De Juniac: African Airlines Face High Costs


At the recent International Air Transport Association global media day in Geneva, Switzerland, the Director-General and CEO of IATA, Alexander de Juniac said there is improved air safety in Africa, but the airlines face high costs in their operations. Chinedu Eze who was there, brings the excerpts:

In 2012 there was ministerial meeting in Nigeria over air safety, it was agreed that in 2017 every airline in Africa should be International Air Transport Association (IATA) Operational Safety Audit (IOSA) certified, how far has IATA gone in realising that goal and do you think that African airlines need protection from external competition?

Many African airlines are suffering from external competition coming from Gulf carriers, Turkish Airlines and European carriers. And I have been a chief executive officer (CEO) of an airline, which has a big footprint in Africa. So this competition is not always favourable to African airlines, but I think that for African airlines, there are two issues: internal issues, which deals with internal costs; they have an increase in their costs and secondly, the consistent investment in infrastructure that the local governments (country’s government) have to do in airports, in air traffic control.

To take the example of Kenya Airways, the airport has taken too much time to build or renovated, now it is done. I have not been there since one year but it has been finished one year ago, as far as I remember, but it took too long. And it is key because it is a full service company with a hub. So the quality of your hub is a key factor for the competitiveness of your company. And interestingly what Gulf states or Singapore have understood is that it is a natural strategy to enhance and to develop aviation and it is based on investment on infrastructure, airport traffic control, helping the national carriers or carriers. It is a consistent effort.

Do you agree that most governments in Africa look at airlines as a source of revenue instead of looking at it as catalyst to economic development?

I can tell you it is not only in Africa, it is the case everywhere. The cash box is their life; you put taxes and charges as a cash property. And that is a problem for the business. What we try to do in IATA is to convince the governments that putting the tax of one dollar, one euro per ticket is a severe hit on the profitability of the airline when an airline earns 7.54 dollar per ticket. But it is difficult to make governments understand such a simple thing, first of all. Secondly, on the contrary, if they reduce charges and taxes it brings much more prosperity, jobs, trade that over compensates the reduction in charges. But it is difficult to understand that from any government, especially African government.

Perhaps we should be all active in defending this type of ideas, not only with the ministry of transport, which are our natural counterpart, but with the ministry of finance. We have to demonstrate the value of aviation, what it brings in terms of GDP, job rollover and secondly what are the consequences of increasing charges and taxes. Well, there are negative consequences and comparatively the positive consequences of lowering this type of charges, which are key.

Some airlines pulled out of Nigeria because they could not repatriate their funds, what do you think would be the consequence in future?

We are pushing government to organise the repatriation of funds and we are trying to organise, to use our clearing houses to be able negotiate a kind of plan to repatriate that. We have that problem in Nigeria, in Egypt, in several countries, Venezuela is not in Africa but it is the biggest problem we have in our hands. What we can do is to have a coordinated approach of the country with our members, saying if we don’t have the money we ban Nigeria or Venezuela, but we cannot do that. We have managed to reduce the block funds from Nigerian and we have been working closely with the government. Quite successful is the case of Egypt and Nigeria; but Angola and Venezuela are not successful. In Sudan it is successful but the amount is lower, $350 million, but it is also a problem. But where we have the biggest problem is Venezuela, the airlines have given up. They have stopped flying to Venezuela, which is a disaster when you think about it.

African airlines have already lost their market share on the international market, how do you reconcile this?

First of all, we think that opening borders, lowering barriers, implementing the Yamoussoukro Declaration, which is open skies for Africa will be favourable to the industry. It is always favourable to the industry, there will be winners and losers but it will be favourable because it boosts their traffic. And in Africa what is missing is internal (local or sub-regional) companies (airlines) serving each country (intra regional connectivity) that is the big problem.

And the competition is not coming from the Gulf or from Air France or Turkish, to address from point to point routes, going from one African country to another because they serve Dubai, Abu Dhabi or Paris but they do not serve a lot of internal connections. And that is the point in which we push African countries or African businessmen to create companies (airlines). I have done that in my past life, pushing Air Cote D’Ivoire; so it should be done everywhere. You have protectionist reactions, which is typical of Africa. The sad story is that we have an agreement with the Yamoussoukro protocol that should be implemented. Africa was ahead of the other continents; it is a pity that it has not been implemented properly. The protocol was really clear and forward looking.

Some governments in Africa are beginning to shake off their responsibility of managing the airports; they are beginning to see concession as the ideal thing to happen to them. What is your view on concession?

What we say is that we want governments to be cautious about privatisation of airports. We say to them, be careful because privatisation of airports has not led to cost efficient, technology efficient infrastructure. The experience we had from Australia, from Chile, from Europe is not convincing. So we say beware of course we understand that to run the airport as operations, privatising or even concession is much better than having civil servants doing the job, that’s for sure. Then we come to the process of choosing the concessionaire, which in many countries is based on the man who is buying at the highest price. So it means that the cost increases, at the end of the day the bill is sent to the airlines. And we say in the choice of the concessionaire they always should look at other criteria.

We favour privatising the operation through the concessionaire with a process that is only based on choosing the man who is paying the highest price, we say to government be cautious about privatising the ownership of the infrastructure, be careful because you may privatise a local monopoly that may go out of control. If you do that be able to implement a strong regulatory body. And frankly there is nowhere in the world, perhaps, except in the UK that the regulation has been successful.

In France it is a nightmare, the state owns 54 percent of privatised airport, the privatized monopoly of the airport makes very big money 42 percent or 30 percent profit. In many cases we see this type of problem when we privatise the ownership of the infrastructure. The real point is, if we could phrase that in a synthetic way, the appropriate regulation is to find the right balance between public and private interest when we talk about critical infrastructure for our country, which the government has to invest in. But how much? That’s where the regulation has to find the right balance. But to say the government after privatizing the infrastructure can wash its hands and do nothing is crazy. It is totally not efficient.

What is IATA doing about training?

We have big training programme addressing airlines or addressing African authorities. We have to meet the demand addressed by the African states. I think what we could do in Africa is to involve more of the international institutions, the African Development Bank, the World Bank etc.; these type of organizations, the KFW in Germany, these institutions have funds that could be directed to aviation.

Open skies for African is supposed to address cross border initiative?

If we can we do that we will but it is not totally in our hands, it is in the hands of the government. We can promote these kinds of ideas, when we look at the way the Western part of Africa has managed ASECNA, (which provides air traffic control services to French West Africa) it is doing quite well. If there is a similar association in East Africa or South Africa we welcome that, it is much easier for us and it is much more efficient for the industry.

Do you agree that the major challenge is making African government know that air transport is not elitist?

You are right to say that many governments view us as a kind of elitist transportation system. It is the same in India except that the Indian government has totally changed their mind recently and they have put together an aviation strategy, which is very ambitious. Because they think it is now more and more mass transportation, you need various types of airlines, full service, low-cost airlines to address the lower middle class. I think we need to advocate that we are not anymore an elitist transportation. The Indian government always told me that train are much more important than planes for years because trains are transporting billions of people every day.

With the exit of the foreign carriers from Nigeria, for example, do you think that the local airlines can rise to the challenge?

I think the national carriers can do that. The key point perhaps is for the local government (federal government) whether is Nigeria or any other country, to create positive and a favourable environment, lowering charges, making the business accessible and easy and make it a consistent policy. What we see is that in countries that have chosen aviation as a top priority like the Gulf countries, they have put together a consistent policy with air traffic control, airport, tourism, airline everything is built, designed to favour their transport system.

What strategy do you have to grow air transport in Africa?

You know we have in IATA a global aviation strategy. We know in Europe it is clearly an infrastructure problem; there is major problem of infrastructure. In Africa you have an infrastructure problem; you don’t have enough airlines in the continent, which means the continent is underserved.

They said after Middle East, Africa is the next biggest market do you think that projection is correct?

The question is, is it realistic? Yes it is realistic provided that we have a consistent policy of developing companies, training, safety and investments; otherwise it will not work. And there is a point, which is probably more sensitive in Africa; it is political stability and security. In some areas it has created many problems, North Africa, in Kenya the security issue has hit tourism in Kenya. In Ivory Coast the traffic has been stopped for months due to social political unrest five or six years ago. One of the reasons the Gulf countries are doing well is because their states look politically stable and safe, very secure.

One of the key requirements for aviation growth in Africa is the development of the middle class and I think that we have seen a bit of disappointment in Africa. I think the rich are getting richer and the middle class hasn’t really developed as much. I saw some statistics coming from the World Bank that has shown that the middle class has increased not as fast as we expected. But as many countries of the world the gap between the poor and rich has also widened. We are pretty optimistic about the increase in number of the middle class.

What is your evaluation of IATA Operational Safety Audit (IOSA)?

The IOSA programme is a very big success, and as you know it is has been mandatory for IATA members but many none IATA members are using IOSA, including some of the low cost airlines. What we need to do is to modernise the programme because after 10 or 20 years it has to be enhanced. What we have to do is to digitalize IOSA to be able to make and to put together the bulk of data we are gathering from the programmes to enhance the level of safety. If we believe that safety is based on a better knowledge of what is happening everywhere, what the solutions are, what the best practice can be, digitalizing IOSA is a key issue. And then probably we have to enhance the way we operate in certain airlines to be even more strict or tougher than we have been.

If I may ask, why would an airline go through the trouble of being IOSA certified if it couldn’t be and IATA member?

You know, going through the type of processing of audit is a fuse for the company, which is audited. First because it is a label and you can show that label, it gives trust but also it is good for them to improve the processes, the practice and the perspective.

Is every airline going for IOSA?

Not always and especially some low cost airlines are going through IOSA but for the moment they are not members of IATA. I look forward to having them because I think it is a key issue for us.