines to replace existing aircraft with new aircraft that are fuel efficient and for the government to remove the airspace and airport inefficiencies that adds to airlines burning more fuels than necessary.