South African Airways & South African Airlink on their activities to improve coordination between the tourism and aviation sector
Chairperson: Mr D Gumede (ANC)
Date of Meeting: 15 Aug 2011
South African Airways (SAA) and SA Airlink briefed the Committee respectively on their activities to improve co-ordination between tourism and aviation sector.
SAA felt it already played a strong role in tourism in that it worked with SA Tourism. Its activities had four distinct channels of effect. The first was direct impacts which entailed activity and scale of growth in the aviation sector for example airport infrastructure development, the second was indirect impacts which was activities supporting non-aviation tourism infrastructure development for example car rentals and hotels, the third was induced impacts which was activity by those directly or indirectly benefitting from the aviation sector and the fourth was consumer welfare impacts which was general benefits to South Africans from increased tourism access. SAA carried approximately 50% of inbound passengers to
Members raised concerns over high airport charges and SAA’s ticket prices being too high. Service levels were also complained about and whether staff was given sufficient training. The observation was even made that passengers seemed to prefer British Airways over SAA. Members were perplexed over why there was continued baggage theft at OR Tambo Airport. SAA and ACSA had two years prior given the Committee assurances that it would be nipped in the bud. In the words of SAA themselves the baggage theft situation at OR Tambo was out of control.
SA Airlink initiated the briefing by providing the Committee with an overview of the airline itself and its operations. SA Airlink was an airline officially established in 1992. It had two main investors-Coronation Capital and Nedbank. It entered into the SAA franchise in 1997. SAA has a 3% share in SA Airlink. It had 29 aircrafts were operational, 16 on domestic routes and 13 on regional routes. Turnover was at R1.4bn per annum and its net asset value was R240m. Its staff complement sat at 900. SA Airlink believed that business tourism was a big part of tourism. Especially bringing business tourists through
The Committee was impressed by the presentation and noted the concerns raised by SA Airlink. Certain airports were under utilised, had limited services or were totally closed down. SA Airlink would furnish the Committee with particulars on the airports concerned. Members agreed to engage with government departments over the issue as lack of access to areas did not bode well for tourism in those areas. Mr Foster had also alleged that the Tourism Developmental Budget did not create equal opportunities. The allegation would be looked into by the Committee. The Committee on a recent oversight visit to the Northern Cape had identified the need for an airport at Northern Cape. The need for airlines to earmark new destinations was an issue that the Committee would engage further with.
The Chairperson at the outset of the meeting stated that the purpose of the briefing was for Members to get an idea of the activities of airlines specifically relating to improving co-ordination between the tourism and airline sectors. What synergies were there? Was government creating an environment which was conducive or was there obstacles? He asked whether the regulations pertaining to the aviation sector was acceptable or were they more of a hindrance.
South African Airways (SAA)
South African Airways was represented by Ms Siza Mzimela Chief Executive Officer and Mr George Mothema Executive Legal Advisor.
Ms Mzimela undertook the briefing. She made the point that all SAA’s businesses, which comprised of a group of companies, supported the tourism sector. The list of companies comprised of Mango Airlines, SAA Cargo, SAA Technical, Air Chefs and SAA Travel Centre. SAA already played a strong role in tourism in that it worked with SA Tourism. Its activities had four distinct channels of effect. The first was direct impacts which entailed activity and scale of growth in the aviation sector for example airport infrastructure development, the second was indirect impacts which was activities supporting non-aviation tourism infrastructure development for example car rentals and hotels, the third was induced impacts which was activity by those directly or indirectly benefitting from the aviation sector and the fourth was consumer welfare impacts which was general benefits to South Africans from increased tourism access. Oxford Economics was commissioned by the International Air Transport Association (IATA) to undertake an analysis of aviation’s tourism sectoral contribution. Aviation contributed R23.4bn to the GDP in addition to another R50.9bn in other sectors. In total 116 000 tourism jobs were created as well as 227 000 jobs created in other sectors. On SAA’s side it carried approximately 50% of inbound passengers and its GDP contribution was R11.7bn and it supported 58000 jobs. SAA’s forecasted passenger growth was 37% to the end of March 2014. Cargo growth forecast for the same period was 19.5%. This would increase SAA’s tourism sector GDP contribution and job creation, with direct job creation targets within SAA already agreed upon with the Department of Public Enterprises.
Ms Mzimela highlighted current challenges facing the aviation sector in SA. The slow recovery from the global economic meltdown hugely impacted the sector. Global demand growth rates had not yet recovered. Leisure travel was also slow to recover. Unexpected occurrences like the Japanese earthquake and the recent volcanic ash clouds impacted upon the industry as well. The economy was continually monitored to check on recovery. Fuel costs were another factor which had to be taken into consideration. One third of SAA’s operating costs were spent on fuel. Fuel was currently close to 40% of SAA’s costs. It impacted hugely upon international routes. Dollar/Rand exchange rates had to be monitored as fuel was paid for in dollars. Transit visa complexities and baggage theft were additional factors that had to be considered. There was a 20% decline in African markets as transit visas were required for countries like
She emphasised that greater co-ordination was needed between aviation and tourism. SAA wished to forge stronger links with SA Tourism. There was currently a lack of cohesion at a formal and practical level. There was a joint working group between SAA and SA Tourism. The idea was to develop a three-year strategy and an Annual Working Plan for all markets. There would be planning and implementation monitoring at a corporate and field level. The SAA Regional General Manager Europe was working closely with the Head of SA Tourism Europe.
Mr L Khorai (ANC) understood that currency fluctuations affected tourism but asked for more detail. He also wished for greater clarity on the rates of airport charges. Why did travellers prefer to fly with British Airways than SAA? He asked how tourism was affected by the challenge that
Ms Mzimela replied that currency exchange rates did affect tourism. For one it affected hotel prices. It also affected the prices of tickets as many of SAA’s expenses had to be covered and paid for in dollars. As far as British Airways being preferred over SAA, the reality was competition and SAA understood the competitive market. It was a give and take, sometimes SAA would lose passengers and other times it would gain passengers. The statistics spoke for themselves and the reality was very different to people’s perceptions. It was not about SAA losing to British Airways. SAA could hold its own. On the issue of network carriers and how SAA was to capitalise on its advantages, Ms Mzimela stated that more people from
Mr G Krumbock (DA) was concerned that the baggage theft at OR Tambo was out of control. It was a serious state of affairs. Two years ago SAA and the Airport Company of SA (ACSA) had informed the Committee that baggage theft at OR Tambo was double than what it was at other airports. Members had been informed that 25% of staff at OR Tambo were dishonest and 50% were corruptible. When foreign sports teams arrived in
He referred to SAA’s concern that other countries were using South Africa to promote their own hubs and that South African airlines were suffering because the airways were liberalised. Why could South African airlines not compete with other long haul airlines? The fact was that the big spenders came from long haul destinations. If
Ms Mzimela replied that OR Tambo Airport was a problem because SAA had so much capacity. Baggage theft was a huge problem for SAA; perhaps other carriers had better experiences. Why had the issue not been resolved? The problem was that everyone placed the blame with someone else. SAA blamed ACSA and ACSA in turn blamed the baggage carriers. It was a problem that needed to be addressed collectively. The problem might not lie with SAA but from a customer’s point of view the ticket was purchased from SAA and hence SAA should be held responsible. During the 2010 FIFA World Cup hardly any bags were lost as baggage handlers were more focussed and security conscious. The point was made that the African tourist did spent more money per night than many other tourists. SA Tourism could confirm this. She referred to the issue of other countries using
Ms M Njobe (COPE) stated that the Committee had recently returned from an oversight visit to the
Ms Mzimela replied that SAA had a very positive relationship with SA Tourism.
Ms V Bam-Mugwanya (ANC) referred to the jobs that SAA claimed it had created and asked for it to be quantified. What kinds of jobs were created? She felt that SAA should focus on promoting domestic tourism and cautioned that if SAA’s prices were too expensive then people would not use it. What kind of training did SAA provide to its staff? SAA staff treated passengers badly. If locals were treated badly what still about how foreigners were treated. She asked what SAA’s relationship with SA Airlink and ACSA was. Flights with SAA were often delayed which meant that Members often missed connecting international flights. The transit bus from the plane to the terminal was in a bad state. At Cape Town International and OR Tambo there was no dedicated SAA staff to assist disabled persons. It was no wonder that British Airways was preferred over SAA.
Ms Mzimela replied that 58 000 jobs had been created and supported. SAA would break the figure down and furnish the information to the Committee later. The types of jobs were with SAA, airports, hotels and even car rental companies. This was the value chain. On domestic tourism SAA needed to increase its frequency. There was a joint initiative between SAA and SA Tourism. There must be enough flights.
There were challenges concerning training and SAA was working on increasing the education given to its staff. There had been a turnaround in service levels of staff over the last few months. Consistency of service was key. The issue of disabled persons needed more attention. The transit bus that took passengers from planes to terminals was not SAA’s responsibility. She conceded that a great deal of work needed to be done by SAA, ACSA and all involved. On the issue of ticket prices, SAA did have a full range of fares. SAA was not a low cost carrier. SAA could not charge lower fares, as Mango was its low cost airline. Prices also depended on the availability of tickets.
Ms X Makasi (ANC) asked why SAA’s prices were so high. The Committee and SAA needed to look at ways to address the issue.
Ms C Zikalala (IFP) stated that in as much as she believed in SAA as SA’s national airline the service to its passengers had declined.
The Chairperson stated that the country did not have any aviation incident for a long period of time. The country’s commercial airlines were safe. The key to baggage theft was control. The problem did not per se lie with SAA but rather with ACSA. ACSA had a problem with its management. The issue of foreign airlines and promoting their hubs needed greater engagement.
South African Airlink
The briefing was undertaken by Mr Rodger Foster Chief Executive Officer / Managing Director and Ms Nonny Mashika Strategic Market Executive. SA Airlink was an airline officially established in 1992. It had two main investors-Coronation Capital and Nedbank. It entered into the SAA franchise in 1997. SAA had a 3% share in SA Airlink. It had 29 aircrafts that were operational, 16 on domestic routes and 13 on regional routes. Turnover was at R1.4bn per annum and its net asset value was at R240m. Its staff complement sat at 900. SA Airlink believed that business tourism was a big part of tourism. Especially bringing business tourists through
Members were shown slides of the types of aircraft that SA Airlink had in service and how many of each there were. SA Airlink did passenger travel and freight. In the near future it would have dedicated aircraft used exclusively for freight. Passenger travel grew by 7% per annum.
Ms Mashika spoke on inclusive tourism growth. SA Airlink had partnerships with the National Department of Tourism, SA Tourism, provincial tourism, Southern Africa Tourism Services Association (SATSA) and Limpopo Tourism. The airline had also commented and participated on the National Department Tourism Strategy. Destination marketing initiatives had been undertaken locally and internationally. Tour packages with tour operators had also been co-ordinated. SA Airlink has retained seventy five percent of its market share despite subsidised competition. Mr Foster added that SA Airlink developed markets and opened up new routes. Twenty years ago it had opened up the Nelspruit route, now it had opened up the route to Tete. Customer Equity was also considered and many indicators were used to gage it. Customer satisfaction was paramount and complaints were dealt with at the point where they were lodged. The number of complaints received was tracked and over the last 18 months there had been a downward trend. Punctuality was also measured. SA Airlink typically had a ninety percent on time performance punctuality. ACSA had ranked airlines on punctuality and SAA, Mango and SA Airlink was in the top three. Mr Foster noted that in 2002 passenger value capacity was at 50 000, the figure had increased to 80 000 in 2011. The price of fuel relative to passenger value growth over the past ten years, air fares had decreased by seventeen percent whereas input costs had trebled. The cost of aircrafts themselves was much higher as interest rates locally were much higher than abroad. Another cost factor was that jet fuel needed to be shipped to SA. Pilots and aircraft technicians’ salaries’ had to be on parity with international pay scales in order to retain individuals. SA Airlink’s achieved fare price was one third that of its global counterparts for same distance trips. The same could be said for SAA’s achieved fare prices. The staff complement had increased from 300 in 2001 to 900 at present.
He continued by highlighting some of the challenges facing the aviation sector or to put it another way impediments to tourism growth. Input costs for ACSA sat at seventy percent and at 50% for the South African Civil Aviation Authority (SACAA).There were also infrastructure and system inefficiencies. In addition there was furthermore insufficient expert capacity within SACAA to process supplemental type certificates (STCs), airspace issues, global navigation satellite systems (GNSS) approvals and to unlock potential opportunities such as Johannesburg Grand Central Airport (GCJ). There was also the misguided application of the Tourism Developmental Budget to synthesize competition rather than creating equal opportunities for tourism development. The funds could have been used for new destination development in
He also pointed out that SA’s airports were in the top 50 most expensive airports in the world. SA Airlink owned the airport at Phalaborwa, which should not be the case. The airport should be owned by local or provincial government. The airport was closely situated to the
Mr Krumbock was impressed by SA Airlink’s presentation. He regularly travelled on SA Airlink from Pietermaritzburg to
Mr Foster responded that at
The Chairperson stated that most of the problems at the
Mr Foster responded that there were too diverse and divergent interests at the airport. Details would be forwarded to the Committee in due course.
Ms Njobe remarked that there was a great deal of follow up that was needed on many issues. Especially issues relating to why certain airports had been closed down. Why certain airports were also not used anymore like the airport at Bulembo in the
The Committee had to also look into the allegation that was made by Mr Foster that the Tourism Developmental Budget did not create equal opportunities. New destinations was also a topic which needed discussion. An airport was in dire need at
Mr Foster stated that the funds from the Tourism Developmental Budget were in the hands of a competitor by way of a subsidy. The funds should have gone through a public process to all competitors. SA Airlink felt that the funds could be better utilised in building infrastructure.
Ms Bam-Mugwanya asked if SA Airlink had Black Economic Empowerment (BEE) partners. She asked what the volumes of passengers were from OR Tambo Airport to
On the issue of BEE partners, Mr Foster pointed out that Mr Sibusiso Ngwenya was the Chairperson of SA Airlink. He however noted that it was difficult to invest in an airline as financial institutions were not willing to provide finance. It was too high risk an industry. It was difficult to give investors guarantees in the aviation sector. He agreed that Umtata was an investment opportunity for tourism. Navigation aids was the problem at Umtata. Power was also an issue and beacons also needed replacing. On the issue of diversions to East London, Mr Foster explained that passengers from Johannesburg were returned to Johannesburg after the plane had a refuelling stop at East London. On the next available flight passengers would be taken to Umtata at SA Airlink’s expense. As a rule all airlines were not responsible for weather related diversions. The route from Johannesburg to Umtata was a thin route as not many people took those flights. The GNSS could work well in Umtata as it did in Pietermaritzburg. Umtata also needed more passenger movement. Terminal buildings also need to be upgraded and runways need to be lengthened and widened. SA Airlink was not intending to focus more on freight than on passenger flights. Two older prop passenger planes would be converted for freight purposes and two new jet planes were to be included for passenger transport.
The Chairperson asked if SA Airlink had flights to the Vaal, Vereeniging area. He suggested that it be considered. Perhaps the municipality in Umtata could assist with the airport issue. The burning question was why SA’s airports were so expensive. What was the reason? The Committee would try to assist on the airspace issue at Polokwane.
Mr Foster concluded that customer equity was important to SA Airlink. The airline tried to understand who its customers were.
The meeting was adjourned.