The Covid-19 pandemic did not impoverish nations per se. It simply peeled back the veneer of equality that existed but was never really acknowledged by different industries globally.
Take, for instance, aviation. It was always thought that every airline in the world competed on a level playing field, assumptions being made that successful airlines were those that were run with great levels of management acuity with the converse holding true.
Yet, an anatomisation of airlines reveals that post-Covid-19, the most successful are not necessarily those whose managers distinguished themselves but rather, those that received tremendous support from the governments of the countries where they are domiciled.
Sample this. According to a 2020 Reuters report, “Singapore Airlines secured USD19 billion of funding to help see it through the coronavirus crisis and expand afterward.”
The same report adds that “American Airlines was eligible for USD 12 billion of US government aid as part of a USD 58 billion loan and grant package for the industry.”
Another report from Associated Press reveals that Emirates Airlines got a “cash infusion of USD 4 billion which came in two tranches over 2020 and 2021 and that provided a lifeline at a time when travel had come to a near standstill globally due to Covid-19.”
Most African airlines are not so fortunate in getting assistance from deep-pocketed backers. And that is where the inequality shows. None-African airlines are assisted with huge bailouts with moratoria on repayments, and in some cases, soft loans that are not loaded on the balance sheet.
African airlines, on the other hand, are constrained to make do with limited funding options. And where such funding obtains, it is more expensive than the global average. Which begs the question; when comparing African carriers with other airlines using net profit as a metric, is this not akin to comparing apples with oranges?
Perhaps a more accurate tool of comparison is EBITDAR which stands for Earnings Before Interests, Tax, Depreciation Amortisation and Rentals. EBITDAR has been defined as a statistic that is used to assess a company’s operating performance.
It focuses on operating income without non-operating and non-cash expenses. Economictimes.com says “EBITDAR can be used to track and compare the underlying profitability of companies regardless of their depreciation assumptions or financing choices.”
EBITDAR is a good measure of operational performance which, in most cases when examining net profits, is glossed over by focus on tax liabilities, depreciation of assets, and interest costs depending on debt levels and rates of interest. These are variables that are dependent on the goodwill of governments and economies of scale benefits.
EBITDAR is getting down to the brass tacks; putting the all players in an industry on the same plane (no pun intended). Generally, an EBITDAR margin of 10 per cent or more is considered good.
According to the International Air Transport Association scores for 2022, Air France-KLM group EBITAR margin was 13 per cent. Lufthansa’s was 11.8 per cent whereas Kenya Airways’s was 8.6 per cent. These impressive scores imply good management practices that have lowered operating expenses relative to total revenue.
Mr Khafafa is a public policy analyst
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