/ 22 September 2017

SA airports fly, even if SAA flails

Boom town: More global airlines are flying directly to and from Cape Town
Boom town: More global airlines are flying directly to and from Cape Town

The growth of international traffic at airports such as Cape Town’s demonstrates that South Africa does not need a state-owned airline to carry visitors, an analyst said this week following positive results from the Airports Company South Africa (Acsa).

It reported that international traffic at Cape Town International Airport increased by 27% this year and noted the growth of new routes, including Istanbul to Cape Town, operated by Turkish Airways; Doha to Cape Town, operated by Qatar Airways; and Addis Ababa to Cape Town, operated by Ethiopian Airlines.

Transport economist Joachim Vermooten described it as an exceptional performance in the current global climate, which came despite a decision by SAA in 2012 to cease international long-haul flights from the city and to concentrate operations on a single hub — OR Tambo International in Johannesburg.

The move was sensible in terms of efficiency but it left Cape Town without international connections.

But the marketing of Cape Town and the Western Province, particularly by Wesgro, the region’s tourism, trade and investment agency, was a driving force behind the growth at Cape Town International, he noted.

In 2015, the agency, in partnership with bodies such as Acsa, launched its Cape Town Air Access programme, which was aimed specifically at international traffic. It was able to convince large international airlines that they could generate new passengers, drawing on their existing networks, to fly to Cape Town, Vermooten said.

“What this clearly demonstrates is that you don’t need a national carrier to generate international traffic,” he added.

According to Wesgro’s data, since the programme was launched it has secured 10 new routes and the expansion of 11 to the airport.

In a recent statement, it noted that 3 000 jobs are supported by each regularly scheduled, long-haul flight, and, for every 10% increase in passenger numbers the regional economy grows by 2%.

Linden Birns, the managing director of Plane Talking, agreed that the dominant force behind Cape Town’s solid performance has been the air access project.

“There was a realisation a couple of years ago that Acsa couldn’t wait for SAA to deliver the revenues they were trying to drive,” he said.

With the gradual withdrawal of SAA’s international services out of Cape Town, other international carriers have taken up the slack and developed the market, Birns said. For example, SAA and British Airways used to fly from Cape Town to London daily but, after SAA stopped this service, British Airways has started operating three flights a day out of Cape Town.

He said that, even if SAA had not reduced its services, the growth would still have been likely. The airport was upgraded in preparation for the 2010 World Cup, with the aim of growing the market. “That is exactly what the city and province have done with Acsa,” he said.

Acsa said that King Shaka International, where it is in partnership with the Dube Trade Port, is also seeing an increase in international traffic.

These developments are in stark contrast with the performance of SAA, which is expected to receive another R10-billion bailout, following the R2.3-billion it was granted earlier this year. Media reports also suggest the airline is contemplating a reduction in its fleet and downscaling some its routes.

According to Vermooten’s calculations, SAA will have received almost R40-billion in financial assistance from the state since 1999.

Other domestic carriers have seen positive results in a difficult economic climate. Comair, which operates budget airlines Kulula and British Airways flights locally, saw its profits rise by 54% to just under R300-million, it said when its results were released this week.

This was despite low GDP growth and the limited takeup of domestic airlines’ surplus seat capacity by the local market, keeping seat occupancy levels below the world average of 80.6%.

But Comair has been expanding its non-airline business, such as pilot and crew training, lounges and catering, which contributes 20% of the airline’s earnings.

Comair chief executive Erik Venter, a longstanding critic of the state’s continued protection of SAA, said this constrained competition on the routes to South Africa and has driven up the cost for tourists to what is generally a very distant destination.

“State bailouts … could be used to address poverty, inequality and unemployment, and to stimulate GDP growth, which continues to constrain the airline sector and the entire economy,” he said.

There was huge growth in tourism worldwide and some of the money could be better invested into inbound travel, including from places such as China.

Acsa performance shows up the parastatals

This week, the Airports Company South Africa (Acsa) announced a R2-billion profit for the 2016-2017 financial year, bucking the dismal results of aviation-related state owned enterprises.

But, with an anticipated 35% reduction in airport charges because of a tariff clawback from the years between 2011 and 2015, and with only single-digit tariff increases granted for the coming years, Acsa said its aeronautical revenues are expected to be reduced in line with the tariffs. Aeronautical revenues, earned from the regulated fees it can charge for passenger services, aircraft parking and landing fees, account for 63% of the company’s revenue.

To adapt to these changes, it has reduced its debt, particularly in bonds, from R17-billion in 2012 to R9-billion currently, reducing its gearing from 59% to 25%. It has no “big ticket” infrastructure plans that would require new debt, the company said. Current reserves and projected revenue from the tariffs will enable the company to finance a significant part of its infrastructure upgrades from its own resources, it said.

Ratings agency Moody’s flagged the financial state of SAA, one of Acsa’s major customers, as a constraint on Acsa’s credit rating.

Acsa said, although it did not normally comment on its dealings with its customers, its relationship with SAA “remains good and that concerns expressed by ratings agencies are not those of Airports Company”.

Transport economist Joachim Vermooten said Acsa is unlikely to have any reason to worry about the risk SAA posed to its business.

If anything was to happen to SAA, other operators would quickly enter in its place, he said.

“A withdrawal of SAA’s services would fairly quickly be picked up by other services. Whatever happens, there will be other carriers.”