African airlines are expected to continue reporting losses next year with the rise in oil prices expected to compound their challenges. The International Air Transport Association (IATA) expects the industry in Africa to post a Sh80 billion ($800 million) loss in 2017.
The performance is comparable to what they reported in 2016. The losses will make Africa the only region that is not profitable for airlines with carriers in all other regions reporting profits.
Major African carriers including Kenya Airways and South African Airways have reported losses in the last year. Only Ethiopian Airlines has remained consistently profitable.
“Carriers in Africa are expected to deliver the weakest financial performance with a net loss of $800 million (broadly unchanged from 2016).
For each passenger flown this amounts to an average loss of $9.97. Capacity in 2017 is expected to grow by 4.7 per cent, ahead of 4.5 per cent demand growth,” said IATA in its latest industry update.
“The region’s weak performance is being driven by regional conflict and the impact of low commodity prices.”
The price of crude oil has started going up after the Organisation of Petroleum Exporting Countries (OPEC) agreed to cut production in a bid to push up prices.
Eleven non-OPEC countries – including Russia – have also agreed to cut production, which has set stage for a rise in prices of crude.
Though analysts say prices are unlikely to go past $60 per barrel, the rise will have an impact on the airline industry that is heavily reliant on fuel. So far, prices have risen to $55 per barrel.
Other factors that are expected to affect African airlines are lower commodity prices and conflict in some of the countries. In the past, airlines including Kenya Airways suspend flights to a number of destinations owing to conflicts.
The global airlines industry is however having slightly rosier future and it is expected to make a net profit in 2017 of $29.8 billion.
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This is, however, a decline from a net profit of $35.6 billion that is expected in 2016. IATA said growth would be affected by the slower global Gross Domestic Product (GDP) growth of 2.2 per cent as well as a rise in non fuel costs, which have gone up by two per cent in 2016.