Honored guests, industry colleagues, ladies and gentlemen. Thank you for a very warm welcome to this fascinating country. And I must give a special acknowledgement to Ato Tewolde GebreMariam, CEO of Ethiopian Airlines and all his team for their tremendous support and hospitality.
It is also great to be here as the African Union celebrates its first 50 years. And I very much look forward to the address of H.E. Dr Elham Mahmoud Ahmed Ibrahim, the AU Commissioner for Infrastructure and Energy on this occasion.
Although this is my first visit to Addis Ababa, African issues have been a priority for me. Since joining IATA nearly two years ago this is at least my sixth visit to Africa. And on June 2-4 we will be holding the IATA Annual General Meeting and World Air Transport Summit in Cape Town South Africa—our first on African soil since Nairobi in 1991.
Aviation is important to Africa. Some 6.7 million African jobs and nearly $68 billion in African GDP are supported by air transport. But the important role of aviation-enabled connectivity is a much bigger story than even these impressive figures indicate.
Connectivity brings people to business, delivers products to markets and reunites families and friends. With a few kilometers of tarmac the most remote region can be connected to the global community. And that could mean access to vital sources of health care and emergency assistance; jobs selling products in global markets or welcoming tourists; or opportunities for education, exploring the world or creating business. Every flight brings with it enormous possibilities to make our world a better place and generate wealth—both material and of the human spirit.
This Aviation Day is an important opportunity to remind ourselves—the industry, our partners, and stakeholders including governments—of the value that aviation brings. And in doing so, we are able to focus together on the challenges and the solutions that aviation needs in order to support growth and development.
Aviation is a tough business. This year we estimate that airlines will turn a combined profit of some $10.6 billion. That sounds like a lot. But on expected revenues of $671 billion it’s a net profit margin of just 1.6%. And this is a relatively good year. If we look back over the decade since 2003, airlines have basically broken even on revenues of some $5 trillion.
The performance of the African industry parallels the global trend. For 2013 we expect the continent’s airlines to earn about $100 million profits. And it equates to an earnings before interest and taxes (EBIT) margin of just 1.0%.
This “break-even” performance masks an incredible efficiency story that has unfolded over the last decade. With oil at $110/barrel (Brent) and global GDP growth forecast at 2.4% it is amazing that airlines expect to make any money at all this year. In 2003 airlines lost money with oil at around $30/barrel and GDP at 2.8%. Efficiency gains are behind this success as illustrated for example by the passenger load factor. In 2003 it was 71.5%. This year we expect it to be 79.8%.
So, we are in a tough business. And the efficiency gains mean that the bar for competition within the industry has been raised that much higher.
The question for today is:
- Knowing that aviation is critical to the development of Africa, how can we make it more successful?
The issues are complex and there is no simple silver bullet solution. However, I would like to use my time with you today to focus on safety, costs and liberalization. Let’s take them in that order.
The biggest challenge for air transport in Africa is safety. The safety statistics make the point. Globally airlines averaged one accident for every five million flights in 2012 on Western-built jet aircraft. Africa lost one jet for every 270,000 flights.
Looking at accidents involving all aircraft types and levels of damage, there were 75 in 2012—and 13 of these were in Africa. Africa is about 3% of global traffic and 17% of accidents.
So, my first message is that there is a safety problem that must be fixed. Fortunately, looking at the numbers in a bit more depth can point us towards a solution.
Last year saw a remarkable achievement in aviation safety. There were no hull loss accidents with Western built jet aircraft among airlines on the registry of the IATA Operational Safety Audit (IOSA). That covers more than 380 airlines. And that includes all 240 IATA member airlines for whom IOSA is mandatory. And it includes 25 airlines registered in sub-Saharan Africa.
This is a clear indication that world-class safety is possible in Africa. The key to this is integrating the best safety practices of the industry as captured in the IOSA standards.
But the question is: how to implement?
2012 was memorable for more than the great result on safety. Last year African ministers for transport adopted the Abuja Declaration and the Aviation Safety Improvement Action Plan for Africa. This commits African aviation stakeholders—government and industry—to achieve a safety performance on par with the global average by the end of 2015. Early this year, it was endorsed by the African Union Summit—showing recognition of the importance of aviation safety at the very highest levels of government in the continent.
Safety is the responsibility of all aviation stakeholders. Achieving it requires a strong partnership between industry and governments. IATA, AFRAA, the International Civil Aviation Organization (ICAO) and many others teamed-up to host the safety conference that developed the African Strategic Improvement Action Plan that is at the heart of the Abuja Declaration. As a critical stakeholder in African aviation—with 20 members in sub-Saharan Africa—IATA is committed and actively engaged in helping to enhance African aviation’s safety performance to reach worldwide safety levels.
There are several targets set out in the plan:
- Establishment of independent and sufficiently funded civil aviation authorities.
- Implementation of effective and transparent safety oversight systems by all African States.
- Completion of an IATA Operational Safety Audit (IOSA) by all African carriers.
- Implementation of accident prevention measures focused on runway safety and loss of control in-flight.
- Implementation of Flight Data Analysis (FDA).
- Implementation of Safety Management Systems (SMS) by all service providers.
IATA is lending its expertise to the implementation of this plan in cooperation with all the other stakeholders. But we are paying special attention to IOSA. As noted, there is a clear connection between safety performance and IOSA registration. If we look at African accidents between 2008 and 2012, more than 85% were with carriers not on the IOSA registry. IOSA’s 900+ standards are an effective tool for airlines to improve their operational safety performance. On top of that government access to IOSA information provides valuable insight to enhance their safety oversight programs.
Getting all African airlines onto the IOSA registry will be a challenge. It is worthy goal. And IATA is committed to helping. All of our members—including those in Africa—are already on the registry. But of course, safety is not about IATA’s members or those of AFRAA. It is an industry issue.
The reputational damage of a poor regional safety record affects all carriers in Africa. That is evident in the approach of Europe with its list of banned carriers. It tars almost all African airlines with the same brush—even those with excellent safety records.
The European Union’s approach is wrong. It lacks transparency. And it does not improve safety. I repeat this message every time that I am in Brussels. But, the banned list is a political reality and I don’t see any indication that it will disappear or be dramatically reduced any time soon.
We all know that there are many excellent performers on the continent. But the overall record is many times worse than the global average. Trying to get Europe to revise the banned list by asking them to just look at the good performers has not worked. And there is no guarantee that making IOSA mandatory for all African carriers will cause Europe to do an about-face either.
But, the overall safety improvements that we can expect from the commitment to mandate IOSA registration for all carriers will be a very strong argument for Europe to re-think its position.
That’s why we are collaborating with ICAO and AFRAA with a focus on building skills and preparing Africa for IOSA. Last year regulators from 40 African states attended IOSA awareness workshops. This year we are working with airlines to prepare them to complete IOSA by 2015. In total, 33 airlines have attended IOSA workshops and 70% of these submitted applications for further assistance with IATA and International Aviation Training Fund-sponsored in-house training. Following a strict assessment, ten operators are ready to start the program, they are:
- Afric Aviation, Gabon
- Asky Airlines, Togo
- CAA Compagnie Africaine d’Aviation, DR Congo
- Camair-co, Cameroon
- Air Cote d’Ivoire, Côte d’Ivoire
- Aero Survey (Starbow), Ghana
- Mauritanie Airlines, Mauritania
- Senegal Airlines, Senegal
- Equajet, Republic of Congo
- Rwandaair, Rwanda
It is good to see some of these airline CEOs are here with us today. Although we could not accommodate all applicants at this stage, our team continues to work with all carriers to improve safety performance with the goal of meeting the IOSA target.
IOSA is also constantly evolving. An Enhanced-IOSA will add the dimension of internal quality assurance programs with a self-auditing methodology. Enhanced IOSA will be mandatory for Renewal Audits after September 2015. Until then, participation in Enhanced IOSA is voluntary. But don’t wait! Take advantage of the voluntary participation period during which IATA can provide support and guidance.
I believe that we are at a turning point in the evolution of African aviation safety. Governments are committed and the industry is working together. We must not lose momentum. We have 31 months until the end of 2015. The IOSA target is challenging, but it is achievable. I will personally be following progress very closely. It is part of our Board of Governors priorities and it is the top focus for our Africa team. If we work together with determination there is no reason why we cannot be successful.
Addressing safety concerns is the top priority. Safety is the license to grow for African aviation. But, the industry cannot fulfill its potential if it continues to be weighed down by high costs.
The situation with fuel illustrates the problem. Buying aviation fuel in Africa is about 21% more expensive than the global average. That is a huge cost burden. On average, fuel is about a third of an airline’s cost structure. In Africa fuel accounts for 44% of costs. Much of the problem is policy-made.
Government policies towards aviation in Africa tend to see it as an “elite” product, rather than as a critical component of the continent’s economic infrastructure. As a result it is heavily taxed—often in violation of ICAO principles which prohibit the taxation of jet fuel for international operations.
On top of this, the money collected in taxes on the industry’s fuel bill is not reinvested to support aviation. So we have infrastructure problems. Supply disruptions are frequent. And the cost to use the infrastructure is among the highest that airlines face when compared to other regions.
As with safety, the solution lies in global standards. IATA has partnered with AFRAA to address the situation. Our first action is to build skills and knowledge among our members with fuel purchasing training courses. Then we are working with them to convince governments of the need for change. Already there have been some successes:
- A major reduction in fuel prices in Angola—which were among the highest in the world
- An improvement in fuel storage facilities in Uganda that will help to avoid previously frequent fuel shortages
- The removal of charges for a Stabilization Fund in Ghana that was essentially a subsidy for non-aviation fuel users
This is real progress. But there is a lot more to do. Ethiopia, for example, remains a challenge. Fuel uplift is charged excise tax and stabilization funds in contravention of ICAO principles. And jet fuel is subject to charges that subsidize other fuel users. So Ethiopian Airlines and Bole International Airport are at a competitive disadvantage as they try to build a successful aviation hub serving the region.
Ghana and Angola have set a good example. It’s time for other governments (Ethiopia included) to follow, safe in the knowledge that any lost revenues will quickly be recuperated with expanded economic activity and jobs.
Africa also suffers the impact of onerous direct taxes on tickets. We see a combination of “solidarity” taxes, tourism taxes, VAT, and infrastructure development fees, each of which comes with its own issues.
Solidarity taxes were started by France in 2006 to charge air travelers for the cost of fighting diseases such as HIV/AIDS, tuberculosis, malaria etc. The global community recognized that singling out air travelers to fund such causes, however worthy, was not the right way forward. Only 11 countries followed France’s lead. The trouble is that nine of them are in Africa. Chad was the latest to implement. And we hear rumors that Namibia and Kenya are considering such action. I urge all these countries to re-think their positions around voluntary contributions.
Tourism taxes are also in place in at least four African nations: Burkina Faso, Gambia, Ivory Coast and Mali. They range in price from $5/passenger to $16. You don’t promote a destination by making it more expensive to visit. So I would also urge these governments to re-think the damage to their tourism industries that these taxes are doing.
At least ten African governments impose VAT and sales taxes on tickets—ranging from 1-20%. Some States also levy VAT on services related to international air transport. It is very clear that the VAT or sales taxes on international air travel contravenes ICAO policies. But even more practically, making connectivity more expensive has an impact across the economy—discouraging tourists, making exports more expensive, increasing the costs of doing business and reducing opportunities to create jobs.
And finally, we are seeing a proliferation of airport infrastructure charges. A partial list of countries includes Senegal, Mali, Congo, Cameroon, Gambia, Togo, Guinea Bissau, Mauritius, Togo, Niger, Sierra Leone, Benin etc. I mentioned Senegal first because the charge there is EUR$54—the highest in the region and this charge alone is as high as the total airport charges in Heathrow. Of course infrastructure costs need to be recovered. But these must be transparent, cost related and for infrastructure that is being used. Too often there is no transparency and little or no evidence that it is being invested wisely in development that will benefit airlines, travelers and broader economic interests of the community that the airport serves. And in some cases it is being charged to people traveling today for facilities that only future passengers will enjoy.
Governments need stable sources of funding and have full authority to raise taxes within the limits of the Chicago Convention and ICAO policies. They need to weigh the income generated against lost economic opportunities. But my message is much broader than why a particular tax must be reduced or eliminated.
Across Africa I have heard many comments about stiff competition that the Gulf carriers are bringing. I would urge governments in Africa to look at what makes the Gulf carriers so competitive. They are operating in a policy environment that understands and fosters the industry’s growth as a key driver of economic expansion and development. In general they keep the cost of doing business low and are building fantastic infrastructure to ensure that their hubs can grow—providing connectivity both directly and indirectly. And you will find a similar policy framework in place in other countries—from Chile to Singapore, South Korea and my former home Hong Kong. Connectivity is one of the key drivers of their economic success.
In Africa, connectivity is an issue. Getting around the continent is not easy. I experienced this first hand in my own travel planning when I was proposed a connection in Europe for travel from East to West Africa. As I mentioned at the beginning of my remarks, aviation connectivity is a catalyst for economic growth. But those ties must be enabled by agreements among governments.
I am not here to preach one approach to liberalization over another or recommend implementing a long-established commitment or building a new framework. I simply want to highlight the outstanding potential for greater aviation connectivity among African states to drive development.
As a keen observer of Africa, I would see scope in the African Union to lead change. The African Union’s objectives center on unity, and development—both economic and social. Aviation can be a key driver in achieving those goals. As the African Union celebrates its first half century of success, there is no better way to look towards the future than with a vision for a continent that is connected and working together with safe, efficient, and abundant air links.
The global interest in Africa has never been higher fueled by economic and political reforms. I recognize this moment in time from when I began working in Asia in the 1970’s.
China is an increasingly important player in Africa’s development. In 1980, China had a population very similar to that of Africa today—about a billion people. And it represented about 2% of global GDP—less than the over 3% that Africa contributes today. At that time Chinese aviation was struggling with a poor safety record, infrastructure deficiencies and state-run airlines. The Chinese government took a decision to use aviation as a strategic driver in an economic success story that has seen it grow to be the second largest economy in the world. That meant addressing safety issues, building infrastructure and adopting global standards.
I see great potential in Africa. It will develop on its own terms and by dealing with its unique challenges. But there is great potential which is moving towards being realized. The top priority is safety. The Abuja Declaration and the strategic action plan behind it are gathering momentum to deliver world-class safety by 2015. Now we need governments to think strategically about the business foundation of a safer African industry. This should include coordinated policies that are consistent with global standards to develop infrastructure and reduce costs.
IATA is engaged with African aviation and will be a strong partner in building the future. Aviation is a team effort. And I look forward to a stimulating day of discussion focused on how governments and the aviation value chain can work together to realize the potential for a successful African aviation sector to drive growth and prosperity.