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Ukraine Crisis Seen As Threat To African Airlines' Recovery

By Dave Simpson

A drawn-out conflict between Russia and Ukraine could further drive up oil prices and end African airlines' recovery from the pandemic slump, the head of the industry's association said on Thursday 24 March.

Details

Unless the conflict is resolved as soon as possible, it will harm economies, increase ticket prices and curb demand for travel and tourism on the continent, Abderahmane Berthe, secretary general of the African Airlines Association, said.

"It will be another crisis our industry will have to face," he said in an interview.

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Since the COVID-19 pandemic began, African carriers are expected to lose a total of $23.7 billion by the end of this year, said Berthe, whose association brings together 44 airlines, including the continent's biggest: Ethiopian Airlines.

Passenger traffic on the continent stands at about half of the pre-COVID level, Berthe said, reflecting lower vaccination rates that have forced many governments to keep travel restrictions in place.

"Many airplanes are still grounded," he said.

To boost the sector's recovery, African governments should allow unvaccinated passengers to travel if they present negative COVID-19 test results, he said. The continent has vaccinated just 15% of its adult population, the World Health Organization says.

The sector also requires financial support, including tax deferral, tax cuts and access to financing, Berthe said, adding that a $25 billion support package for aviation, mooted by the African Union in 2020, did not materialise.

Already African carriers' share of intercontinental passenger traffic had halved to 20% in the two decades leading up to the onset of the coronavirus crisis, the secretary general said.

He called for consolidation and co-operation among the companies to help to cut costs and allow more effective competition with their counterparts in Europe, the United States and the Middle East.

AFRAA expects the industry to return to pre-COVID levels by the end of 2023 to the start of 2024, Berthe said, but that high prices of oil put that forecast at risk.

"Fuel represents the biggest share of operating expenses for airlines," he said.

Rouble Extends Recovery, Stocks Slide On Second Day Of Trade, Led By Aeroflot

In other aviation news, the above news was followed by news that the rouble extended recovery gains on Friday 25 March, hitting its strongest since early March against the dollar, while stocks fell in their second day of trading after a near month-long suspension, with losses led by flag carrier Aeroflot.

The Russian market is gradually reopening and returning to normal after a suspension caused by sweeping Western sanctions that followed the beginning of what Russia calls "a special operation" in Ukraine on 24 February.

The rouble, which hit a record low in Moscow of 120 earlier in March, firmed to 92.04 to the greenback, a level last seen on 1 March. It also climbed past the psychologically important threshold of 100 to the euro.

As of 1356 GMT on Friday 25 March, the rouble pared some gains and was 0.3% stronger at 96.52 to the dollar RUBUTSTN=MCX and added 1% to trade at 105.75 against the euro EURRUBTN=MCX.

The response to events in Ukraine has ripped Russian financial markets from global networks and sent the rouble tumbling, although it was on course for five consecutive sessions of growth, heading for a weekly gain of up to 10%.

Foreign investors cut their exposure to Russia, with non-residents' share among holders of OFZ treasury bonds falling to its lowest since late 2012 as of 1 March.

The rouble received a boost on Wednesday 23 March after Putin said Russia would start selling its gas to "unfriendly" countries in roubles.

Fewer imports to Russia, the exodus of western companies and Putin's switch to roubles for gas exports are all positive for the Russian currency, Commerzbank analysts said in a note.

"A return to the old pre-war (rouble) strength is nonetheless unlikely," they said, pointing to the effect that lower demand and shrinking exports will have.

In offshore markets, the rouble was trading at about 99 to the dollar RUB=RUB=EBS, weaker than in Moscow, where cash purchases of foreign currency are restricted.

Stocks Turn South

Airline Aeroflot lost more than a quarter of its value over two days to plunge to its lowest since 2009 as securities slid lower across the board on Friday after many blue chips posted double-digit gains on Thursday 24 March.

Shares in Aeroflot AFLT.MM dropped 18.2% to its weakest point since early 2009, adding to Thursday 24 March's 16% loss.

The benchmark MOEX stock index closed 3.7% lower at 2,484.13 points .IMOEX. It had closed 4.4% higher on Thursday.

The dollar-denominated RTS index .IRTS fell 2.7% to 829.6 points.

Prior to Thursday 24 March, stocks had not traded on Moscow's bourse since 25 February, the day after Russian President Vladimir Putin sent thousands of troops into neighbouring Ukraine.

The move prompted western sanctions aimed at isolating Russia economically, and Russian countermeasures.

On Friday 25 March more securities, including corporate bonds and Eurobonds, were being traded in another short session, and restrictions on trading by foreigners alongside a ban on short selling remained.

State lenders Sberbank SBER.MM and VTB VTBR.MM fell 3.5% and 7.9% respectively.

Oil major Rosneft ROSN.MM and mining giant Nornickel GMKN.MM were exceptions, gaining 1.4% and 0.4%.

Russian Response

The central bank on Friday 25 March said that restrictions imposed on capital flows were a tit-for-tat move after its reserves were frozen by Western countries.

"In response to the freezing of part of Russia's reserves, Russia also introduced restrictions on the movement of funds that could be transferred to unfriendly countries by a comparable amount," the central bank said.

Moscow is now looking to friendlier markets. Andrei Kostin, chief executive of VTB, whose activities have been hit by sanctions, said opportunities would arise elsewhere and that his lender was offering accounts to Russians in Chinese yuan.

"We have already deposited the equivalent of 16 billion roubles in yuan, citizens are already depositing, and there are other currencies of neighbouring states," he told RBC TV.

Dominant lender Sberbank said late on Thursday 24 March that it expects trade turnover and settlements of the rouble-yuan pair on Moscow Exchange to increase.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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