Aviation – A fledgling unexploited industry
Data on aviation shows that the aviation industry supports $2.7 trillion (3.5%) of the world’s Gross Domestic Product (GDP).
According to Aviation Benefits Beyond Borders, the world’s airlines carry over three billion passengers a year and 50 million tonnes of freight.
Providing these air services generates 9.9 million direct jobs within the air transport industry and contributes $664.4 billion to global GDP.
Compared with the GDP contribution of other sectors, the global air transport industry is larger than the automotive industry, which accounts for 1.2per cent of global GDP and chemicals manufacturing (2.1per cent).
It is more than half the size of the global financial services industry, which accounts for 6.2 per cent of GDP.
“In fact, if air transport were a country, its GDP would rank it 21st in the world, similar to that of Switzerland or Sweden,” the source said.
In Ghana, the aviation industry remains a fledgling one as there more opportunities yet to be exploited. The Ghana Airports Company Limited (GACL) has a strategic vision to position Ghana as the preferred gateway and leader in Airport business in West Africa and to provide world class facilities and services for the benefit of its stakeholders.
In spite of the foresight of the GACL, Ghana’s domestic aviation sector continues to reel under high operational costs, worsened by high taxes and the high costs of jet fuel which has compelled some service providers to fuel their aircraft in neighbouring Nigeria.
The depreciation of the local currency against the dollar and other major trading currencies has continued to affect the importation of spare parts.
Indeed, statistics from the GACL reveal a significant slump in domestic passenger throughput from an average of 55,000 passengers per month in 2014 to just under 20,000 passengers per month as at December 2015.
The drop in passenger numbers has forced airlines to continue absorbing huge loses.
The difficult aviation terrain in Ghana has seen the exit of three domestic players, Antrak Air, Fly540 and CityLink leaving only two, Starbow and Africa World Airlines (AWA).
The imposition of the 17.5 per cent Value Added Tax (VAT) by government in 2014 sent airfares through the roof, leading to a 40 per cent drop in patronage of flight services across all routes.
Vice President of International Air Transport Association (IATA), Mr Raphael Kuuchi reveals that recent lower oil prices have exposed countries whose jet fuel price levels remain at an unreasonably high premium over international market prices.
According to him, within Africa, the premium can be as high as more than 200 per cent above the global average spot price and prices in Europe and the US.
In Ghana, the premium exceeds 70 per cent largely because of high taxes applied on jet fuel.
These taxes on jet fuel increase the cost burden of airlines which are already operating in a challenging environment and hinder the domestic growth of an industry that brings extensive socio-economic benefits.
Mr Kuuchi points out that instead of seeing the supply of aviation fuel solely as a revenue opportunity the Ghanaian government needs to recognize its potential as an industry facilitator.
Elimination of taxes on jet fuel would put Ghana in line with the common practice in Europe and countries around the world where aviation growth is strong.
It will not only boost aviation in the country but create a new opportunity for Ghana to become a hub for aviation and fuel trade. Already, the Ghana Airport Company has invested in expanding the airport infrastructure with the view to making Kotoka International Airport an attractive destination.
This plus the recent construction of a new aviation fuel depot at the Kotoka International Airport (KIA), paves the way for KIA Accra to be a preferred airline and passenger destination if only issues of high cost (including fuel cost) are addressed. Without a commensurate reduction in taxes the opportunity of positioning KIA as the preferred destination of choice in West Africa will be lost.
It is important to mention that government has recently announced a 25 per cent reduction in
President John Dramani Mahama has appealed to players in Ghana’s domestic aviation sector to respond positively to government’s recent announcement of a reduction in the cost of aviation fuel by reducing their air fares.
According to him, lowering air fares would increase patronage of services across all routes in the country.
The President made the appeal in Tamale last Friday when he commissioned the first phase of the upgrade and expansion of the Tamale Airport into an international one.
The ceremony also saw the commencement of direct flight departures of Muslim pilgrims from the northern half of the country to Mecca in Saudi Arabia to fulfill their religious requirements.
President Mahama said the aviation sector in Ghana had in recent times experienced tremendous growth and remained a very significant element towards the attainment of the country’s transformational agenda.
“It is therefore imperative for all stakeholders to strive hard to sustain the momentum. Following government’s reduction of the cost of aviation fuel, it is our expectation that air fares will be reduced to help sustain the growth being experienced in the industry,” the President charged.
Early last week, the remaining two players in Ghana’s domestic aviation sector renewed their call on government to withdraw the 17.5% Value Added Tax imposed on air fares two years ago.
The introduction of the tax had according to them led to a 40% drop in patronage of flight services across the country.
One way air fare from Accra to Kumasi is GH¢315 inclusive of the VAT. Passengers would however pay GH¢270 without the VAT. Passengers travelling from Accra to Tamale now pay GH¢500 inclusive of VAT but would have paid GH¢426 without the tax.
The domestic airline operators in earlier interviews with this paper insisted that a withdrawal of the VAT would better serve the interests of all stakeholders.
“Air fares will come down as soon as the tax is withdrawn,” stated Chief Executive Officer of Starbow, Mr James Eric Antwi.
Chief Operating Officer for Africa World Airlines (AWA), Captain Samuel Thompson pointed out the GH¢45 component of the tax in the one way air fare from Accra to Kumasi “means a lot of money to many people.”
The VAT component of the Accra to Tamale fare is as high as GH¢74.
Ghana’s aviation sector’s growth, according to President Mahama had provided the compelling justification for urgent improvement in facilities and infrastructure at all the country’s airports.
Mr Mahama explained that the development of aviation infrastructure in all 10 regions of the country was in preparation of plans to boost tourism, business and investments.
“The decision to upgrade the Tamale Airport to an international one is a well thought-through programme aimed at extending opportunities to the people of the north for accelerated growth and development of our people,” President Mahama observed.
Beyond facilitating the movement of people from one destination to the other, the airport, he disclosed would also support the Savannah Accelerated Development Authority (SADA) in its programme to enhance the export of perishable goods especially fresh agricultural products.