Comair response to proposed 100% ACSA fee increase

28 January, 2010

The proposal by the regulator for a 100 percent increase in airport charges over two years threatens the growth of air travel in South Africa and will have a negative knock on effect on tourism and the broader economy.  Like Eskom, ACSA is calling on users of its airports to fund its financial shortfall. In the past few years ACSA has made profit margins of over 24 percent and has paid billions of rands worth of dividends to its shareholders - which include government, the PIC and ACSA management.  ACSA fees that impact on air ticket prices include the passenger charge, landing fees and rentals. The proposed increases would take these charges to R159 per passenger (see table below). When you consider that a low cost flight between Johannesburg and Durban costs only R300, ACSA charges will make up more than half the cost of this ticket.

As airlines, we support the upgrading of terminals at OR Tambo and Cape Town International Airports which have been long overdue. We too feel proud of the modern airport facilities when we arrive back into South Africa after a trip overseas. The level of spend, however, on ACSA's projects has been excessive, not only at planning stage but also in terms of overspends relative to plan.  The clearest example is the new La Mercy Airport in Durban which, when completed, will have cost over R7billion (the original proposal was R3billion).  The current Durban Airport (DIA) is perfectly functional and has significant growth capacity.  New 'low cost' terminals overseas, like the one in Kuala Lumpur, Malaysia, are being constructed at a fraction of the cost of ACSA airports.  These airports have limited retail offerings and focus on self-service check in kiosks rather than large banks of expensive check-in counters. Ryanair, one of the most successful airlines in the world, carries almost 50 million passengers a year around Europe, mostly to low cost, affordable airports.

Ultimately, only free competition will determine whether ACSA's rates are fair or not. Lanseria Airport offers Johannesburg and Pretoria based travellers rates that are significantly lower than OR Tambo Airport. currently operates more than half of its flights from the privately owned airport located to the north west of Johannesburg.  Comair recently put forward a proposal to ACSA to purchase Durban Airport so that residents of Kwazulu Natal could enjoy a choice between two airports.  The response from ACSA is that competition will not be allowed.  In a freely competitive environment it is unlikely that airlines will be able to contemplate the 100 percent proposed increase in an industry where margins are consistently under pressure, especially in the current economic environment. In Europe, Zurich Airport is planning free off peak landing and parking fees to help retain their competitive position.

Currently only 10 percent of South Africans can afford to travel by air each year.  Only with affordable air ticket prices and airport charges will more South Africans have the opportunity to travel by air.  Our tourism industry, which according to SA Tourism, contributes eight percent to our GDP, also depends on affordable air travel into and around our country.  ACSA’s financial shortfall should be funded by its shareholders, not air travellers. The Airlines Association will continue to work very closely with the regulator to promote a healthy industry and protect the interests of air travellers in South Africa.

ACSA charges affecting air travelersCurrentProposed
Passenger charge R49 R98
Landing fees R29 R58
Rentals and other costs* R3 R3
Total R81 R159
Percentage of low cost domestic airfare (R300) 27% 53%
Percentage of average domestic airfare (R750) 11% 21%

Fast facts on airport charges issue

Dividends paid by ACSA over the past 5 years R1.9billion
Estimated useful life of current Durban airport More than 10 years
Average profit margin of ACSA over the past 5 years 24%
Estimated average profit margin of South African airlines over the past 5 years minus 9%
Growth of air travel in South Africa over past 12 months minus 8%
Proposed ACSA fee increase over 2 years 100%