Picture: SUNDAY TIMES
Picture: SUNDAY TIMES

Political as opposed to economic factors are the major downside risks to the airline industry and many carriers will continue to grapple with politically driven objectives, says Kapil Kapa, the CEO at the Centre for Asia Pacific Aviation.

Uncertain global politics and rising oil prices are expected to generate challenges for carriers, including SA Airways, and the sector could see a big shakeup over the next three years. A tougher outlook for the global aviation sector comes as SAA grapples with a financial crisis that poses a risk to the fiscus, and SA’s sovereign credit rating.

SAA reported that its 2017/2018 financial loss was R3bn worse than expected, at R5.7bn. SAA saw sales plunge 21% on domestic routes, 11% on international routes and 6% on regional routes.

SAA, which has recently undergone a board revamp and the appointment of a new CEO, is pursuing a turnaround strategy that includes rationalisation of routes, and may lead to the introduction of a strategic equity partner and job cuts.

GM of operations at SAA Zuks Ramasia said route rationalisation was beginning to show results, while the carrier also found success in its offering of cabin crew and pilots to other airlines on contract.

“What we had was a market that was overly saturated. What we need to do is price correctly and find the right routes. We are starting to see green shoots as a result of this,” he said.

SAA has indicated it will need an injection of R21.4bn over the next three years, and finance minister Nhlanhla Nene is expected to give further details on the state of the airline in the medium-term budget policy statement in October.

Globally, the industry is still expected to be profitable in 2018 for the fourth consecutive year in a row, but Africa is expected to buck the trend and post a loss due to high operating costs, International Air Transport Association (Iata) head of industry analysis Andrew Matters told an Aviation Day conference in Mauritius.

The industry was being squeezed by rising costs and an increasingly uncertain operating environment.

Iata CEO Alexandre de Juniac said rising interest rates in the US and EU were not yet having any effect on airline financing.

Currency volatility and oil prices were “far more overwhelming factors”, he said.

With Linda Ensor

gernetzkyk@businesslive.co.za

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