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Premium member Presentation Transcript Slide1: ANNUAL NATIONAL TOURISM CONFERENCE “Strengthening the Interdependence of Tourism and Aviation” AN AIRLINE INDUSTRY PERSPECTIVE ON THE CHALLENGES IMPACTING ON TOURISM GROWTH AND THE WAY FORWARD SANDTON CONVENTION CENTRE Monday 29 October 2007 PRESENTATION BY : Chris Zweigenthal, Deputy Chief Executive, Airlines Association of Southern Africa OUTLINE: OUTLINE INTRODUCTION Objective of presentation MARKET GROWTH AND AIRLINE DEVELOPMENT CHALLENGES IN AIRLINE SECTOR AFFECTING TOURISM GROWTH AIRPORT INFRASTRUCTURE CONCLUSIONINTRODUCTION: 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 tourismMARKET GROWTH AND AIRLINE DEVELOPMENT: 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.MARKET GROWTH AND AIRLINE DEVELOPMENT (cont.): 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 2006MARKET GROWTH AND AIRLINE DEVELOPMENT (cont.): MARKET GROWTH AND AIRLINE DEVELOPMENT (cont.) Statistics Courtesy of ACSA and ATNS and TRL report. (Statistics shown in million passengers for all ACSA airports)CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM GROWTH: 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 marketsCHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM GROWTH: 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.CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM GROWTH (cont.): 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 passenger’s 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)CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM GROWTH (cont.): 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 profitabilityCHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM GROWTH (cont.): 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.CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM GROWTH (cont.): 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)CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM GROWTH (cont.): CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM GROWTH (cont.) BILATERAL CONSTRAINTS ? (cont.) FOREIGN RSA COUNTRIES WITH UNLIMITED FREQUENCIES UNLIMITED 63 48 (Information provided courtesy of DOT)CHALLENGES OF AIRLINE INDUSTRY AFFECTING TOURISM GROWTH (cont.): 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.AIRPORT INFRASTRUCTURE AVAILABILITY: 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 requirementsCONCLUSION: 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 DOT’s Airlift Strategy and implement in partnership with all stakeholders ensuring: Airlines are aware of the State’s 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.CONCLUSION (cont.): 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! You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.