How secure is OR Tambo's hub status and what its expansion means for travellers?

2019-09-19 04:45
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Passenger airplane landing at dusk

(Photo: iStock)

Airports Company South Africa (Acsa) is a well-run state owned company, one of the very few. But as it reports on its financials for the past year, travellers may be wondering what effect its short and medium term goals will have on them and their travelling options.

Crucial to Acsa's agenda is the focus on becoming digitally driven, along with new route development and passenger capacity expansion.

The parastatal has been able to report revenue of R7.1-billion, EBITDA of R2.8-billion and profit of R227-million for the financial year to 31 March 2019. Acsa has repaid R2.3bn of its debt over the last year - reducing overall debt to R6.6-billion, as some R10.5-billion has been repaid over the past six years. The weighted average cost of debt now stands at 9.13% with gearing at 18%, says Acsa. The integrated annual report for Airports Company South Africa can be viewed and downloaded here.   

In a year of significant challenges, revenue earnings increased by 5.6%, even with its profit margin down by 58.9%.

Doubling of costs for regulatory amendments and heightened security 

Acsa also experienced some significant cost pressures, "specifically in relation to security services which rose by more than 50% as a result of regulatory amendments and heightened security measures implemented during the year".

“However, key positives remain," says Acting Chief Executive Officer Bongiwe Mbomvu.

"We have now produced a profit in all but one of the 26 years since the company was formed. We also received an unqualified audit and are proud of our record as a well-run state owned company that has never needed government support or guarantees.” 

Mbomvu said the weak South African economy affected passenger numbers and viability of some local airlines, thereby impacting revenue from commercial activities. While South Africa’s GDP growth has remained at around 1% a year, Airports Company South Africa grew departing passenger numbers by 1.3% to 21 118 264.

“Such a major reduction in profit is very disappointing as much of our increased costs had a direct impact on our bottom line. That we were still able to report profits is testament to the effort and commitment shown by our employees across the nine airports that we own and manage in South Africa,” says Mbomvu.

Mbomvu remains positive in terms of the outlook for Acsa in both the short- and medium-terms.

“We are filled with optimism for the modern, digitally driven airport business we are developing and the important transformative role we can play in South Africa,” she says.

“While we have faced challenges in dealing with reduced tariffs affecting our aeronautical revenue, attrition in the global airline industry and a tough global economic backdrop, we enter 2020 with a balance sheet that is in good shape and confidence in our operating model, our global opportunities, our reputation and our capabilities.”

So what are the short-term goals?

Acsa says it is engaging various airlines to introduce new regional and long-haul intercontinental services from OR Tambo International Airport (ORTIA). East Asia and Latin America are priority markets, and the airport operator plans to have confirmed, or be close to securing, a new non-stop link with both regions by mid-2020.

The developments are part of a broader campaign to strengthen the Johannesburg airport’s hub status.

“Considering our location, we, with other relevant stakeholders in trade and tourism, are working closely with incumbent and prospective carriers to enhance connectivity between Latin America and Asia Pacific,” Acsa's Betty Maloka states.

Other opportunity markets and routes identified by Acsa include Thailand (Bangkok and Phuket), North America (Toronto, Miami/Philadelphia), Buenos Aires, Australasia (Melbourne, Auckland), Mainland China (Shanghai, Fuzhou, etc) India (Mumbai and New Delhi), the Nordic region (Copenhagen, Finland, Stockholm), Iberia Peninsula (Spain and Portugal), Brussels, Hamburg and Dusseldorf.

“The collaboration will ensure that ORTIA remains an important hub in the Southern Hemisphere, offering seamless connectivity between southern Africa and key global destinations. Some discussions with prospective airlines are still ongoing,” Acsa says.

New routes will mean greater choice for local travellers. It also encourages trade between South Africa and other priority markets, says FCM General Manager Nicole Adonis.

Adonis states, “Direct services and flight options offering good onward connections across Europe, the US and Asia, provide a seamless travel experience. Corporate travellers, especially, are prepared to pay more for a direct flight, because time is a commodity.”

Is Johannesburg’s hub status secure?

ORTIA remains the busiest airport in Africa. ACSA forecasts 42.8-million passengers across its network in 2019/2020 (13.1-million international and 29.6-million domestic). From Johannesburg, it expects 21.7-million passengers, 10.1-million international and 11.5-million domestic.

Chris Zweigenthal, Chief Executive of the Airlines Association of Southern Africa (AASA), said the prognosis for Johannesburg’s hub status was hinged on factors such as yield management, connecting traffic and economic growth.

He says, “Hub status is a location within a particular geographical region. Economic activity, geographical location, feeder connections, passenger numbers, all of it,” contribute to a city or airport hub status.

“OR Tambo International Airport is situated in probably the biggest business centre in southern Africa and has traditionally always been the gateway,” Zweigenthal says. He explained travellers could hub out to all the regional destinations.

Cape Town has traditionally only been the second major destination in South Africa, said Zweigenthal, but never a hub. However, the airport’s development and Wesgro bringing other international airlines in, its status as a potential hub is rising.

“Capacity generally reflects demand, and we expect growth in other markets will see airlines positioning more aircraft in other parts of the country and on the continent. However, we don’t foresee a reduction of seats or shift away from ORTIA,” Adonis said.

Acsa said the introduction of new long-haul services to and from airports in Cape Town would not cost ORTIA seats. The company has also concluded a Memorandum of Understanding with South African Tourism that will offer support to potential new carriers.

Initiatives to improve the passenger experience

“There is coordination and continuous assessment of any potential impact. The impact is only in the short-term as a direct link displaces the domestic segment passengers. However, medium to long term, the impact is positive, as local demand is able to close the gap with ease,” says Acsa.

ORTIA recently also introduced other initiatives to improve the traveller experience, Adonis noted. “The airport introduced enhanced self-service check-in facilities in line with IATA’s Fast Travel Concept, and it was the first airport in Africa to implement the Smart Security checkpoint. As long as ORT maintains its focus on enhancing the experience of the traveller, we believe Johannesburg won’t lose its appeal as the hub of Africa.”

Johannesburg’s hub status could develop quite significantly, said Zweigenthal. However, he cautioned, "We have to get the economic situation right. It is stable but, to improve, it is going to take economic growth, and we have got to encourage everyone to market South Africa. Everyone has got to do their bit.” 

*Compiled by Selene Brophy

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