National Land Transport Transition Amendment Bill: final mandates; Airports Company of South Africa: briefing

Meeting report

PUBLIC SERVICES SELECT COMMITTEE
10 October 2001
NATIONAL LAND TRANSPORT TRANSITION AMENDMENT BILL: FINAL MANADATES; AIRPORTS COMPANY OF SOUTH AFRICA: BRIEFING

Acting Chairperson: Ms B Thompson (ANC)

Documents handed out:
Presentation by Airports Company of South Africa
National Land Transport Transition Amendment Bill [B 39-2001]
Proposed Amendments: National Land Transport Transition Amendment Bill
Final mandates from Eastern Cape, North West, Free State, Mpumalanga, Northern Cape, Northern Province, KwaZulu-Natal

SUMMARY
Members of the committee were briefed on the Airports Company of South Africa and its future plans. All provinces approved the National Land Transport Transition Amendment Bill.

MINUTES
National Land Transport Transition Amendment Bill: final mandates
Gauteng was not ready with its written final mandate while all the provinces supported the National Land Transport Transition Amendment Bill with the proposed amendments.

Airports Company of South Africa
Mr Carmine Bassetti of Airports Company of South Africa (ACSA) noted that airports are systems that provide infrastructure for the airline industry to operate. ACSA owns and manages ten airports in South Africa, overseeing approximately 99 percent of air passenger traffic and cargo within South Africa.

Even though there are more than 190 aerodromes in South Africa, the ten ACSA airports represent the main entry point and the basic airport system for South Africa. Of the ten airports seven are licenced for international traffic.

The Johannesburg Airport is the main entry point - the hub for Sub-Saharan Africa (SSA) and this creates a huge advantage for the country because it allows the airlines to apply a hub-and-spoke concept. They accumulate traffic in Johannesburg, create critical mass and on a star-burst concept they spread it out throughout SSA.

Cape Town is a terminating point. It is a typical and unique destination for tourism where the airline that arrives stops over and does not continue. The passengers usually stay in the location whilst in Johannesburg more than 40 percent transfer to other flights.

Durban is another national airport that is a minor airport but contributes significantly almost 5 million passengers to the ACSA airport system.

Last year there were 20 million passengers in the ACSA airport system. South Africa catered for one-fourth of African traffic which numbered 81 million passengers.

The biggest component of the traffic comes from Europe – 46 percent. Then there is 31 percent intra-Africa traffic, 5 percent from North America, 2 percent from Brazil and 4 percent from the Indian Ocean islands and Australia.

Of the 20 million passengers in South Africa, 11.2 million were at Johannesburg, 4.6 million were at Cape Town, 2.5 million at Durban and 1.8 million passengers at the other national airports.

When looking at growth rates last year Johannesburg met its benchmark and grew more than 2 percent of what was projected. They had forecast 6 percent and it grew by 7.9 percent while Cape Town had 1.5 percent traffic. Durban suffered because of the competitiveness of the access roads between Johannesburg and Durban making air traffic less competitive. International carriers do not want to use Durban as an entry point and ACSA therefore is looking at Durban as a transfer point.

ACSA Airports within the African Context
Of the top ten airports, Johannesburg is the biggest airport in Africa, Cape Town is the third and Durban is the fourth. ACSA has no potential airport competitors in Africa except for Cairo. South Africa has both domestic and international traffic that blends and makes it way ahead in terms of the aviation industry in Africa.

However if South Africa compares itself with the rest of the world, a different picture emerges – 4 percent of South Africans use air transportation as the means of transportation whilst 15 percent of Europeans use air transportation and 24 percent of Americans (before the 11 September).

Potential threats ACSA has to face
The potential threats are those created by the Yamoussoukro Agreement that says that all African carriers within SADC do not need bilateral agreements to fly to and from their respective countries based on regulations. Currently the Yamoussoukro is positive for South African flight carriers because they have the capacity and the right fleet to "invade other SADC countries with their carriers which are more efficient".

This agreement would in ten years time create other hubs through Nairobi in East Africa and Accra in West Africa and South Africa would lose that dominance in terms of hubs within Africa. And that is the basic threat.

Looking at the issue of economic impact, airports are developed on a traffic-driven basis. ACSA follows the industry and if the industry decides to use Johannesburg International as the main hub, ACSA follows the industry and builds the infrastructure for it. To build a big airport does not equal to more traffic or planes arriving at that airport and South Africa has significant examples such as Mafikeng, Bisho and Umtata, which are big wonderful airports but are empty and have few flights.

ACSA is applying this traffic-driven strategy which has given it the possibility of impacting correctly on job creation. ACSA is responsible for almost a hundred thousand jobs in the country.

Traffic trends
In 1990 there were 24 carriers coming to South Africa, in 1997 they became 83, and last year they were 54. When an airline comes to a country it does a huge amount of marketing. The initial "Madiba Magic" had attracted huge airlines to come to South Africa – everybody wanted to know what South Africa was.

Airlines sent 747s to South Africa but then in the airline industry there was an evolution of costs. Fuel costs started increasing and 747s are very expensive aircrafts consuming 10-12 tons of fuel per hour of flight.

On the other hand, an A340 has a fuel consumption of 6-8 tons of fuel per hour of flight. One 747 carriers carry 410 passengers while an A340 carries 280. That impact is now hitting South Africa. In 1995, 72 percent of international traffic was on 747s but by 2000 this was down to 35 percent. This has affected South Africa quite significantly.

ACSA has opened a marketing division in order to have tourism working in certain areas that have to be catered for. For a long time South Africa has been marketing a high executive niche market of traveling passenger which has not gone to mass tourism. Compare with other countries such as Spain which had 50 million package tourists (people buying tickets including hotel accommodation), Hungary 15 million and Thailand 7 million, South Africa had 600,000 in the last financial year.

South Africa is lacking in a mass tourism market. Even if it had seven or ten 747s arriving daily, where would those passengers be accommodated? Last year Italy had its Holy Year and in Rome there were 27 million pilgrims with an average of 450,000 pilgrims a day. That type of organisation takes time to build and various markets had to "be hit" from the bed-and-breakfast market to the high niche market. South Africa has much work do - it has a high niche market but not that mass tourism market that the country is looking for to increase its airport traffic numbers.

Investments
ACSA has had permission from the regulator for R2.7 billion in the next five years to continue to develop the Johannesburg International as the main entry point, Cape Town as a terminating destination and Durban and other national airports as bidding airports to the main hub, Johannesburg. This would be able to maximise the impact in terms of job creation, and in terms of traffic numbers for South Africa. ACSA would spend R2 billion at Johannesburg International, R550 million at Cape Town, R83 million at Durban and a R123 million at the national airports.

Johannesburg International competes with other hubs around the world – there is high technology and has triple sevens which is the modern aircraft and by 2005 British Airways and Lufthansa would be connecting to Johannesburg using the A380 which is a super jumbo carrying 650 passengers. There is a huge amount of investment needed to cater for that kind of traffic.

Johannesburg contributes almost 60 percent of the traffic and 70 percent of the company’s revenues and they are spending 72 percent of the investment. Cape Town caters for 23 percent of traffic and gives the company 21 percent of its revenue and is spending 22 percent of the investment.

At the Johannesburg International, its Western Precinct area will be developed for 20 million passengers. There is a two runway system with a huge midfield and ACSA will be building a midfield complex that would cater for up to 40 million passengers in the year 2030.

A train link is being built between Pretoria – Sandton - Johannesburg International airport which should be ready by the year 2006. This will increase the capacity of the Johannesburg International because a train-link speeds up access to any international airport as it is often the only means of reaching an airport on time. Every European hub has a train link to the airport. The station at the airport would be at the midfield between the two runways.

The main investment at Johannesburg International would be the new domestic terminals at 80 000 square metres which would be ready by December 2002. They are also looking at two multistory car parks plus an extension that would bring the car parking base up to 13 000. The access road issue has already been addressed.

At Cape Town International an increase in air traffic would depend if there were a tourism drive behind it. Gauteng being an industrial area will always have traffic arriving at it while Cape Town has a dedicated scope within which to make that airport grow correctly.

ACSA would be developing the Cape Town airport in two phases. The first phase with one runway system to cater for 12 million passengers in 2014 and the second phase would bring the airport up to 24 million passengers with the construction of the second runway which would allow a midfield terminus. Cape Town is also looking at the train link to the airport.

The King Shaka Airport is a delicate issue. If government wants to construct it, ACSA would run it. In the meantime, ACSA has restructured Durban International completely in order to give KwaZulu-Natal a decent airport to cater for its tourism industry at least until the new King Shaka Airport is built. It would take six to eight years to build which is how long international airports take to be built.

Discussion
Ms B Thompson (ANC) noted that nothing had been mentioned about security and asked Mr Bassetti to talk about that.

Mr Bassetti replied that their main problem is that they have to rely on private security on which they spend R32 million a year and hoped that government would intervene. He noted that at Rome Airport there were 1,400 policemen and anti-terrorism guards protecting all the gates and airlines within the airport, fully paid for by the government, because that is a national key point. Heavily armed police and armies were not the best solution according to Mr Bassetti. ACSA is working with the national security agencies and as a result one hundred policemen have been assigned to the Johannesburg International and other policemen would be relocated to other airports. With regard to baggage all the international baggage are screened to detect the contents and with the building of the domestic terminal at Johannesburg International plans are on cards to extend this to domestic traffic also. Handbags are being searched although this creates inconvenience to the passenger. ACSA is completely in line with the ITO standards in terms of security and safety.

Mr N Raju (DP) quoted Mr Bassetti as saying that air traffic to Durban was not rosy. How did he reconcile that with the building of the King Shaka Airport? Was he suggesting that it might end up as a white elephant?

Mr Bassetti responded that there was a lot of emotion around the King Shaka Airport. This is a government project that is linked to other national projects on transportation and has to be seen in terms of the national transportation policy. An aviation expert, he said that a big airport does not equal to more traffic and he made an example of Mafikeng airport.

If you have a beautiful airport, it does not mean airlines would choose to go there. In Canada in the 1970s there was a big issue where Montreal had a nice airport but the French part of the government decided to build another huge airport. The airlines did not want to have anything to do with that airport and last year that airport was closed.

Within the national aviation transportation plan there is room for King Shaka, which has to be linked to the port, to cargo activity because there is Maputo, Richards Bay and Durban. However if people think of King Shaka as a solution to the loss of traffic, "we are not going the right direction."

The future of Durban airport is to create a tourist charter component. With charter traffic, Durban can kickoff with huge international traffic in that area. He said any thought of taking traffic away from Jo’burg to bring to Durban is like "stealing from a brother and it does not work that way."

King Shaka has a function located within the national transportation system with an inter-modal transportation platform where rail, ports and airports are connected.

Mr M Sulliman (ANC) said although one had to consider a traffic-driven strategy, it was of great concern to him that bigger airports are getting bigger and this would marginalise the smaller airports.

Mr Bassetti responded that they have ten airports, of which seven were profitable. The national network is subsidised through the bigger airports. They would try to keep the smaller airports open although some of them have fewer than two flights a day.