Pandemic offers chance to rethink future of airlines

Pandemic offers chance to rethink future of airlines

For some African airlines the current crisis could prove fatal, but African Business editor David Thomas sees opportunities to strengthen the post-pandemic industry

The coronavirus pandemic has brought unremittingly bleak news for Africa’s airline industry. The continent’s commercial fleets are grounded as tourism and business travel have shuddered to a halt. The International Air Transport Association (IATA) says that the industry in Africa faces revenue losses of $6bn in 2020, risking hundreds of thousands of jobs.  

In early April, Ethiopian Airlines, one of the continent’s most profitable carriers, reported a revenue loss of $550m between January and April. Thousands of the airline’s staff have been furloughed.  

For airlines that entered the crisis in a weak position, the pandemic could prove fatal. Kenya Airways, which had already been undergoing a process of renationalisation amid mounting debts, is seeking an immediate government bailout. The airline has furloughed most of its workers and cut all salaries by as much as 80%. 

For long-troubled South African Airways (SAA), coronavirus will be the straw that breaks the camel’s back. Even before the pandemic, SAA was placed in business rescue by the government after years of losses and mismanagement. In the three years prior to the crisis, SAA received over $1bn in government support but has failed to register a profit since 2011. The government has now told the administrators that it will not provide more funds, lending guarantees or permit foreign financing of a business rescue plan. Up to 5,000 staff are likely to be laid off.  

Given the bleak situation, the IATA has called for urgent action from African governments to provide financial relief to airlines. Like their struggling peers in the developed world, the continent’s strongest airlines may need urgent state support to survive the unprecedented period of hardship. Workers who lose their jobs will need to be compensated.  

A chance to rethink the future of unprofitable airlines

But while the continent’s best should be helped back to their feet, there should be no blank cheque offered to failing carriers under the guise of pandemic support. Rather, the crisis offers a fundamental opportunity for African governments to rethink the future of unprofitable state airlines. The post-pandemic airline industry will be an unforgiving place. Only those with strong balance sheets and profitable routes are likely to survive as the industry sputters back to life under a welter of passenger restrictions. 

The South African government, for whom the decision to ground SAA’s entire commercial fleet appears to have come as a source of relief, appears to recognise this reality. Rather than providing yet more funds, it says it will work with unions to ensure that a new financially viable and competitive airline emerges from SAA’s wreckage. Such clear thinking should ultimately lead to the emergence of a healthier industry. 

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