GROW FOOTPRINT

GROW FOOTPRINT

Responding to changes and opportunities in domestic, regional and international air transport markets extends our footprint, enhancing sustainable value creation. In our current recovery and sustain frame of mind we will be considering new ways to grow, re-evaluating strategic investments while nurturing existing growth areas. Expanding and strengthening our presence in the right markets allows us to grow our core business activities and revenue.

OVERVIEW

We grow our footprint by boosting the number of departing passengers through our airports and by increasing our capacity. We accelerate growth by adding new routes and frequencies to domestic, regional and international operations across all our airports. In the year under review, we achieved a decrease of 0.91% in the number of passengers through our network of airports, falling short of our target of 0.7%. We have also increased the number seats in our network by 0.75%, marginally missing our target of 0.8%.

The impact of COVID-19 on global aviation has been the most significant contributor to the contrasting performance which saw the network growing at over 3% in both departing passengers and seats in the first three-quarters of the financial year. This growth was undermined in the fourth quarter, with March 2020 severely impacted by global travel restrictions and lockdowns imposed by the South African Government and other source countries.

BUSINESS DEVELOPMENT

Our dedicated team of network planning experts, statisticians, economists and marketers have a finely honed understanding of airline network planning and route performance. We work closely with our airline partners to identify, validate and perform route opportunity analysis for expansion and retention.

Further collaboration with key stakeholders from tourism to municipal and provincial structures occurs to ensure alignment with the trade and tourism agenda. Our performance is set out below, focusing on expanding our international reach, stimulating regional growth and collaborative partnership developments.

Expanding our international reach

Our five international airports were the main contributors to our network’s connectivity and traffic growth in the year under review. However, over 80% of the traffic growth at these airports can be attributed to the domestic market. The exponential growth of low-cost airlines within South Africa’s golden triangle (Johannesburg, Cape Town and Durban) was a major growth driver, which also reflects a promising revival of domestic tourism.

The challenges faced by SAA continue to affect connectivity through our airports. This has compelled us to focus on intra-regional connectivity to ensure our airports maintain consistent quality connections into the African continent. The continuous expansion of foreign carriers into our three main airports – despite our country’s poor economic performance over the past two years – demonstrates confidence that our market will provide healthy returns on their investments.

Stimulating regional growth

Stimulating regional growth remains a challenge. Many route opportunities within our network are suited for regional airline operators, with smaller aircraft that align to demand dynamics. Some regional airlines have in the recent past struggled with regulatory compliance, resulting in grounding of the airline. This causes capacity shocks and constrains air traffic growth.

The continuing challenges faced by local and neighbouring countries’ regional airlines such as SA Express, Fly Cemair, Air Namibia and Air Botswana among others, has eroded the quality of connections into and between smaller cities. SA Express and Fly Cemair have, however, recovered from their subsequent grounding by the SACAA.

The following outlines developments during FY2019/20 at our three international hubs:

O.R. Tambo International Airport Cape Town International Airport King Shaka International Airport
New connections to Central and West Africa through Togo-based, ASKY Airlines, daily to South Africa, with departure split between Libreville (Gabon) and Doula (Cameroon)
First direct non-stop connection to New York and Cape Town International Airport established on a seasonal basis, from December to March by United Airlines. As a result, Cape Town will now have direct access to one of the largest outbound tourism markets in the worldKing Shaka International Airport was the fastest growing airport within our network in the year under review, with over 90% of the growth attributed to the domestic market
New connections to Madagascar through Air Madagascar twice weeklyIncreased connections by Qatar Airways of three additional weekly frequenciesIncreased connections by Air Mauritius, from three to four frequencies per week
Increased connections by Singapore Airlines and Alitalia, improving O.R. Tambo International Airport’s connectivity to Singapore and ItalyNew connections by WestAir aviation with the launch services between Cape Town International and Eros Airport via Oranjemund Airport in Namibia four times a week. This will replace some of the capacity removed by Air Namibia on the Cape Town International to Hosea Kutako International route. In addition, in December 2019, WestAir launched its scheduled service from Ondangwa via Eros Airport in Windhoek to Cape Town.Increased connection by Emirates, adding three to four weekly flights between Dubai and Durban, which has encouraged the continued growth of domestic and international travel into Durban
Increased connections by Qatar Airways with seven additional weekly frequencies to O.R. Tambo International Airport growing South Africa’s, particularly Johannesburg’s, access to Qatar’s global network, which could potentially boost the growth of international tourist arrivals
Pro-flight has committed to a new link between O.R. Tambo International Airport and Ndola in Zambia, enhancing Zambia’s Copperbelt connectivity and access to global markets

During the year under review, SA Express expanded its domestic route network with the launch of three new routes to the Eastern Cape: Cape Town and East London (four weekly flights), East London and Mthatha (three weekly flights) and Mthatha and Cape Town (three weekly flights). These new routes highlight the airline’s commitment to connect primary and secondary markets to stimulate tourism.

Furthermore, Fly Cemair’s return to service saw the reinstatement and expansion of the Cape Town and Plettenberg Bay, Johannesburg and Plettenberg Bay, Johannesburg and Margate as well as Johannesburg and Sishen routes. These routes will continue to enhance connectivity at two of our largest airports.

Between bigger airports, the direct links secured two to three years ago continue to grow from strength to strength, where most of the services are operating more than four flights per week. We continue to work in partnership with stakeholders in trade and tourism to develop and implement promotion programmes to support the longterm sustainability of these routes.

Collaborative partnership developments

Our partnerships with stakeholders including Wesgro, Dube TradePort and South African Tourism on trade and tourism has supported route development efforts in South Africa.

Gauteng route development

As the project lead for Gauteng route development, we continue to work closely with the Department of Tourism and South African Tourism to execute the route development plan. The structure, however, is far from what was initially envisaged due to outstanding commitments from the provincial government. Nonetheless, committed stakeholders continue to drive the project and execute on activities of common interests, including joint industry event participation, destination marketing led by South African Tourism as well as joint airline meetings.

Cape Town Air Access

The structure developed a preliminary plan to guide Air Access for Cargo, to enhance the seamless flow of goods, grow the province’s exports and attract investment within the airport precinct. We have resolved to make an in-kind contribution, to ensure greater transparency and good governance.

Durban Direct

The Durban Direct coordination team is currently in the process of revising the airlift strategy with a five-year horizon to effectively focus on key strategic markets for the province and the airport. The successful execution of the joint destination marketing campaign in FY2019/20 has laid a blueprint for future collaboration.

Nelson Mandela Bay airlift

The establishment of a route development structure to support the growth of our fourth largest airport in Port Elizabeth in partnership with Nelson Mandela Bay Metropolitan has been essential in growing our footprint in the Eastern Cape. Our coordinated approach on airlift in Nelson Mandela Bay Municipality led to the establishment of a direct link between Port Elizabeth and Lanseria, in partnership with Mango. Even though the service was later terminated due to poor performance, the prospect for new destinations into Nelson Mandela Bay Municipality remains promising. In the year under review, we also finalised the airline support incentive scheme and destination marketing strategy, fully funded by Nelson Mandela Metropolitan, which promises outcomes to the benefit of all stakeholders.

NON-CORE REVENUE

Our non-core revenue, from business development advisory and consultancy, for the year under review generated R24.4 million. Revenue from advisory services fees to Pietermaritzburg Airport amounted to R1.5 million, fees derived from Mumbai International Airport Limited’s airport operator agreement total R18.7 million and our contract with Zambia Airports Corporation Limited for operational readiness and airport transfer, amount to R4.2 million. In additon our training academy generated revenue of R2.5 million from the provision of external training services.

Developing expertise in advisory services

We are pursuing value creation opportunities by leveraging our extensive human capital, institutional knowledge and experience to provide technical consulting support to emerging operators. During the year under review, these included providing operational readiness support at Roberts International Airport in Monrovia to the Liberia Airports Authority and at Kenneth Kaunda International Airport in Lusaka, Zambia for Zambia Airports Company Limited. We provided advisory and technical services to Bugesera Airports Company for Bugesera International Airport in Kigali, Rwanda. In South Africa, we provided advisory and technical services to the Msunduzi Municipality for Pietermaritzburg Airport, Gateway Airports Authority Limited for Polokwane Airport, Eastern Cape Department of Transport for Mthatha Airport, City of Tshwane Metropolitan Municipality for Wonderboom Airport and City of uMhlathuze Municipality for Richards Bay Airport. We undertook a technical assessment of King Moshoeshoe International Airport in Maseru for the Lesotho Department of Transport.

Commercialising our training academy

Throughout the year we focused on developing a business case for the commercialisation of the training academy through the collaboration with various stakeholders. The strategic intent of the academy has evolved from focusing on internal revenue growth to encompass a wider role in the aviation sector through establishing an industrywide training academy that is focused on improving aviation skills within the country, region and the continent. The training academy will be based in Johannesburg with satellite campuses in various provinces where we operate airports. The Swartklip site has been identified for the Cape Town satellite campus. The campus is in the final stages of preparation and will be ready for use within the first quarter of the new financial year. In the year ahead, we commence the design phase of the Johannesburg facility, with execution expected in 2023. A proof of concept platform has been secured that will enable ecommerce, authoring of new courses as well as deployment of online learning. The platform will be launched in the new financial year with online courses built in-house.

Various partners have been identified to ensure credible execution of the training academy. These include:

  • KZN aerotropolis: Partnering with UKZN in order to deliver industry-specific master classes as well as develop industry-specific undergraduate and postgraduate qualifications
  • TVET colleges: Developing airport maintenance-specific electives that will form part of artisan training
  • Industrywide academy: Cooperation is being sought from ATNS and Comair

In addition to these non-core revenue opportunities, we have been shortlisted to bid for the Madagascar Airports Development Project which includes operations, maintenance and development work for 10 of their airports through a 20-year joint venture arrangement with Aeroports de Madagascar, the Madagascan airports authority. In December 2019, we also signed a memorandum of understanding with the Federal Airports Authority of Nigeria to collaborate on airport operations and services.

EQUITY INVESTMENTS

Equity investments present an opportunity for us to expand our footprint beyond South African shores. We currently have equity investments in India through the Chhatrapati, Shivaji International Airport in Mumbai and in Brazil through the Guarulhos International Airport in São Paulo.

India

The demise of Jet Airways in India in February 2019 led to a loss of aeronautical and non-aeronautical revenues in our equity investment, Mumbai International Airport. In FY2019/20, the airport generated losses of R161 million, by processing 36 million passengers.

In the year under review, however, we signed a sale and purchase agreement for Mumbai International Airport Private Limited (MIAL) shares. The sale process is still underway with the two options still in place to sell to third parties.

Brazil

The collapse of Avianca, a Colombian airline, has had a negative impact on aeronautical and non-aeronautical revenues in Brazil. For the FY2019/20, Guarulhos International Airport generated a loss of R$874.4 million and processed 44.3 million passengers.

OUTLOOK

Looking ahead, FY2020/21 is likely to be a challenging year for the aviation industry and consequently for the airports business, due to the negative impact of COVID-19 on air travel. On the continent, the spread of the virus is still new and rising and it is likely to peak only in the winter months of June to August. Based on the current significant drop in passenger numbers, this picture does not bode well for our operations, as the peak will be right in the middle of FY2020/21.

The significant negative impact we experience is likely to be amplified on relatively smaller networks which do not have our local geographical spread and which are dependent on inbound traffic from foreign travellers. Therefore, we are likely to see existing airport projects being stopped or slowing down due to enforcement of measures to slow the spread, and a postponement of new projects as the business cases are being reviewed and rebased.

At this stage it may be too early to assess the full impact of the pandemic. Strategic initiatives that could be explored to salvage the situation include the following. In terms of services and investments, a formal partnership with an airline alliance such as Star Alliance may help us pursue international business. We may also be able to identify a tenth airport to be built or bought. We could possibly leverage off government’s bilateral agreements and loans for securing projects. This situation might encourage us to identify non-core revenue-generation opportunities along our value chain.

In traffic development, we are considering new links between South Africa and several destinations including, Portugal (Lisbon), South East Asia (India and Thailand), Australia (Melbourne and Perth), Ivory Coast (Abidjan), São Paulo/Buenos Aires, Morocco (Casablanca), East Europe/ Scandinavia region. We could explore a self-connect platform for our main airports in partnership with our airline partners for seamless connectivity through our airports and better passenger experience. Opportunities exist in Bram Fischer Airport as an anchor between coastal and inland airports as well as for cargo and route development programme development.

The emergence of COVID-19 has exacerbated the situation as countries implement partial and complete shutdowns as a mechanism to curb the spread of the pandemic. Based on this new occurrence, our equity investments are expected to experience significant challenges in FY2020/21.