ANNUAL NATIONAL TOURISM CONFERENCE

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ANNUAL NATIONAL TOURISM CONFERENCE Strengthening
the Interdependence of Tourism and Aviation
SANDTON CONVENTION CENTRE Monday 29 October 2007
AN AIRLINE INDUSTRY PERSPECTIVE ON THE CHALLENGES
IMPACTING ON TOURISM GROWTH AND THE WAY FORWARD
PRESENTATION BY Chris Zweigenthal, Deputy
Chief Executive, Airlines Association of
Southern Africa
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OUTLINE

• INTRODUCTION
• Objective of presentation
• MARKET GROWTH AND AIRLINE DEVELOPMENT
• CHALLENGES IN AIRLINE SECTOR AFFECTING TOURISM
  GROWTH
• AIRPORT INFRASTRUCTURE
• CONCLUSION

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INTRODUCTION

• OBJECTIVE
• To discuss the partnership between the Airline
  Industry and the Tourism Sector and their
  respective mandates
• Provide an airline perspective on
• The extent to which challenges in the airline
  sector affect tourism growth
• Airline industry growth and new Airline
  developments
• Airport Infrastructure development and its impact
  on tourism

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MARKET GROWTH AND AIRLINE DEVELOPMENT

• Between 2000 and 2005, air traffic (passengers)
  showed the following average annual growth
• Domestic 8.2
• International 6.9
• TOTAL 7.8
• Emergence of Low Cost Carriers
  Kulula.com (2000)
  
  1time (2004)
  
  Mango (2006)
  contributed significantly
  to growth and tapping of new markets.
• Traditional / Legacy carriers now competing with
  low cost carriers in the traditional markets and
  from the same airports.
• Airline yields are continuously under pressure.

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MARKET GROWTH AND AIRLINE DEVELOPMENT (cont.)

• Market potential particularly in Domestic Market
  for new market niches
• Travellers who are traditionally transported by
  bus, taxi, train
• Rural residents who have never been exposed to
  air travel
• Marketing effort and education of all involved in
  these new market segments is essential to give
  access and confidence to use the newly available
  service
• In regional and international markets
• Scope for further Alliance partnerships, code
  sharing and cooperation opportunities either with
  international carriers or regional / African
  partners
• Support for the RSA AIRLIFT STRATEGY 2006

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MARKET GROWTH AND AIRLINE DEVELOPMENT (cont.)
(Statistics shown in million passengers for all
ACSA airports)
Statistics Courtesy of ACSA and ATNS and TRL
report.
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CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM
GROWTH

• Growth projections are optimistic projected at
  an average of 8.4 per annum higher than the
  global outlook of approximately 6.
• Current indications are higher growth double
  digit Domestic.
• Africa carries an effective comparative export
  advantage through TOURISM which can lead to job
  creation and wealth
• But, a reasonably priced air service with
  satisfactory infrastructure is essential to
  ensure growth of a price sensitive tourism
  industry
• Challenges in the airline industry impacting
  tourism growth
• Declining yields, rising costs and lack of
  profitability
• Restrictive bilateral agreements
• Slow liberalization process
• Lack of Education and stimulation of new markets

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CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM
GROWTH

• ROLES AND RESPONSIBILITIES OF CARRIERS
• There should be no preferred domestic carriers in
  terms of policy
• All South African carriers should
• Compete on level playing fields and
• Have equal and fair opportunity to operate on
  markets they wish to serve
• Not be pressurized to serve unprofitable markets
• Carriers are responsible for providing
• Safe, reliable service for their passengers
• At market related fares
• To achieve a reasonable rate of return for their
  Shareholders.

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CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM
GROWTH (cont.)

• LACK OF PROFITABILITY
• Increased competition and battle for market share
  by airlines
• New entrants and low cost carriers - decrease in
  airline yields
• Price remains one of the most critical success
  factors for a passengers choice of airline for
  travel
• For World Markets IATA forecasted net result
• 2006 profitability net loss - 0.5
  billion
• 2007 profitability forecast 5.6
  billion (1.1 ROT) (first cumulative
  profit in 7 years)
• 2008 profitability forecast 7.8 billion
  (1.5 ROT)
• (Compare to some State owned enterprises where
  returns can be as high as 50 on turnover)

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CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM
GROWTH (cont.)

• LACK OF PROFITABILITY (cont.)
• Cost increases, in some cases beyond the control
  of the airline impact on the airline bottom line
  sustainability
• Jet fuel price (30 of operating costs)
• dictated by world price of oil (US 85 bbl and
  climbing)
• Infrastructure costs (airport, airspace and
  weather charges)
• mainly charges from Government owned
  entities
• Enhanced safety and security measures which
  increase costs
• High insurance premiums
• Cost savings, cost efficiencies, and improved
  productivity remain a high priority for airlines
  to achieve sustained profitability

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CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM
GROWTH (cont.)

• LACK OF PROFITABILITY (cont.)
• Sustainable Aviation profitability, particularly
  in Africa remains a huge challenge and on
  balance, airlines are not profitable
• Africa projections 2006 loss of R 0.4
  billion (actual)
• 2007 loss
  of R 0.1 billion (forecast)
• 2008 breakeven R 0.0 billion
  (forecast)
• Profitability results not available for all South
  African carriers
• In absence of profitability, ventures into new
  routes, increasing frequencies and risk taking
  are not options easily considered.

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CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM
GROWTH (cont.)
BILATERAL CONSTRAINTS ?

• NO OF BILATERAL AGREEMENTS (by RSA) 103
• NO OF ACTIVE BILATERAL AGREEMENTS 52 (51)
• SADC 13 Asia Pacific 6
• East Africa 3 Europe 9
• West Africa 11 North America 1
• North Africa 1 Latin America 1
• (Total Africa 28) Middle East 7
• NO OF OPEN SKIES (unlimited capacity) AGR. 6
  (6) (Botswana, Egypt, Ethiopia, Gabon,
  Kenya, Uganda)

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CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM
GROWTH (cont.)
BILATERAL CONSTRAINTS ? (cont.)
(Information provided courtesy of DOT)
FOREIGN
RSA
COUNTRIES WITH UNLIMITED FREQUENCIES
UNLIMITED
63
48
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CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM
GROWTH (cont.)

• REGULATORY ISSUES
• There are still many marketing and route
  development opportunities available to South
  African and International carriers
• South Africa Domestic liberalized with no
  restrictions for licensed South African carriers
  since 1990 NO OBSTACLES
• Countries with fully utilized bilateral services
  by at least one party
• Angola, Malawi, Nigeria, Ghana, Ivory Coast,
  Senegal, Hong Kong (both parties), Australia
  (both parties)
• In interests of trade, tourism and general
  mobility, Africa should be better served
  Yamoussoukro Decision to facilitate this
• International liberalization managed through
  negotiated bilateral air service agreements
  Airlift Strategy implementation.

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AIRPORT INFRASTRUCTURE AVAILABILITY

• 10 ACSA Airports OR Tambo, Cape Town, Durban,
  Port Elizabeth, East London, George,
  Bloemfontein, Kimberley, Upington, Pilansberg
• Non-ACSA airports effectively provide very
  important primary, secondary and tertiary support
  to the main ACSA Airports
• Primary Commercial scheduled operations and
  secondary routes e.g. KMIA, Polokwane, Lanseria
• Secondary Airports supplying the essential
  feeder to major airport hubs e.g. Richards Bay,
  Margate, Pietermaritzburg
• Tertiary Airports mainly for General Aviation
  and private business operations, e.g. Wonderboom,
  Grand Central
• Private Airstrips / Aerodromes
• Charter flights are allowed in terms of the
  Aviation Policy and awarded subject to satisfying
  necessary licensing requirements

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CONCLUSION

• There are no restrictions in air transport to
  develop domestic tourism
• Identify market potential, and undertake
  marketing, education and implementation strategy
  with Airlines and industry partners
• Support the DOTs Airlift Strategy and implement
  in partnership with all stakeholders ensuring
• Airlines are aware of the States Tourism Policy
  and strategy
• (Some airlines have concerns re potential
  conflict of tourism strategy and their
  profitability / sustainability)
• Enactment of Domestic legislation to enable YD
  implementation
• Economic growth and development in support of
  NEPAD
• The commercialization, privatization and
  development of Airlines and Airports on business
  principles must be encouraged.

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CONCLUSION (cont.)

• Parties must work with States who are suspicious
  of the impact of liberalization on their markets
  / airlines to show benefits
• Statistical data for airline traffic and movement
  needs to be more readily shared between States
  and Airlines to enable them to quickly react and
  capitalize on developments.
• Acknowledge the important relationship between
  Airline Industry and all its stakeholders (DOT,
  CAA, DEAT, ACSA, ATNS, and all other industry
  partners)
• A CONCERTED PARTNERSHIP IS ESSENTIAL FOR ALL
  PARTIES TO ENSURE TOURISM VISION AND STRATEGIES
  ARE REALIZED WHILE SUSTAINING AIRLINE VIABILITY
  AND PROFITABILITY!