Tanzania: Don't Crucify Atcl On Losses Yet - Dr Shayo

THe latest Controller and Auditor General (CAG) report for 2019/20 shows that Air Tanzania posted a 60bn/- loss, DAILY NEWS reporter interviewed Dr HILDEBRAND SHAYO, an economist-cum-investment banker, on the possible causes.

Question:Why ATCL made such loss from your point of view?

Answer: This question is really just the opposite of your definition of success. What does failure mean to you and how do you know you have failed within a given time frame in my view is that failure is just a perspective. Failure is an event and in business, you only fail if you quit and those at variance about the ATCL loss should do a research to ascertain lessons from other airlines operation business.

Missing an important target does not qualify as having failed in business. In business, if a task is completed, but misses a target, I still consider it a success because, loss making referenced in the CAG report isn't unique to ATCL alone.

Question: Why are you saying loss is not unique for ATCL?

Answer: Recorded loss of 60bn/-or equivalent of 26.5 million US dollars for ATCL during the year 2019/20 financial year in my view is within average when compared to loss recorded or documented by the International Civil Aviation Organisation (ICAO)data base.

ICAO, reports shows that most airlines are struggling due to number of reasons in addition to effect caused by global pandemic shutdown, especially during the covid-19 pandemic period. Other areas that make airline business to struggle include high fixed and variable costs, exogenous events such as fuel costs that consume about 45per cent of the income of earned, and poor services.

That is why, going by ICAO, operation during the pandemic in which CAG report was being prepared, in total, air travel was down by 60per cent making total airline industry losses top 370 billion US dollars.

Based on airline business analysis, in the most optimistic scenario, according to ICAO, by June of 2021 passenger numbers will be projected to recover globally to 71 per cent of their 2019 levels (or 53 per cent for international and 84 per cent for domestic flights).

Based on such data, a more pessimistic scenario foresees only a 49 per cent recovery (26 per cent for international and 66 per cent for domestic). This projection will have a huge bearing on ATCL's operation too, in terms of its earnings.

Question: What should ATCL do from loss making?

Answer:Research across most airlines shows that airlines routinely posted losses deeper than the revenue they brought in during the April-June quarter, 2019/2020 as the virtual grounding of international scheduled services wiped out much of their business.

In principle, it means costs incurred for most airlines, even with measures taken to cut expenditure during the grounding, are argued to be more than twice the revenues generated during the quarter.Thus why, I am in support of Prime Minister Kassim Majaliwa's remark in the National Assembly, while presenting budget estimates for his office for 2021/22 fiscal year.

Attaining more fleet for Tanzania to 12 in number of different sizes in my view is timely and critical because such asset is desirable to further boost the ATCL fleet and the country's economic growth through a vibrant aviation sector even though, as things stand, is making relative small loss when compared to other airlines that has received or asked for governments bailout.

Question: Does it mean it's the end of the road for ATCL after making a number of losses in the recent years?

Answer:No it's not. In my opinion, assessing current ATCL position and its history one thing to bear in mind is that loss making for an airline business especially for ATCL isn't unique to ATCL only. Instead, the capacity for an airline to thrive today, especially during this period of world travel disruption due to covid-19 effects, is measured by more than a few factors.

It is well known that Tanzania acquisition of its fleet came at time the world was trapped in a complex situation, obsessed by the advert of the global lockdown caused by covid-19 epidemic that unquestionably saw the aviation sector across the world being hit hard for a good part of the 2019/20, and it was the same period the CAG report was being prepared.

Devoid of going into the detail, common intelligence tells me that airlines are not very money-making business at all. Unlike other businesses, airline profits are difficult to realize because of how the industry itself works and profits are margin.

In fact, airline industry business experts will agree with me that airlines, based on history as reported in audited accounts or from listed to stock markets accessible will show, most airlines have never achieved a level of profit that could be at all considered as offering a competitive return on investment.

Research indicates there is what can be termed as teeth layer thin profit margins of 1-2 per cent. Airlines annual loss and annual earning is cyclical and causes are based on various factors.

In African region, it is well known on what happened to South Africa Airways, Kenyan Airways asking for government more capital injection and more examples on how national airlines performs and role of their government is well documented. In the UK, USA Australia etc. various airlines have differently experienced losses over years followed with promising recovery.

Question: So, ATCL can make a comeback once the world open up its sky after countries returns to normality after vaccination?

Answer: Many airlines across the world are grapple with liquidity issues in the wake of covid-19 with peak cash burn. For ATCL, I foresee a critical normal business challenge.However, the airline needs to adjust to an increasingly uncertain future. This will call for the need to operate differently to stay competitive and profitable.

ATCL need to have in place strategy to quickly restore its capacity when demand rebounds, while reducing overhead costs in case travellers return become slower or less evenly than projected. Striking the right balance will be thought-provoking, but ATCL do have options.

Here I would like to emphasize, ATCL must reduce fixed costs to levels that can not only allow it to continue operating with lower revenue, but can also generate enough cash to repay higher debt burdens. Lastly, to have strategy that would make ATCL adapt a dynamic network structure.

One approach could be to focus service in fewer airports in the country and within the region. On global level, target favourable international hub for connections as bilateral agreement may permit.

Question: What is the way forward for ATCL?

Answer: Looking ahead, ATCL like any other airline operators will continue to fight for survival. For privately owned airline operators, investors are more cautious today since airlines have loaded up on debt to stay afloat amid the Covid-19 crisis and will be more selective when making their aviation investments.

ATCL should move forward and need to operate in the same way.Undoubtedly, the damage to balance sheets is now clear and ATCL like any other airline will face continued challenges to finances.

In my view, it will require bold business strategy, bold capacity and efficient team and network decisions that will help to manage short-term cost reduction without jeopardizing long-term airport efficiency and network growth strategies of ATCL. For ATCL, and our country strategic position, the sky is the limit.

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