How would you characterize LAM Mozambique’s performance in recent years?
It has been a difficult environment in which to operate. Economically, the Mozambican currency has depreciated against the US dollar, South African Rand, British Sterling and the Euro. LAM is inevitably exposed to the currency exchange rate risk, because more than 60% of our costs are in foreign markets.
There has also been a down-swing in commodity prices negatively affecting the business sector. Mozambique has an import-driven economy and the depreciation of the local currency led to a general rise in prices of goods and services, thereby reducing purchasing power and demand. Load factors fell as a result and the airline has not been profitable. In terms of operations, there were difficult periods, particularly when some aircraft were grounded for heavy maintenance. It was hard to handle the Aircraft on Ground (AOG) situations because of a reduced fleet size and, at times, this would lead to flight delays or cancellations. At the moment, though, the airline is operating fairly smoothly, with only a few minor hiccups.
What is your strategy to put the airline on a positive trajectory?
In the next five years, we have several priorities. These are to consolidate our leadership in the domestic market, be a stronger competitor in the regional market, resume intercontinental flights to Europe, and serve new destinations. To successfully achieve those priorities, we need to have a clear action plan and that plan must be fulfilled.
We aim to reduce our fleet diversification, but also increase the fleet size. And there will be a focus on human capital training and development. In terms of the network, we will evaluate whether to expand through a strategic partnership or go it alone. We want to open new regional routes and also serve South America and Asia from Nacala Airport in the north of the country. The natural resources nearby have attracted big business from these regions and so this makes perfect sense.
And, of course, the overall aim is to cut our operating costs and bring the airline back
Do you expect the north of Mozambique to grow quickly?
The main economic growth in Mozambique will come from oil and gas exploitation. As a result of its substantial coal and gas discoveries, Mozambique has emerged as a fossil fuels resource target for international energy companies looking to extend their footprint in the sector. This particularly applies to the world-class coal deposits of the Moatize Basin in Tete Province and offers the potential for unprecedented revenue streams for the government. These natural gas and coal fields are assets that, when properly exploited, will contribute significantly to national development. But Maputo and the south of the country will grow too. The Maputo-Catembe Bridge is expected to be a significant gateway to the Southern African Development Community (SADC), and boost trade and tourism in the region.
What can the government do to help facilitate aviation growth?
There has been progress. If we look at the visa situation, recently Mozambique has made it possible for all international travelers to obtain a dual entry visa on arrival at most border posts, including Maputo Airport (MPM) and other airports.
This new visa policy will improve access to Mozambique and eliminate any previous confusion around visa applications for international visitors. Nonetheless, the border posts must be well equipped to facilitate the extra workflow. And to attract even more tourists, it’s also relevant to look into the possibility of a free-visa entry for citizens of certain countries that have strong ties to Mozambique.
You have Africa’s major aviation market next door. Is having South Africa as a neighbor a help or a hindrance?
One of the advantages is that Oliver Tambo Airport (JNB) in Johannesburg is just 600 km (a375 miles) away from Mozambique, so it also acts as a gateway to Mozambique for tourists from many countries. Because it is a hub and offers excellent connectivity for passengers and goods, there is strong demand on the MPM-JNB route. But there are disadvantages too. Having a major aviation market as a neighbor makes it difficult for the other airports in the region to be noticed. Additionally, as South African Airlines is the resident airline in such a big aviation market, it gets the lion’s share in almost all South Africa-bound traffic given the ease with which SAA can directly connect to other destinations.
Tell us about your safety improvements and what more can be done by African carriers in general?
Safety is, of course, the number one priority. Recently, Mozambique has been removed from the EU banned list, which is a huge boost to the country. LAM’s safety has never been in doubt though.
The airline has been IOSA-certified since 2007 and we have implemented a Safety Management System (SMS). All employees are trained in SMS and we are working hard to further raise safety awareness within the airline and implement best industry practice to ensure a safety culture. As to what can be done by other African airlines so we can all be seen as safe, I think being IOSA-certified is a must. There are plenty of aviation safety workshops to attend to get training in SMS. It is also important that airlines urge the local authorities or the relevant institutions to improve the quality of airport infrastructure. We are lucky in Mozambique to have relatively new airports at key destinations.
How can intra-Africa connectivity be improved?
Air transport is one of those industries that has transformed the world. Providing rapid connections between the world’s cities by air has enabled the globalization that has shaped modern business and the experiences of individuals. That needs to happen in Africa. Most importantly, intra-African connectivity could be improved if African nations did more business together rather than look to non-African partners.
This would stimulate the air transportation of people and goods within Africa.
Looking specifically at the industry, we must also expedite the implementation of the Yamoussoukro Decision to promote air services development in Africa. African airlines could then engage in cooperative arrangements to generate more revenue, reduce unit costs through economy of scales and mitigate risks by strengthening their positions out of their home market. And finally, we need to develop human capital and infrastructure.
Overall, what would you say are the main opportunities and challenges in Africa?
To put it simply, Africa can grow its aviation industry if more people could afford to pay for the cost of air travel. As it stands, a few can afford air travel. There is low purchasing power arising from low disposable income. But, as of late, Africa has been witnessing considerable growth and an emerging middle class, signaling a likely increase in air transport demand in the future. There are significant challenges to overcome first, though.
Safety, security and the lack of adequate infrastructure is well documented. There is also a scarcity of aviation experts and skills, weak connectivity and too many restrictions on visas, transit visas and facilities. There is also a reluctance to implement the Yamoussoukro Decision. And costs are far too high. Airport taxes and fees are high as are such operating costs as fuel, aircraft leasing, maintenance and insurance. The cost of borrowing is also high and many African airlines are exposed to currency exchange risk.
If we can get it right, there are incredible opportunities for the African aviation industry. In turn, this would boost intra-African business, trade, and tourism as well as cultural exchange. It would promote regional development and mitigate the chronic transport problems faced by many African landlocked countries.
All in all, it would catalyze the development of Africa.
Is the voice of the smaller airline being heard on the world stage?
As mentioned, African air transport faces many challenges. It is expensive, operating costs are the highest in the world, and load factors are the lowest. It’s no surprise that IATA expects carriers in Africa to lose about $100 million in 2017, broadly unchanged from 2016. That amounts to a loss of about $1.50 for every passenger carried. Africa is also the home to many smaller airlines and there are only a handful of airlines capable of bucking the trend and operating profitably.
These big players are the only ones which fly long haul, but even here they account for roughly 30% of the market, while 70% is carried by non-African airlines. For smaller African airlines, the only access to international markets is through partnership with these big players that have to compete with non-African and better resourced carriers. Naturally, it is a tough deal and not favorable to the smaller airline. It is really hard to be profitable. And yet our services are vital domestically and for intra-Africa connectivity. And we are told that everybody wants Africa to enjoy the benefits aviation brings. That won’t be possible unless more is done to help the smaller African carrier.
So, no, I don’t think our voice is being heard. And that has to change.
*This interview was conducted on October 27, 2017, as part of the IATA CEO Interview series