14 January 2009
editorial
Johannesburg — FOR airlines, the volatile oil prices and severe drop in demand in the past year has been a lethal combination that has meant only the strong will survive.
The web of government regulation and poor infrastructure in Africa will make survival for the continent's airlines that much more difficult. In the past 12 months, as dire global economic conditions have taken their toll, many African airlines have had to close their doors , the latest being Zambian Airways and Air Tanzania. Others are likely to follow.
In fact there are few airlines that have escaped the harsh trading environment. Even one of Africa's strongest airlines, Air Mauritius, has found itself under enormous strain after a disastrous decision to hedge 80% of its fuel requirements at $105/barrel over two years. This has resulted in the airline finding it difficult to meet its short-term commitments, forcing it into a major restructuring.
Luckily the government has stepped in with financial support and the airline is likely to work its way out of crisis.
Virgin Nigeria is another casualty, announcing at the weekend that it would suspend its long-haul flights to Johannesburg and London later this month.
Ironically, despite the numerous challenges faced by airlines operating in Africa, there are opportunities for those able to exploit them. The highly regulated African market, controlled by an intricate web of air policy agreements between various states, often means that demand far outweighs supply in certain key African cities such as Lagos, Luanda and Dakar. This allows airlines to achieve well-padded profit margins through high occupancy levels and even higher fares.
Several airlines, including South African Airways and Nigeria's Arik, have begun to expand across Africa, particularly into the oil-rich west. The loss of competition on some of these key routes is likely to make the reward these airlines reap that much richer.
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