Department of Transport on accessibility of air transport by the poor; Quarterly expenditure report by the Department of Transport

Meeting report

Accessibility of air transport by the poor
The Chairperson opened the meeting by giving some background on why the Department had been called to comment on the challenges facing Low Cost Carriers (LCC). She said the National Household Public Transport Survey had found that transport was not cheap and not integrated. She mentioned a number of major accidents that had occurred on the roads and she called for the Department to develop a plan focussed on air travel as an alternative to roads and which included rural development. She said that while LCCs were battling and closing down, SAA/Mango came to the Government for bailouts.

Mr Johan Bierman, the acting Deputy Director General for Civil Aviation, said the Department was busy on a draft White Paper on Aviation and also on a parallel national airport development plan but that the briefing would only deal with a subset, namely the challenges facing LCCs versus conventional carriers. He would focus on the charges incurred by LCCs which had an impact on profitability.

He made a distinction between LCCs and low fare carriers. LCCs reduced costs to offer cheaper flights, by offering a no frills service, while a low fare carrier was one that offered low fares, not necessarily by cutting costs. The challenge facing LCCs was that the LCCs and conventional carriers had the same cost drivers but there was collusion by conventional carriers and in the case of SAA, had access to funding from Government. This funding had to be of such a nature as to prevent market distortion.

Conventional carriers had high airport charges and LCCs paid the same fees which had led to the demise of airlines like Velvet and Nationwide. LCCs had a tendency to move outside of the LCC model. Jet fuel prices were very volatile and LCCs had no control over this. Other charges that LCCs had to pay were the SA Civil Aviation Authority charge, the Airports Company SA charge, the Airline Parking and Landing charge, the Aviation Co-ordination Services charge, the Aviation Insurance premium, the Airline Fuel surcharge and the Air Passenger tax.

LCCs operated on the same routes and with the exception of Lanseria, used the same airports as the conventional carriers. These main routes were manipulated by the conventional carriers.

LCCs should have a low cost benefit to its users but in South Africa LCCs took 45 minutes for an aircraft turnaround while overseas the turnaround times were as low as 17 minutes. LCCs needed to be significantly lower in price to attract custom and compete based on volume sales.

Jet fuel costs were greater on old aircraft which had less fuel efficient aircraft compared to Mango’s new fuel efficient aircraft engines. It was a gamble for LCCs to try and maintain market share through untenable ticket prices which could lead to its downfall.

The Department had convened a forum for LCCs at which it had indicated where it could be of assistance. LCCs still had to present proposals to the forum. The Department wanted the LCCs to go back to the original model of LCCs which operated in a niche where unnecessary extra costs were cut and efficiency gains were made. He acknowledged that the market was not as level a playing field as it should be. The Department was making provision for the use of secondary airports, but the challenges were funding as secondary airports did not have the passenger volumes to recoup the finance. He said the Department recognised the need for a sustainable industry and so could not afford to lose airline companies as it created instability and distrust in the industry. SAA’s funding model needed to be re-looked at as well as a review of the Department’s policies and strategies.

Discussion
Mr G Krumbock (DA) said millions of rands were being ploughed into SAA/Mango airlines which was not competitive. He could not understand why airlines would want to enter the market when Mango was supported by government subsidies. It was time for a rethink on state funding and for an alternative state funded model to be developed.

Mr I Ollis (DA) asked how investment could be made in airlines without market distortion occurring. SAA had admitted predatory pricing practices and had paid a R46m fine. These practices had led to the demise of 1Time airlines. He had heard that SAA had asked for R6bn in funding to buy planes, but the funding model needed to be re-looked at.

Ms D Dlakude (ANC) said Mango provided the opportunity to purchase tickets other than from the expensive conventional carriers. Why did Mango not serve rural areas?

Ms N Ngele (ANC) said Airlink was uncomfortable, expensive and unreliable.

Mr P Mbhele (COPE) said the challenges to LCCs had been there for a long time. How long had the forum been established. What was the charge for parking an aircraft?

Mr E Lucas (IFP) asked why SAA needed an injection of money.

Ms N Mdaka (ANC) questioned the approach of the Department on the issues without having engaged with the Committee.

Mr Bierman replied that the Department was struggling with the inputs for the White Paper. He said there had been no contact with the Committee or the Chairperson but that when the inputs had been settled, the Department would contact the Committee.

He said that the Department had to engage with the Department of Public Enterprises on the issue of investments in SAA. It was claimed that the money pumped into SAA were not subsidies but a recapitalisation of the company.

On the question of airport charges, he said everyone paid the same but there was differentiation depending on the size of the aircraft and the time the aircraft was parked.

He said Umtata Airport was currently under reconstruction and only smaller aircraft could land there. In the absence of competition, the airline company could charge a higher price. The Department needed to see how they could fix this matter. He said linkages such as SAA/Mango were not unique to South Africa and that it was occurring elsewhere in the world, such as Kenya. He said he could not answer the question of whether South Africa could provide the environment for a viable low cost airline industry. He said routes could be given on a tender basis with government assistance to ensure route sustainability, but that everyone should have the right to tender so that costs could be kept down.

Ms Dlakude asked why Mango was not flying to rural areas.

Mr Ollis said that he believed Mango only had six aircraft. He asked why 1Time and Kulula were not flying to Mpumalanga.

Mr Bierman replied that Airlink operated in niche, low volume markets. He said the market was deregulated and that there were no obstacles to entering the market, but that he would check with Mango and Comair why they were not on that route.

The Chairperson said the Department did not have a strategic plan to make air travel accessible to all. Airlines had failed but the Department was not concerned as their only intervention had been the recent establishment of a forum. The Department needed to take cognisance of the Household Survey findings and improve its planning and its skills development. Lastly, it should indicate to the Committee which of its policies were in need of review.

Quarterly expenditure report by the Department of Transport
Mr Dan Pretorius, Acting CFO, briefed the Committee on the first quarter expenditure from April up till August 2012. He said the total budget was R38.8bn of which R37.9bn were transfers and just under R1bn was used on internal Departmental expenditure on salaries and goods and services.

The Administration Programme accounted for R327m, Integrated Transport Planning for R83m, Rail Transport for R10bn, Road Transport R17.9bn, Civil Aviation R70m, Maritime Transport R133m and Public Transport Grants R9.9bn. The budget was a phased budget in accordance with payment schedules and R73m was underspent in the first quarter.

Under expenditure in the Administration Programme of R21.7m was due to late invoicing by the Department of Public Works, under expenditure on salaries because there had been a moratorium on the filling of vacant posts and because transfers to universities had not been made.

Under expenditure in Integrated Transport Planning was R10m and in Rail Transport R3.8m. Road Transport overspent by R16.9m which was due to advance payments to the Road Traffic Management Corporation which had experienced difficulties in paying its traffic police. Civil Aviation underspent by R1.4m and Maritime Transport by R8.4m, the latter because of late invoices received for search and rescue services and for conference payments for a conference to be held in October. Public Transport Grants underspent by R44.5m because the Department had scrapped fewer taxis than budgeted for. On the Provincial Roads Maintenance Grants, projects had to have approved business plans before payments could be made. Gauteng had only spent 24% of its budget and North West province only 51%. In total 86.5% of the grants had been spent. The Public Transport Operations Grant (bus subsidies) had spent 98.6% of its budget while the Public Transport Infrastructure Systems Grants to municipalities to implement rapid transport systems had spent 79.7% of their budget. The Rural Roads Asset Management Grant was an allocation of R1.7m to municipalities to collect road data and municipalities had spent much more from their own budget on the project.

Challenges the Department were facing was that Passenger Rail Agency of South Africa (PRASA) had taken over the “Shosoloza Meyl” service and the service’s future had to be decided, there was no funding for the National Traffic Police established by the Roads Traffic Management Corporation, the migration of the electronic traffic management system and the S’Hamba Sonke programme.

Discussion
The Chairperson asked if S’Hamba Sonke was the same as the Provincial Roads Maintenance Grant.

Mr Pretorius replied that the Department assisted provinces in the implementation of the road maintenance system through expenditure on the Provincial Road Maintenance Grants. S’Hamba Sonke funds were from the Department‘s own budget to assist provinces.

Ms Dlakude asked if all the provinces knew what the S’Hamba Sonke Fund was for as in the North West province it was being used to pay for consultants. Why was less money being spent on taxi scrapping?

Mr Ollis asked for further clarification on the matter of the National Roads Traffic Police. He wanted to know from which budget the budget of the Airports Company (ACSA) Regulator came from and how much it was.

Ms R Motsepe (ANC) asked how many vacant posts there were and when would they be filled.
 
Ms Mdaka asked what was being done on the under spending of provincial budgets especially in the North West.

Mr Mbhele felt that innocent people were being penalised when roads maintenance grants were being shifted to other provinces. Another means had to be found to implement the grants. He said the Department had “fumbled” on the taxi scrapping project and why was it experiencing under expenditure?

Mr Pretorius replied that provinces knew about S’Hamba Sonke, but needed to comply with the conditions of the grant. The provinces needed to supply a list of projects and what would be required and the Department assessed the business plans. He said the North West province was in contravention of the conditions if had spent it for the purposes mentioned. He would follow up the matter and check on the monitoring of the spending.

He said less was being spent on taxi scrapping as people were waiting for the taxi allowance to increase, but the Department would be shifting money away from the scrapping to be used for public services. Studies had shown that the project had not met its purpose which was the removal of unroadworthy vehicles from the streets and thereby reduce accidents. 66% of accidents were caused by burst tyres and bad shock absorbers.

He said the ACSA Regulatory Committee budget was R3.5m. The vacancy rate at the end of the previous financial year had been 30% because contract positions had been stopped and the contract posts would end in September. All the posts had been advertised except the IT posts because the Department was awaiting the outcome of the court case on e-Natis.

He said the programmes and programme spending had to be evaluated to understand the under expenditure by provinces. Funds that were unspent were given back to the Treasury and provinces had to apply for a rollover of funds. Treasury, however, had put the process on hold until audited financial statements were available. The Department might review the allocation, but it did first try to assist in the spending of the allocation as money was not lightly taken away.

He said the Road Traffic Management Corporation and the SA National Roads Agency Limited (SANRAL) had established the management of the National Traffic Police. The Road Traffic Management Corporation had provided 88 people and sourced sponsored vehicles. SANRAL had paid the salaries for the first few months. No agreement had been signed by the parties and SANRAL had stopped paying. The Department and Treasury had shifted funds to the Road Traffic Management Corporation. The issue was being addressed by the Minister.

The meeting was adjourned.