Carriers on the African continent have been facing the steep challenge of high operating costs and the need to be economically sustainable.
With the understanding of these issues, aviation stakeholders have been working together for several years to reduce the impact of air travel on the environment.
Sustainability has been the top priority, with airlines, airports, and manufacturers investing millions in research, new aircraft technology, sustainable aviation fuel (SAF), and other emission reduction initiatives. Although it is a top priority, not every airline can afford to invest the same funds to implement these environmental solutions. It is even more difficult in Africa, where carriers face significantly high operating costs due to insufficient infrastructure and a weakening economic climate.
This year, June 20 and 21 marked a pivotal point for Africa’s Aviation sector. The Ethiopian Airlines on the stated dates hosted IATA’s ‘Focus Africa’ conference, which gathered together airline CEOs along with aviation leader, decision makers and influencers from Africa, the Middle East and the globe; in order to address a collaborative drive towards the advancement of aviation in Africa.
Cognizant of the uphill task that awaits the aviation sector in Africa, with regards to sustainability as well as survivability, Capital reached out to Marie Owens, Senior Vice –President, Sustainability and Chief Economist at IATA, for a deep insight on the status quo of the aviation sector as well as its future ambitions. Excerpts;
Capital: One of the challenges that airlines face these days is high fuel consumption as well as high fuel costs. How is this affecting the status of African aviation?
Marie Owens: The price of the fuel in the continent is higher in contrast to the globe. If we take a look back at history, we had what we called the civil aviation which was actually created during the Second World War with the Chicago convention that was subsequently signed by all United Nations member states. One hundred and ninety three countries have signed the Chicago convention, which established civil aviation in the world. And already at the time of the Second World War those inspired individuals understood that for global aviation to occur we needed a level playing field and the rules to be the same for aviation so that we could fly seamlessly from one country to another.
And that means that the costs and the taxes and everything relating to our operations should preferably be the same so as to best fulfill our duty to transport people and goods around the world. Of course, there are differences in rules and regulations in many areas. Every such difference creates a more fragmented environment for global aviation. And this leads to an inferior service, less service and service at a higher price.
In Africa, it happens that fuel is 20% more expensive than the average price around the globe. So that is of course a handicap for African aviation, compared to all other airlines, that is, African airlines face a higher cost base than other airlines. And that seems it’s first of all not optimal. It seems to me, that it goes against the spirit of the Chicago convention.
Capital: How can this issue be solved?
Marie Owens: The solution is clear, rules have to change. And I think one thing may be that many countries around the world don’t quite embody is the understanding that transportation in all its forms and of course IATA represents aviation. Thus, aviation is an amplifier of economic development. It is of course an industry in its own right, but it’s also an industry that allows other industries to do better. And if we have a taxation policy that penalizes aviation, we penalize the development of all of these other industries. And we can see this right in factual data because we know that unfortunately most of the world’s poorest countries are the ones that are located in the center of Africa and that have an acute lack of transportation and connectivity of all kinds. If a country lacks those types of transportation solutions there will be an inferior economic outcome. And that is obviously a great shame.
In order to combat this issue we ought to ask ourselves, how can we promote aviation in Africa and in particular for these landlocked countries in the center of Africa? In answering this, we will enhance the economic performance of the countries as well as their full potential, which is obviously tremendous.
Capital: The IATA focus Africa conference is the first in its kind; what are the expectations of the conference?
Marie Owens: I think the expectation is indeed to emphasize this necessity of all of us coming together around a common goal and a common vision and sort of make it apparent to everybody that no single one of us can solve this on our own. So we really need everybody in the value chain and the governments to focus their minds on this mission. And there are countries I think one European country for instance, that has set up within the government, a cross sectional unit with a mission to work in this direction to deliver sustainable aviation. And it includes obviously the government, people, airlines, all the suppliers in the value chain and so on. And I think maybe that is something that could inspire other countries to really make it an obvious national strategy; around which everybody can unite.
Capital: African airlines have low performance even in inter Africa connectivity, which many argue as a reason for the expensive nature of air transportation in Africa. What do you suggest to improve this situation?
Marie Owens: When you look at any business, it has to cover its costs otherwise it will fail. So of course if African airlines face higher costs than airlines in other areas of the world, then it will be much more difficult for African airlines to cover their costs and to perform the necessary services. So we see that indeed also in terms of the profitability of the airlines they are at a negative as opposed to other regions which have managed to return to profitability from the COVID crisis. This is a case of efficiency in terms of improvements which are again related to whether we view aviation as a global industry or as a local industry. If we view it as a global industry we can unite our airspace and utilize our airspace more effectively which is necessary if we’re going to fly over other countries airspace. The zero cost solution actually allows for a more efficient use of the airspace which we also struggle with in Europe since we haven’t quite managed to get to full efficiency in the European airspace. This situation becomes more acute for Africa, of course, since the economic situation is dire for so many more people. That’s why it becomes extra important to achieve these improvements in Africa.
With regards to taxation, if you tax it as an industry and you just want to tax the profits, you forego the dimension of using transportation to promote other economic activities in your countries. And this we see also just in the trade figures for instance, how little Africa trades with itself and how much more it trades with Europe. Primarily, Africa trades with Europe. So now we understand that of course trade is much more expensive for Africans because it has to go so far. It would be much more efficient and less expensive if we could trade more with our neighbors. And for that again we need better transportation interconnections.
And finally, if we could do all of this with sustainable aviation fuel, which at one point in the future, is likely to become way cheaper than jet fuel, will be a great step in the right direction.
Capital: Where do you see the status of African airlines in the implementation of sustainable aviation fuel?
Marie Owens: We have to remind ourselves and everybody perhaps that airlines don’t make fuel yet we buy the fuel from oil companies. Likewise, airlines don’t make aircraft yet we buy them from the aircraft manufacturers. So it’s an odd thing. I think that so much of the public debate centers on airlines responsibilities for these things whereas the actual solution lies outside of our industry, but within our sector for sure.
Somehow we have to get the oil companies to change their ways and get involved on such milestone projects. The investment needs that we think that we need for sustainable aviation fuel are only a third of all the money that goes into oil and gas development today. It’s nothing disproportionate, it can be done. We just need to change the value proposition for these investments.
Today, oil companies can invest in oil and gas production and since they know how to do it, they know the demand and return. Making sustainable aviation fuel is not as certain for them. They don’t quite know how much it’s going to cost. They don’t know exactly when that will be profitable for them. So they prefer not to do it.
I think we need to focus on the energy companies and making them take a full part of the responsibility in this energy transition. And of course, all airlines can vouch to say we will buy all the sustainable aviation fuel that is produced. We think that it will be advantageous for us to buy it at some point in the future when those costs have come down, below the cost of jet fuel. I cannot say for sure what year that will be.
Of course, we realize that at that point in time it’s not only about sustainability with respect to the environment, but also about the industry’s financial sustainability; and that this might be the road for airlines to be able to deliver reliable and regular profits which is what we expect in the industry. And finally, I would add it’s an avenue of sustainability also for the economies and the countries themselves. If countries can free themselves from the dependency on oil companies and instead produce their own renewable fuel at home with domestic ingredients and not have to import it from anywhere, promoting sustainability in the process.
Capital: One of the challenges that African airlines face is blocked funds. How do you see the effect of this in the economic aspects?
Marie Owens: Although in the global economy today we have about 3% GDP growth which is in line with historic averages; on the face of it for the world as a whole we’re doing okay, but that global average masks huge local differences and today we have in the world twice as many countries in outright distress or potentially becoming distressed than we had in 2015. So over 60 countries in the world today are distressed or could become distressed. And with distress often comes, the inability to pay your creditors. It might be a fully blown balance of payments crisis as we call it in economics. The currency depreciates against foreign exchange earnings and this is the situation that many countries find themselves in today, that they simply don’t have the foreign exchange to pay their creditors.
Airlines are one of the creditors. I think obviously all creditors deserve to be paid but the thing to understand here is that we’re not paying the airlines and if they don’t get paid they will have to reduce the service. No company can operate like this and if the service is reduced then we have less transportation and lower connectivity in that country. This will bring lower trade, fewer exchanges between people and less economic development not only today but arguably also in the longer term because you get some sort of permanent economic scarring. So the factor to really understand when it comes to aviation is that as much as we understand and sympathize with countries in distress, we also believe that they are somewhat shooting themselves in their own foot when they don’t priorities aviation, because it becomes a vicious circle. No money to airlines means airlines stop serving the country, less economic activity, less trade, less income, and even more blocked funds for other creditors. And that’s the very peculiar role that airlines play in this context.
Capital: How can it be solved?
Marie Owens: It’s always extremely difficult for countries in this unfortunate situation and it does need some drastic economic policies. Often this involves for instance putting limits on how much money companies and individuals can take out of the country, limits on capital flows and other drastic solutions for countries. It obviously depends very much on the local situation but it will impose a fair amount of economic distress on everybody in those countries to solve those problems. And in real terms, incomes will have to decline. Finally, I would say that we have to note also the limited capacity of institutions such as the IMF. The IMF is today quite limited in how it can provide assistance for many of these countries. So that’s an additional problem. The world as a whole hasn’t really figured out how to be able to help countries in distress in an immediate and fair fashion for everybody. And this is because of multiple factors but also it depends on who has lent money to those countries.
And that whole landscape is fluctuating today. Countries find themselves owing money to countries that the IMF cannot necessarily solve their credit issues for. So the system becomes yet another example of the problems that come when we get fragmentation in global systems. When the global system is no longer global and it breaks up into little pieces, then it’s much harder to collectively actually provide the solutions that these countries need.
Capital: What’s your view on the overall development of African airlines and the aviation sector in the near future?
Marie Owens: I really think that as much as we are probably feeling intimidated by the scope of the change that has to happen when we replace fossil fuels with renewable fuels; we have to lift our line of vision and look at the end result. And if the end result is a situation where we have cheaper renewable energy and sustainable energy accessible in abundance, then surely that is worth all the effort.
And if we arrive at that stage, this will benefit all the countries and its industries and obviously it will also benefit aviation which has this peculiar role of being an amplifier of any kind of economic activity that happens in a country. So that’s why we are not the only necessary ingredient in terms of economic development but we are necessary along with a number of others.
And if we can free ourselves collectively of this energy constraint, then I think the UN’s Sustainable Development Goal and that goal of having a global economy that is sustainable and inclusive, then equal opportunity and prosperity for all can actually happen.
So if we can focus on airlines around that objective, we as an industry in the near future can have an opportunity for African airlines.
Developing countries not only in Africa, but also elsewhere as well have this fear of the costs of investments to which I fully sympathize with. But again if we can overcome that fear and look to the opportunity, development is imminent. Of course, we need help from the rich countries. I think we cannot say that often enough either. And the rich countries as a group have promised to put up financial aid and every time every such promise has yet to be realized. So we are eagerly awaiting that support.
And again, if we have this as a common goal and we actually manage to work together, think across frontiers, think across you know the decades a little bit, then I know that this is possible. The world has already innovated solar and wind energy. It didn’t exist before. So we know that we can do this. We just have to understand together what the end goal is. When our policy priorities are mixed then the policies go in all kinds of directions and we don’t get the results that this endeavor should be able to produce.
We call our conference here, ‘Focused on Africa’. So this is also part of it. We need to focus as airlines on the goals of freeing ourselves from the fossil fuel energy constraints. And then, I certainly hope that we can pull the people out of poverty, particularly in Africa.
Capital: Do you see African airlines achieving Net Zero emission by 2050?
Marie Owens: Yes, I certainly do. This is because we believe in sustainable aviation in general by 2050. So that means that in 2050 we must all be sustainable. But then of course how we articulate that over this remaining time span of 27 years that we have ahead of us is a different question.
Today there’s so little sustainable aviation fuel available on the market and actually in existence. But the US and Europe are currently in the lead in terms of that production. Other areas of the world economy will follow later. So I think it’s absolutely realistic to assume that Africa will not be in the lead. There’s also every reason to hope that toward drawing closer to 2050 Africa could be one of the world’s major sustainable aviation fuel producers because Africa has all the necessary ingredients and all the feedstock. Every country, every region, every continent will come into this with its own individual timescale. And that’s fine. And we can all learn from each other. And maybe that’s also an advantage for Africa in the sense it’s not always best to be the first in the market. Sometimes it’s better to come in a little bit later and learn from other people’s mistakes.
