African Air Traffic Grows

Air Traffic Grows Despite Increased Costs

Business Daily (Nairobi)
NEWS
6 August 2007
Posted to the web 6 August 2007

By Zeddy Sambu

Strong passenger demand has led to growth in traffic in the aviation sector despite an increase in competition and air fares.

The International Air Transport Association earlier this week released traffic results for the first half of the year, which showed a 6.3 per cent growth in year on year international passenger demand despite competition in the industry. This was higher that the 5.9 per cent recorded last year.

Freight demand for the period grew marginally at 2.7 per cent, well below the 4.6 per cent growth recorded for the same period in 2006. However according to IATA, year on year demand was on the increase and is expected to continue.

In the past six months competition among airlines has heightened with major carriers reporting reduced use of their aircraft capacity. Passengers are spoilt for choice due to the increase of the number of airlines, especially budget airlines, leading to a reduction in their aircraft utilisation.

One airline that has been hit by under utilisation is Kenya Airways. During its recent end year results that were released in May this year the national carrier stated reduced utilisation was due to increased competition from the Middle East and European carriers.

This saw the airlines profits before tax drop by 14.2 per cent to Sh5.9 billion.

According to the results released by IATA average passenger load factors were 75.7 per cent during the first half of the year, up 0.6 per cent over the same period in 2006.

This is due to a focus on efficiency with careful capacity management in keeping load factors at record levels.

However according to the director general and chief executive of IATA, Giovanni Bisignani, the challenge will only get tougher as 1,800 new aircraft will be delivered in the next 18 months.

“This is equal to ten per cent of the existing fleet,” he added. As at the end of 2006 there were some 18,000 aircraft in the global fleet of commercial jets.

Of the deliveries Asia-Pacific carriers are expected to receive the biggest share of the new aircraft. This is in a bid to meet demand in the fast growing Chinese and Indian markets, while European airlines will take up 26 per cent of the deliveries in a bid to meet demand and replace ageing fleets.

Due to efficiency in new planes airlines are now investing in new fleet, and trying to maintain a young fleet, to improve fuel efficiency though with a high load factor.

This has been clearly demonstrated by the demand for the newly unveiled Boeing 787 Dream liner, which has sold out all delivery positions till 2015. KQ has already ordered nine planes out of the overwhelming 677 orders.

The highest passenger demand growth was recorded in the Middle East which grew by 17.8 per cent. According to IATA this outpaced capacity growth and boosted load factors during the period under review.

Demand from Asia also showed strong growth mainly due to “favourable” economic conditions. North America, Europe and Latin America also witnessed some growth.

Africa came in second with 9.9 per cent growth mainly due to improved links with Asia and the Middle East, Kenya Airways is one of the airlines that has tapped into ensuring these links.

In addition, operators in the continent registered growth in all areas of the sector from passenger traffic which increased by 10 per cent to the available seats per kilometres which showed 7.7 per cent. The available total capacity, combined passenger and cargo also increased by six per cent on the continent.

Carriers from the Middle East recorded the highest air freight growth of up to 11.7 per cent. This is mainly driven by the increased movement of cargo from the region to other parts of the world, this increased demand has led to airlines like Emirates rescheduling their cargo flights to fly directly to Eldoret Airport before coming to Nairobi before proceeding to Dubai. Previously they flew from Nairobi to Johannesburg then Dubai.

Demand growth in Asia Pacific rose by 4.6 per cent during the same period while Europe recorded negligible growth. North and Latin America recorded negative growth.

Growth in the passenger and freight demand has meant good business for most airlines, which had previously recorded negative growth after September 2001 attacks in the US. Kenya has also witnessed growth as more airlines enter into the airspace due to increased demand mainly from tourists.

According to Ernest Chitechi, a spokesperson for British Airways, the airline has recorded steady growth especially during the currently peak season “we also lifted more cargo based on current growth.” However increased fuel prices have been eating into the airlines profits leading to reduced margins.

Other than increased competition the high cost of fuel also pushed the national carrier’s profits down. KQ spent up to Sh15.9 billion on fuel, representing 31.2 per cent of its total costs. In 2006, they spend Sh13 billion.

IATA statistics show that the average price of jet fuel this year is $78.1 (Sh5, 467) per barrel, they cite this price is expected to have a major effect on the whole industry leading to losses.

The national carrier however hedges against the volatile fuel price, up to 80 per cent of their requirements are hedged, helping it defer some of the costs.