A continental aviation lobby group has cited high taxes and state interference as the biggest impediment to the growth and business sustainability of African airlines.
African Airlines Association CEO Elijah Chingosho has also warned against high turnover of managers at various carriers across the continent which he said affects their performance.
Addressing insurance brokers during their monthly meeting on Friday in Nairobi, Chingosho who appeared to defend Kenya Airways managers over the company's financial woes said the airline was suffering due to high taxes and government interference. Treasury has hinted at possible changes of top management at KQ prior to consideration for a state bailout to turnaround its fortunes.
Chingosho blamed difficult government policies that could not be amended to revise
Kenya Airways' fuel prices, for the record loss the airline announced last year.
The airline reported Sh25.7 billion loss after tax for full year ending March 2015. In the half year to September 2015, the national carrier reported a Sh11.95 billion net loss.
Chingosho said the airline had made brilliant investment ideas previously, and reaped handsomely from them for years, even when other airlines around the world were making losses.
However, the ideas could not work when fuel prices started to decline drastically putting pressure on KQ to maintain profitability.
“Nobody would have imagined that oil prices would come down, but they did. However due to complicated government processes, making any changes
was just impossible,” he told the insurance brokers at the meeting.
Fuel hedging which allows companies to lock in a set price is an insurance-type of policy against volatile oil prices. If the price of oil goes up, airlines can use hedging to buy oil at the original, lower price. If oil went down, then the option simply served as an insurance policy that never got used. Financial service firms such as banks and insurance firms are some of the organisations that provide hedging services.
Airlines hedge against rising fuel prices, since fuel is the highest cost of operating an airline. Plummeting oil prices were not foreseen even by the smartest planners, Chingosho said.
He added that African airlines suffer due to very high cost of operations caused by high taxes, airport charges and fees.
Other challenges that airlines in the continent face, he said, are brain drain, negative perception that air travel is for the rich, ageing fleet, and few traffic rights.