Airlift Strategy, Airport Landing Fees: Department of Transport & Airports Company briefings

Meeting report

Opening Remarks
The Chairperson commented that South Africa was still only showing 2.53% growth, which needed to be accelerated, and this Committee would play a role in deciding whether issues raised were in the national interest of the country. There were issues around the Air Lift Strategy, role of government and of supporting and protecting low-cost carriers like One-Time and Nationwide. He said it was clearly not in the national interest to allow transport companies to collapse.

Airlift Strategy: Department of Transport briefing on
Mr Vuwani Ndwamato, Director: Air Transport, National Department of Transport (NDoT), said that in 2006 the NDoT and sister Departments had developed an Airlift Strategy, to ensure that best air services were provided, in anticipation of the growing demands. The Airlift Strategy was approved by Cabinet in July 2006. A holistic view of the international air transport network, in support of South Africa’s national interest, was a key element in this strategy. This strategy was supported by an Implementation Plan that was established and approved in November 2008.

The mandate was based on the Constitution, the International Air Services Act 60 of 1993, and the Air Services Licensing Act 115 of 1990. These set out the need to promote trade and tourism to and from the Republic, promotion of competition with international air services, maintaining a high standard of safety, and promoting local international air services.

The role of the South African government in the aviation industry was to be the principal enabler and regulator.

In order to enhance the effect of the Airlift Strategy, the Air Services Licensing Council (ASLC) would have to consider encouragement of movement of airfreight domestically, stimulation and encouragement of the development of low cost carriers (LCC), and ensuring the provision of air transport services to meet accessibility and mobility of all South Africans. It aimed to increase the mobility of the domestic market, improve safety and security, aviation community well-being and environmental responsibility. This meant that there had to be improved relationships between states, stakeholders, industry and government, all of whom must move towards shaping the air transport system, and expanding the LCC concept within South Africa. A framework for bi-lateral service negotiations and well planned inter-modal transport system was also needed as well.

The strategic approach towards the Airlift Implementation included consideration of the stability and sustainability of the network of air services serving South Africa. Negotiating mandates were set. International External Air Transport Policy had to be taken into account. There was a need for rapid liberalisation and exchange of traffic rights.

The key focus areas of the strategy were set out. This would include a relaxed air services framework, on secondary and private owned airports. Cabotage rights would not be granted. The strategy looked at ownership and control of airlines, the “Use it or Lose it” principle, and the question of airline alliances and code sharing.

In air transport, Cabotage Rights were the eighth Freedom of Air. These related to allowing foreign national air service operators to come into a country and operate their domestic market. It was agreed that not this, but only the seventy Freedom of Air right, for cargo, would be allowed.

The Chairperson asked for clarification on Cabotage rights and YD implementation.

Mr Ndwamato answered that YD referred to the liberalising of air transport services within a continent, and related to the opening up air services in the Continent. Cabotage rights related to whether a country would allow a foreign air service operator to operate in the domestic market. An example of this would be if South Africa flew into Zimbabwe, and operated in its local market. This was, in principle, being allowed only in very mature markets like the US and Europe. The “Use it or Lose it” principle meant that if any person was granted a license to operate services, but had not used it within 12 months, that person would lose the licence, unless producing a very valid reason for the non-use.

Mr Ndwamato added that NDoT continued to implement the Airlift Strategy. There were many increases of capacity in air traffic throughout the globe. Senegal, Kenya and Cameroon had opened up their markets, and all were YD. Mozambique was not ready to open up its market.

The Chairperson was surprised that Angola was not on the list.

Mr Ndwamato said that there were ten frequencies each side with Angola. South African Airways (SAA) operated seven of them. It was a domestic issue.

Mr Tshepo Peege, Acting Deputy Director: Civil Aviation, NDoT,said there were political challenges that Africa faced. There were challenges to implementing agreements. Africa had eight Regional Economic Commissions. The African Union (AU) called for the rationalisation of these Commissions, because the implementation of many agreements was hamstrung by the Regional Economic Commissions. Three of them had created the Joint Competitions Authority (JCA), and within these three, there was an Open Skies Agreement. He explained that the French speaking people in West Africa would rather see Air France and Royal Dutch Airlines (KLM) operating, instead of South African Airways (SAA). The problem was that each African State wanted its own airline. A hub and spoke needed to be established in a major city in Africa, into which all African airlines could fly. The Minister of Tourism had opened dialogue on the Open Skies agreement. LCC was a big challenge. Europe had the highest amount of LCC, with 45, whilst the US had 15, Latin America had 10 and Africa had 10.

The last slide in the presentation set out the review process and timeframes. The first meeting on the Review was in June 2012, with aviation stakeholders. In June 2012, there were also meetings with key departments in government. There was an internal workshop planned for November 2012, to refine the final draft document. The final workshop was planned for January 2013, after which the Strategy would be finalized, prior to be submitted to Cabinet for approval.

Airport Landing Fees: Airports Company South Africa Briefing
Ms V Bam-Mugwanya (ANC) expressed her frustration that the Committee had only just received copies of the presentation.

The Chairperson agreed that this made matters difficult for Members. In future, drafts, at the very least, must be submitted earlier.

Mr Deon Cloete, General Manager, Cape Town International Airport, Member of Executive Team, Airports Company South Africa, apologised for the absence of the Managing Director of Airports Company South Africa (ACSA).

The Chairperson accepted the apology, but stressed the importance of accounting officers attending. The Committee wanted to take a macro-view and wanted to speak to those who could give final decisions and answers.

Mr Cloete said he would pass this on.

Mr Dirk Kunz, General Manager: Corporate Finance, ACSA, wanted to highlight that there was generally a misunderstanding of what “airport taxes” were. In fact, “airport taxes” covered taxes, charges and other costs recovered by way of the air ticket. There could be up to 30 charges that were levied at this point. The only real “tax” that appeared on a domestic ticket was the VAT. On international and regional flights, an International Departure Tax was levied. More than 70% of airport taxes on a ticket were related to fuel charges. The National Treasury required a breakdown on air tickets, which included taxes, regulated charges, non-regulated charges and airline costs.

Within the South African Airport sector, the prices were affected by what he termed ‘the tyranny of distance’. It was uncommon that countries have their major population centres so widely dispersed, as they were in South Africa. This had caused domestic routes to be dominated by ‘The Golden Triangle’ (Johannesburg, Cape Town and Durban). The South African national and regional economy suffered from this, and having the three dominant airports did not help the situation.

Peak traffic hours, in the mornings, and between 4pm to 7pm, were a real challenge in South Africa.

Although it was a controversial issue, he then highlighted and explained the 2011Leigh Fisher Benchmarking Review of Airport Charges. This was based on charges effective on 31 December 2010. ACSA had increased charges by 69.9% since the study, due to recovery, over six months, of an annualised 34.8% charges increase for 2011/2012. A further 8% increase would become effective on 1 October 2012.

Mr Kunz explained the evolution of airport charges, and focused on economic regulation. The price spikes were inevitable within the current framework and the price spike was an implication of pre-funding that was introduced in 2007. ACSA had been engaged in regulatory review for the past sixteen months, with the NDOT.

There were current changes being considered, for the economic regulatory framework, in time for the next Tariff Application. ACSA was trying to sort out tariffs so that the country would never see a price spike again. Mr Kunz said that it was possible that tariff decreases might be seen by 2016, at the end of the tariff cycle.

He said that the real driver of traffic volume growth was GDP growth. In 2010, the approximate group terminal capacity was well over 50 million annual passengers a year, compared to just over 30 million in 2006. Airport capacity was a function of peak hour capacity (based on demand) and the duration of the peak. Behavioral changes within the South African aviation sector could lead to the postponement of future capacity requirements, which would lead to the better use of current facilities.

Mr Kunz said he did not have empirical information on the impact that airport related charges had on the tourism industry.

Mr Tshepo Peege, NDoT, said that in regards to the landing fees, some of the charges set out were only a fraction of the total, which would also include royalties, airport fees, bridge fees, and others. South Africa was No 26 on the list of African Airport charges, and he said it was doing well. Djibouti was the highest, exceeding South Africa by about 90% on charges.

Mr Cloete said ACSA had started out with little capacity but he was now encouraged because there needed to be stronger collaboration in order to take the industry forward. There was room for engagement, for growth. He acknowledged that airport charges were under the spotlight. Fuel costs were still a big issue and these accounted for about 35% to 55% of cost, depending on the fleet.

Discussion
Mr F Bhengu (ANC) said that in regards to the collapse of airport line One Time, people were pointing the finger at government.

Ms V Bam-Mgwenya (ANC) asked if the presenters were not concerned that demands of LCC was occurring. There was no benefit to tourism if low cost airlines kept closing down. ACSA should reduce tariffs.. There was also a need to give clear access for the benefit of tourism.

Ms Bam-Mgwenya remained appalled at the lack of ability of airport staff to deliver good customer service in respect to disabled passengers. She cited instances of broken wheelchairs and unhelpful staff, saying that the attitudes were particularly bad towards black passengers, and night services.

Ms J Maluleke (ANC) said she was worried about LCC. She said there was also concern with the metered taxis in Cape Town. It was difficult to go to them when it was raining, and she asked for clarity on this issue.

Ms Maluleke wanted to know how ACSA was dealing with inequality in the airport, to grow other businesses. The big business were found inside the airport and the smaller businesses were outside.

Mr L Khorai (ANC) said he wanted to know why cash charges were more, and credit card payments came out at a lower fee. He wondered if the Acts quoted were still relevant.

The Chairperson asked if Bloemfontein was an ACSA airport.

Mr Cloete said it was an ACSA airport.

Ms R Lesoma (ANC) agreed with Ms Bam-Mgwenya that the human relations issues left a lot to be desired, and she had found that airport staff would not stop their conversations to deal with passengers, would not apologise, even for breakages, and there was little customer service. She reminded the presenters that the social and economic situation of South Africa was not the same.

Ms X Makasi (ANC) told ACSA that it should monitor its security points in Johannesburg. She had seen long lines, with no manager being able to be found, when the issue was queried. Only one or two points seemed to be open at one time.

Mr S Farrow (DA) asked why had it taken so long for the Air Lift Strategy to be approved. There was mention of it going to Cabinet in 2006 and again in 2013. There were basically two pillars to that strategy. One was promotion of competition and the second was encouragement of development of LCC. Since 1992, only one of the eleven airlines at the time still remained. He asked if there had been any investigation into why this was so. He hoped it was not because of the high cost of landing fees.

Mr Farrow said that the costs increases of the last 3 years were phenomenal, although he understood some of it had to do with the investments in 2010. It would be critical for the NDOT to find the right funding model. ACSA had a clause in its Act that any deficit on its balance sheet would have to be recovered from tariffs. As long as this stayed in place there would always be endless demand. As already explained, Cape Town needed more expansion, which meant a new deficit and more tariffs. He felt that the balance sheet of ACSA should operate under its own means. The Act needed to be reviewed. 

Mr Farrow said he had a problem with the fact that there was no effective airport regulator in South Africa. Two people would come together under the direction of the Minister and decide if tariffs were fair or not. That was not what he would call proper economic regulation. It needed to be independent and devoid of any influence.

Mr Farrow disputed the use of Leigh Fisher Benchmarking graphs in a comparative analysis. ACSA did not show most regional airports, and compare them with South Africa. There was something wrong with people flying to Maputo and taking a bus to Kruger. It cost more money for tourists to come to South Africa. Government was a shareholder of ACSA and over years there had been billions of profit accrued. He asked when ACSA would start putting the profits back and reduce the fees.

Mr R Shah (DA) said that the NDoT talked about a bilateral agreement with 14 countries, prior to the World Cup. He wanted to know the current status of these agreements. He too wondered why, with the increased capacity in target markets, Angola was not shown on lists. He asked about the risks associated with Open Skies Policy. He wanted to know why it was so expensive to fly within Africa.

Ms C Zikalala (IFP) commented that although ACSA mentioned high standards of safety, there was far too much baggage theft, particularly at OR Tambo. She had stopped defending ACSA once this had also happened to her. She wanted to know what safety and supervision was in place when baggage was put on the carousels. She asked why Cape Town International and King Shaka did not offer shuttle buses to the baggage collection points. Finally, she commented that announcers were often inaudible.

Ms M Njobe (COPE) wanted to see a strategy for LCC, and asked if “development” meant actual manufacturing. She noted that flights between East London and Cape Town were now using different planes, and although the airline claimed this saved fuel, the flights took longer.

Ms Njobe asked if British Airways was an example of Cabotage rights, and if any other airlines were operating in the same way.

Ms Njobe noted the comment on the Golden Triangle but wondered what difference it would it make if the distance was less.

Mr Shah noted that ACSA said it did not have facts on the impact of landing charges, but wondered why this was not raised in the Review with Stakeholders in June 2012.

The Chairperson wanted to know if there was a mutually beneficial root alignment between ACSA and the Department of Tourism.

The Chairperson asked if it was correct that it took longer for baggage to reach the conveyor belts in Johannesburg than other airports.
The Chairperson noted that the 2011 Regulatory Committee Proposals had suggested that after 2013, the tariffs would reduce, and asked if this still held true.

Mr Peege explained that the Air Life Strategy was a consultative process with industry and sister Departments. The consultation was going through a review. South Africa had a transit visa system, and some of the passengers were avoiding South Africa because of this. There was engagement with the Department of Home Affairs to look at this issue. All BRICS airline activity was on the upside.

One of the challenges with Africa was that the EU was against the AU agreement of engaging individual countries. That had a negative impact in terms of Africa speaking with one voice. He was pleased that South Africa had identified the Continent of Africa as very key as the two most profitable airlines in Africa had 86% of their routes coming into Africa. The US had deregulated, but there was not a lot of LCC activity. The deregulation of airline services led to Asia increasing its LCC. Other LCC in the region of Africa were developing. The NDoT wanted LCC to utilize other airports in South Africa. It was more expensive to travel British Airways from London to Nairobi than from London to Mumbai. There were only three airports that charged less then ACSA in Africa. The Regulatory Committee was in place and he would bring the issue to his colleagues to look at it.

Mr Ndwamato said that in regard to LCC, air transport, in particular air services, and was demand driven. There was a need to build into the National Airport Development Plan and the Air Space Management Plan, the need for secondary and private airports, with a base catering to LCC. Domestic tourism services were demand driven as well, so there needed to be an incentive to create the demand. He gave the example of people choosing to now travel through Dubai, instead of Europe and the US. He admitted that there was a fragmented regulatory framework in the transport sector.

Mr Cloete said there was a golden triangle sitting in Africa, and that was where the move was. ACSA encouraged domestic strategy. The King Shaka airport was the fastest growing airport in its first year. For the next few years there were going to be no dramatic or extraordinary tariff increases. It was unwise to have entities fighting around issues and having a Regulator trying to find solutions. He reiterated that although tariffs for the next few years would have no major adjustments, refurbishing programmes needed to be accelerated.

Mr Cloete noted the comments on the announcers, and said he would convey them back. With regards to the metered taxis in Cape Town not being covered, he said that they would try and find a solution. New canopies were being installed over the car rentals.

Mr Kunz said the Regulatory Committee had to adopt a funding model that the industry agreed to.

Mr Kunz detailed that there were five part-time members and they met once a month. They were independent and impartial. In fact, even ACSA had taken them to court. In regards to the proposal to reduce charges, he said there might be proper conversations with airline industry within a month. At the end of the tariff promulgation period there would be a reduction of charges, in 2016. The balance sheet was dependent on the investments that the stakeholders required the company to make. He clarified that an LCC meant it was not a full service carrier. On the issue of dividends, R1.6 billion was paid from 2004 to 2009. Since then, no payment of dividends had been given out. Not all assets were in the Balance sheet from the Regulator. ACSA responded to growth. He clarified that “regional” meant flights that originated in SADC countries.

The Chairperson said it was clear to him that further dialogue was required and other role players needed to participate, like SAA and British Airways. ACSA was building an airport in Brazil and had built one in India. At the same time, there were concerns about its monopoly. If there was no competition then a regulator was needed. He noted that the timeframes for report backs would be Quarter 2.

The meeting was adjourned.