eBusiness Weekly
Business Writer
While Zimbabwe took delivery of a Boeing 777-200ER plane this week, sub-Saharan airlines are struggling with losses running into millions of dollars, according to the International Air Transport Association.
This week, Air Zimbabwe took delivery of a Boeing 777-200ER plane, which experts say is only ideal for inter-continental flights and should contribute significantly to the growth of the national airline and boost business opportunities for the country, especially in tourism.
There is no doubt that a national flag career is critical to the country and national brand, but is a 282 seater Boeing 777-200ER target mostly for long international flights what we need right now?
The new plane comes into an industry many African airlines have found tough to operate in and making huge losses.
IATA, the trade association of the world’s airlines in its latest report says African carriers continue to suffer structural problems of high costs — in large part owing to government taxes and fees — and low load factors.
Break-even load factors are relatively low, with only a few airlines in the region able to achieve adequate load factors. The average load factor will continue to be the lowest globally at 58,5 percent in 2020, according to IATA.
“Economic growth in the region has been relatively good and is expected to rise in 2020, but markets are extremely fragmented and inefficiently served in the absence, so far, of a Single African Air Transport Market.
“As a result, they are projected to show a loss of $200 million (in 2020), similar to 2019.”
Interestingly, while the Boeing 777-200ER is said to be targeting international markets, it comes at a time South African Airways is being advised to cut back on international flights.
SAA is walking on a tightrope at the moment, needing R2 billion in order to continue with operations.
South Africa media house Fin24, quoted an unnamed expert saying the international business must be where SAA is losing a lot of money, due to market competition and poor aircraft utilisation.
The expert said SAA should be configured to focus on domestic and regional business and without the international business.
“When SAA flies into London, for example, it flies overnight and lands at 06:00 in the morning the next day. The aircraft stays on the ground for eleven hours before it can fly back to Johannesburg.
“Part of the challenge leading to this inefficiency is the location of Johannesburg on the world map, making it complex to run a profitable long-haul international business for the airline,” in the view of the expert.
Just this week, SAA announced it was consolidating international flight services with low demand.
Zimbabwean and aviation commentator Jerry Haas, took to Twitter saying Air Zimbabwe doesn’t have the “capacity/ routes/ crew to operate” Boeing 777-200ER planes and should rather lease them.
Meanwhile, the global airline industry is expected to produce its 11th consecutive year in the black.
While the Air Zimbabwe’s viability has been hamstrung due to the operation of aged and depleted fleet of aircraft, global airlines were in 2019 hamstrung by softer passenger and cargo demand and corresponding weaker revenue growth, as passenger yields fell 3 percent and cargo yields dropped 5 percent compared to 2018.
Operating expenses did not rise as much as anticipated (3,8 percent vs. 7,4 percent June forecast) largely owing to lower-than-expected fuel costs; but this was not enough to offset the softness in revenue.
The industry is, however, expected to perform better in 2020 with the global airline industry expected to produce a net profit of $29,3 billion in 2020, improved over a net profit of $25,9 billion expected in 2019.
“Slowing economic growth, trade wars, geopolitical tensions and social unrest, plus continuing uncertainty over Brexit all came together to create a tougher than anticipated business environment for airlines. Yet the industry managed to achieve a decade in the black, as restructuring and cost-cutting continued to pay dividends.
“It appears that 2019 will be the bottom of the current economic cycle and the forecast for 2020 is somewhat brighter. The big question for 2020 is how capacity will develop, particularly when, as expected, the grounded 737 MAX aircraft return to service and delayed deliveries arrive,” said Alexandre de Juniac, IATA’s Director General and CEO. “
Airlines are also expected to benefit from a dip in oil prices.
Jet kerosene prices are expected to dip, averaging $75,60 per barrel versus $77 per barrel in 2019. The expected industry fuel bill of $182 billion will represent 22,1 percent of expenses, down from $188 billion or 23,7 percent of expenses in 2019.
Passenger demand is expected to grow 4,1 percent in 2020, in line with 4,2 percent growth in 2019.
In fact, this masks a GDP-growth-driven pick-up since the underlying growth rate fell to less than 4,0 percent in 2019.
However, whereas passenger capacity rose 3,5 percent in 2019, it is forecast to grow 4,7 percent in 2020 — as aircraft deliveries rise significantly, causing load factors to slide to 82 percent from 82,4 percent in 2019.
“Passenger revenues, excluding ancillaries, are expected to reach $581 billion in 2020 up 2,5 percent from $567 billion in 2019.”
