Monhla Hlahla, MD of the Airports Company of South Africa (Acsa), is riding the crest of the tourism wave. Robust domestic growth, increased business travel and the introduction of budget airlines has sent air passenger demand soaring, which is good news for a monopoly airport operator.
Revenue reached R2,564-billion (up 18%) for the year ending in March. Non-aeronautical revenue, which includes retail, advertising and car hire revenue, now accounts for 46% of total revenue. Net group profit was posted at R663,6-million, after paying R479-million in tax.
Acsa’s results are tied to passenger growth, which has been buoyant as economic growth continues. Domestic and international passenger volumes have risen at an average annual rate of 11,28% and 7% respectively in the past five years, helped by low-cost carriers and the entry of new foreign airlines such as Delta and Thai Airways.
In fact, given that Acsa is seen by many as a cash cow, effortlessly turning passenger feet into retail rands, there is some soreness in the airline industry over high profits and ambitious expansion plans, funded in part by Acsa’s tariffs. Hlahla acknowledges the criticism, but is quick to explain that an external regulator sets the tariffs in consultation with the airlines.
Acsa charges airlines passenger fees and landing fees for aircraft. It also charges for aircraft parking. “The regulator tries to ensure those three tariffs are affordable and reduce over time,” she says. The economic regulator for the airline industry also has to approve Acsa’s five-year plans for expenditure and expansion.
“We have not been good about publishing tariff schedules,” she acknowledges. But Hlahla is adamant Acsa’s tariffs are reasonable. On average, R32 of the cost of an airline ticket goes towards infrastructure at the airport. “We consider ourselves the cheapest, as we use rand valuation,” she says, pointing out that other airports charge in dollars. “We will never go the dollar route,” she says, as rand valuation “makes us very competitive”.
A media release from Acsa says the average increase in passenger service charges was 4% for the last five years. The tariff increase for the current financial year is 9,8% and the overall annual increase for the five-year period is 11,4%.
Hlahla is critical of the “so-called airport tax” levied on air tickets, saying that airlines use them as a catch-all category for various levies, including tourism levies. Only a small portion of this is paid over to Acsa. “Different airlines put different costs in that category. Acsa runs a lean, focused business. We manage costs well. Airlines have an inefficient cost structure. If we do well, the regulator has a bigger source of revenue and can subsidise tariffs [going forward].”
OR Tambo, the biggest and busiest of Acsa’s airports, subsidises operations in the rest of the country. Perhaps surprisingly, Bloemfontein is the fastest-growing airport in South Africa as it is now serviced by budget airlines 1Time and Mango. In its annual results, released last week, Acsa said Bloemfontein recorded a growth rate of 42% and handled more than 464Â 000 passengers, although its capacity is only 360Â 000.
This year, Acsa also announced an ambitious expansion plan. “Growth in our business is tied to growth in GDP,” says Hlahla. Between now and 2012, the company will spend R19,3-billion on infrastructure. A R12-billion bond facility will contribute the bulk of the funding. About R5billion in capital commitments has already been contracted, with construction already begun.
Another R6-billion will be spent on a new international airport for Durban, at La Mercy. OR Tambo will be upgraded, with about half of the forecast expenditure going towards new terminal buildings. Cape Town will also be getting new terminal buildings.
Considering that R1,7-billion was spent in the past financial year, Acsa’s capital expenditure will more than double this year. “This is the first time the expansion programme is so big. When I first started here, we were spending R3billion. Then we went to R5-billion and we thought that was a lot.”
Hlahla is adamant that the expansion is necessary. “We should be able to do 2010,” she says. “We are not just planning for it [as Acsa’s five-year plan will take it to 2012] but it is a peak in traffic. Theoretically, there are things you can postpone, but when demand exceeds supply, tariffs must go up.”
The demand is certainly there. “Our airports will be very different in 2009,” she says. OR Tambo currently serves 18million passengers a year, but in 2009 it will see 24-million passengers passing through. Cape Town sees “seven or eight million”, but in 2009 this is predicted to be 14million. Durban, which sees between three and four million passengers, will double in popularity to 7,5million.
“Once we have built for 2012, there will be no room for new terminal buildings at OR Tambo. The next terminal buildings will be built between runways,” says Hlahla. “By 2011 we’ll be levelling the ground for the new terminals, as we don’t want to build during the World Cup.”