ATC140212: Report of the Portfolio Committee on Transport on the Oversight visit to the Airports Company South Africa (ACSA), dated 11 February 2014

REPORT OF THE PORTFOLIO COMMITTEE ON TRANSPORT ON THE OVERSIGHT VISIT TO THE AIRPORTS COMPANY SOUTH AFRICA (ACSA), DATED 11 FEBRUARY 2014

The Portfolio Committee on Transport, having undertaken an oversight visit to the Airports Company South Africa at O R Tambo International Airport in Johannesburg on 18 September 2013, reports as follows:

1. INTRODUCTION

The Portfolio Committee on Transport (the Committee), as mandated by the Constitution and Rules of Parliament, undertook an oversight visit to ACSA on 18 September 2013. The Committee delegation consisted of the Committee Chairperson, Ms N R Bhengu (ANC), Ms N J Ngele (ANC), Ms N Mdaka (ANC), Ms RM Motsepe (ANC), Mr I Ollis (DA) and Mr P Mbhele (Cope). The Committee was supported by the following parliamentary staff: Ms V Carelse, Committee Secretary, Mr S Ngesi, Committee Researcher, and Ms D Martin, Committee Assistant.

2 . BACKGROUND

The Committee had previously been briefed by the Department of Transport and low-fare airline operators on the cost pressures facing low-fare airlines. One of the challenges faced by low-fare airlines was the high airport charges imposed by ACSA that added to the pressure on their profitability. Low-fare and full-service airlines were also expected to operate in the same environment and were exposed to the same cost drivers as full-service airlines.. The aim of the oversight visit was, firstly, to ascertain how airport charges were determined and their impact on the profitability of low-fare airlines and, secondly, to have discussions with ACSA and the Department of Transport on how the playing field could be levelled for stakeholders in the aviation industry. During the visit, the Committee would also visit the facilities made available at O R Tambo International Airport for low-fare and full-service airlines.

3. AIRPORTS COMPANY SOUTH AFRICA (ACSA)

3.1 MANDATE OF ACSA

ACSA was formed in 1993 as a public company under the Companies Act (No. 61 of 1973), as amended, and the Airports Company Act (No. 44 of 1993), as amended. ACSA is majority-owned (70%) by the South African Government through the Department of Transport. The Public Investment Corporation (PIC) owns 20%, whilst black economic shareholders and employees hold the remaining 10%.

ACSA was formed to own and operate the nine principal South African airports, including the three main international gateways of O R Tambo International, Cape Town International and King Shaka International Airports. Pilanesberg International Airport was added in 1998 under a 30-year concession with the North West province. However, ACSA returned the operation of the airport to the province with effect from 1 October 2011. ACSA is responsible for processing approximately between 93 and 95% of all passengers departing on commercial airlines from the airports within South Africa, which is in the region of around 17.5 million per annum. It is estimated that the total departing passengers will reach around 20.5 million by 2014/15 and approximately between 25 and 26 million by 2019.

ACSA plans to invest R45 billion in capital over the next 10 years in the form of new capacity infrastructure and maintenance and refurbishment projects.

More than 55 commercial airlines frequent ACSA airports. The largest commercial

airline is still South African Airways (SAA) which contributes more than 35% of all

departing passengers.

3.2 JOB CREATION

ACSA-managed airports contributed an estimated 75 000 jobs to the South African economy, of which 23 000 were direct in nature and 52 000 indirect due to multiplier effects of linkages with other sectors. It contributes an estimated 0.13 percentage points to the South African gross domestic product ( GDP) on an average annual basis. Expansion operations and traffic growth contributed an estimated R7.8 billion in tax revenue to the South African economy through company, personal and value-added taxes.

3.3 TICKET STRUCTURE

ACSA has two distinct revenue streams. The first source of revenue is aeronautical income which is derived from regulated charges or tariffs. These charges comprise of aircraft landing charges, parking charges, as well as passenger service charges. The second source of revenue is referred to as the non-aeronautical income and is generated from commercial undertakings and flows from retail operations, car parking, car rental concessions, advertising, property leases and hotel operations. Another component of non-aeronautical revenue is generated by international operations.

The Managing Director of ACSA clarified the breakdown in ticket pricing, as required by National Treasury as follows: Taxes, regulated charges, non- regulated charges and airline costs. Taxes included value-added tax (VAT) and International departure tax on regional and international departures. Regulated charges referred to ACSA passenger service charges, which consist of the following: R120 for domestic charges, R249 for regional charges and R328 for international charges. Airline costs include fuel charges and insurance. The term “airport taxes” was incorrectly used for taxes, charges and other costs recovered by way of the air ticket.

3.4 ECONOMIC REGULATION

In April 2012, the Steering Committee of the Economic Regulatory Review agreed to allow the current permission to run until 31 March 2015. The Regulating Committee for the aviation industry was appointed in March 2013. Following the appointment of the Regulating Committee, the proposals with regard to the funding model could now be considered. However, amendments to primary legislation (Airports Company Act) were not foreseen to be finalised in time. Other challenges were the absence of an appeals mechanism and regulations (pricing policy) by the Minister.

3.5 GROWTH

ACSA remained focused on growing its existing business and identifying and securing new business opportunities. The core areas identified for sustained growth were:

3.5.1 Efficiency and cost management by im proving airline punctuality, providing faster connections, energy efficiency and generally doing more with less without compromising safety, security or service;

3.5.2 Relevance, by creating long-term value for all stakeholders;

3.5.3 Business Performance Excellence through growth of the organisation’s people;

3.5.4 Managing and developing a high performance and engaging team;

3.5.5 Finalisation of the economic regulation legislation and funding framework;

3.5.6 Acceleration of sustainability and transformation programmes; and

3.5.7 Strengthening business excellence and i dentifying and securing new business.

4. KEY OBSERVATIONS

The following observations were made during discussions with ACSA management and officials from the Department of Transport:

4.1 The affordability of air transport remains too high for ordinary citizens. Air travel was still the preserve of the rich. Universal access to air travel was a challenge.

4.2 The Committee noted the arguments put forth by ACSA on the ticket structure, but felt that more engagements were needed with the Department and ACSA on how universal access could be achieved. The Committee was particularly concerned about the lack of low-fare operators in the aviation industry and how the current cost structure impacted on their operations.

4.3 The Committee noted the commitment of the Department of Transport to create universal access in the aviation industry and its continuing efforts to maintain services of high quality. However, the Committee was concerned about the absence of a transformation strategy for the aviation industry. The Committee noted the commitment of the Department to formulate the strategy in 2014. The Committee was of the opinion that there should be congruency between the transformation strategy of the Department and that of ACSA.

4.4 The Committee noted that ACSA’s retail areas were occupied by established companies and that ACSA did not provide business opportunities to SMMEs and cooperatives. The entity was not focusing on implementing strategies that promoted the reduction of poverty. During discussions, the Committee noted plans undertaken by ACSA to create awareness of new business opportunities at its airports to increase participation of youth, women and the previously disadvantaged.

After discussions, the Committee undertook a visit of facilities at O R Tambo International Airport. The following observations were made:

4.5 The facilities were in good condition.

4.6 Concern was expressed about bottlenecks at security access gates at

O R Tambo airport during peak hours. The Committee observed that the quality of customer service on the part of ACSA staff had regressed from what had been provided during the 2010 Soccer World Cup.

4.7 The Committee noted that longer walking distances at the airport, among others, from check-in counters to the boarding gates, might pose a challenge to the elderly and people with disabilities.

5. RECOMMENDATIONS

The Committee made the following recommendations to the Minister of Transport:

5.1 To continue a high quality of service, ACSA should ensure that the training of its frontline staff should be of high quality.

5.2 Appropriate transportation should be made available, when needed, to assist with the mobility of people with disabilities and the elderly at airports.

5.3 The Committee noted the challenges posed to the aviation industry due to the absence of a transformation policy and recommended that the Minister of Transport ensure that that the Department of Transport and ACSA work closely on the formulation and finalisation of a transformation policy for the aviation industry. The Committee will have ongoing follow-up with the Department to discuss strategies and interventions that could reduce the cost of air travel and level the playing field so that more operators could enter the industry.

5.4 That the Department should put greater effort into creating an economic and regulatory environment that is conducive to the establishment and ongoing survival of low-fare airlines.

Report to be considered.