Airline industry complex, costly

Due to its complex nature, air transport needs to be managed well to continue flying profitably. Airline nurturing is done, among other things, to safeguard and avert the industry from losses.

Experts say the sector has been on the red in the last 30 years. The Tanzania Civil Aviation Authority (TCAA), Director General, Mr Fadhili Manongi, said in latest annual report that the sector need proper diagnosis and assessment of areas of concern.

“It also needs introduction of mitigation measures, by and large depends on the availability of accurate and reliable statistics,” Mr Manongi said in the annual report 2012.

These statistics assist to analyse better the industry to predict closely its performance especially on profitability level as once the TCAA chief told Business Standard:”we follow-up the sector closely and accordingly.”

The airlines also have part to play. The last week Precision Air (PW) annual general meeting was told the decision it has reached to turnaround its operations after registering a first loss of 30bn/- since its inception over a decade ago.

PW chairman Michael Shirima said the company’s half year results the bore fruits as April to September period indicates a very positive outlook, which are in line with its five-year strategic plan “Precision Air has weathered the storm of the past few years and remained intact amid challenging environment of soaring jet fuel prices and slowdown of the global economy,” the Chairman said.

Despite the loss, the airline’s total assets increased more than ten-fold from 23bn/- in 2006 to 276bn/- as of March 31, 2013. “The growth of assets was at par with the growth of the company’s capacity to airlift more passengers.

Unfortunately, growth in the number of passengers did not translate into profitability. The airline that plies in more than ten destinations in and outside the country moved 340,000 passengers in 2006 to 896,000 passengers in 2013.

In airline businesses, TCAA said, its norm for an airline to change flight course after forensic studies of existing operation to determine the best way forward to minimize losses and maximize profits. “We are hopeful that (laid-down change in business plans) will turn around Precision Air.

“After diagnosis of (PW) operation they realized there are some equipment and routes that are not profitable. The best way is to close them down and concentrate on good ones,” TCAA’s Mr Manongi said. Another reason the airline posted a loss was currency mismatch as PW revenues are mainly denominated in shilling while larger percentage of costs fuel and maintenance is in foreign currency.

“...Therefore there is a possibility of losses arising from reductions in the value of the Tanzanian shilling compared to the US dollar,” the PW chairman told shareholders. 

Mr Shirima said external factors played part in this dismal performance, but admitted that there were some internal manageable factors that had a significant share on the reported results.

“After thorough performance review for the past few years, the Board has noted key possible source of trouble. These are: inefficient network, costly fleet type, low productivity, lack of cost control and un-optimized ancillary revenue opportunities. The lesson has been learned.

The Board made significant change in management and is optimistic that these problems presents an opportunity to drive back the company to profitability for the days ahead. 

PW is currently pursuing other means to raise long-term capital in order to meet expected huge capital commitments, some of which were postponed during the last two years.

Mr Shirima noted that rationalization of the airline’s networks and fleet will be done by reviewing current situation and utilization of sub-optimal capacity which was averaging below 65 per cent for the past eight years. 

“This will include phasing out costly fleet and introducing single isle jets three years from now. Such jets have belly capacity to also increase more revenue from cargo.”

TCAA Consumer Consultative Council Executive Secretary Hamza Johari said basically the sector operates as utility and was not meant to make profit rather to provide services. 

“It is very normal for airlines to make losses,” Mr Johari said “losses will not make the sector veered off the runway...we won’t reach to that level.” 

Mr Johari said despite the losses the prices remain stable which is a good indication that the wobbling situation would not be passed to customers.
Source: Daily News, reported by Abduel Elinaza from Dar es Salaam, Tanzania
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