Air Transport Aviation Ground-Handling Services South Africa

Introduction

• The passenger and cargo air transport industry has been brought to the brink of collapse during the pandemic.
• Its recovery has been hampered by high ticket prices due to the collapse of airlines, which reduced capacity, and soaring fuel prices.
• With the failure of Comair, SAA and SA Express and the grounding of low-cost airlines, the air transport landscape has changed significantly.
• The industry faces consumer demand supressed by high inflation, low economic growth and poor business confidence.
• FlySafair, Airlink and CemAir strengthened their positions in 2022.
• Air cargo airlines have recovered more quickly than passenger airlines, private business jet airlines have grown and the private charter industry has been resilient.

Strengths

• Air Traffic and Navigation Services has jurisdiction over 10% of the world’s air space and so plays a key role in the global aviation sector.
• South Africa has a strong air charter and aircraft leasing industry, with growing business jet charter markets.
• South Africa has an established air transport industry, which has a sound safety record and is well-regulated.
• South African flight schools are highly regarded and attract cadet pilots from all over the world.
• South Africa’s domestic and regional air connectivity is the highest in Africa through its extensive airport network and domestic capacity to service Southern Africa through scheduled flights, charter flights and air shuttle services.
• The aviation industry is an economy multiplier, supporting tourism, trade, commerce and industry and generating jobs across the value chain.
• The country’s major airports are of a high standard.

Weaknesses

• High operating costs.
• South Africa is a long-haul destination, placing the air transport industry at a cost disadvantage.
• The inability to attract and retain highly skilled staff, especially pilots. There is a shortage of professionals with the requisite expertise and experience.
• There is a low level of transformation of licensed aviation personnel such as pilots and maintenance engineers.

Opportunities

• Greater use of drones in commercial applications.
• Implementation of the Single African Air Transport Market initiative of the African Union may liberalise continental air transport markets, reduce ticket prices and increase air connectivity in Africa.
• Opportunities for local airlines and ground-handling services providers to extend their reach into other African countries.

Threats

• Climate change and the increasing severity and frequency of extreme weather events.
• Domestic political instability leading to further unrest.
• International COVID-19 related travel restrictions continue to plague the recovery of the air transport industry.
• Poor economic growth domestically and regionally dampening passenger and air cargo transport recovery and growth.
• Rapidly rising airport charges as ACSA-owned airports seek to recover from revenue losses and capital expenditure postponements experienced during COVID-19.
• Soaring jet fuel prices due to global shocks.

Outlook

• The air transport industry is attempting to recover from the pandemic with reduced capacity and rising costs in a context of fragile demand.
• The collapse of SAA, SA Express, Mango and Comair have created a gap, and airlines that have been able to manage costs and access capital to expand capacity have begun to do so.
• FlySafair, Airlink and CemAir strengthened their position while Lift Airline launched during the pandemic.
• The return of SAA as a smaller airline will facilitate the recovery of domestic, regional and international routes.
• Air cargo operations, general aviation and drones are areas of opportunity and growth.
• Air cargo growth is reliant on economic and trade growth.
• Airport and air navigation infrastructure development was dealt a blow by the pandemic and expansion is dictated by budgets.

Introduction

South Africa’s civil aviation industry is made up of airlines, airports and an array of support services, such as air traffic and navigation services and ground handling. Prior to the coronavirus pandemic, 25.65 million passengers departed from South African airports and more than 500,000 tons of airfreight was handled in 2019. The air transport industry and its value chain generated total revenue of around R85.64bn (US$5.2bn) , with air transport-dependent tourism contributing a further R70.82bn (US$4.3bn) to the South African economy. The sector stimulated economic activity and enabled domestic, regional and international trade and tourism. The pandemic lockdown that started in March 2020 grounded thousands of aircraft globally and severed air service connections between cities worldwide. Passenger departures from South African airports plunged by 78% in 2020 and revenues generated by the air transport industry and its value chain nose-dived by 49% to R36.23bn. Although the reopening of the skies has brought ameasure of relief, aviation has been dealt a harder blow than most other sectors and is in crisis. Stakeholders say that urgent interventions are needed to save the sector, which has provided vital services during the pandemic and in the aftermath of recent civil unrest.

Strengths

• Air Traffic and Navigation Services has jurisdiction over 10% of the world’s air space and so plays a key role in the global aviation sector.
• South Africa has an established aviation industry, which has a sound safety record and is well-regulated.
• South African flight schools are highly regarded and attract cadet pilots from all over the world.
• The aviation industry is an economic multiplier. It supports tourism, trade, commerce and industry, generating jobs across the value chain.
• The country’s major airports are of a high standard.

Weaknesses

• High operating costs.
• Inability to attract and retain highly skilled staff at state-owned entities.
• South Africa is a long-haul destination, placing the aviation industry at a disadvantage, as long-haul flights are costly to operate.
• There is a low level of transformation in the industry.
• There is a shortage of professionals with the requisite expertise and experience.

Opportunities

• Greater use of commercial drones, including the possibility of aerial taxis.
• Opportunities in the air transport industry for local airlines and ground services providers in other African countries.
• Single African Air Transport Marketing and the African Continental Free Trade Area agreements will increase connectivity and open up markets on the African continent.
• The training of African cadet pilots and /or the establishment of flight schools and technical training academies in African countries where such institutions are lacking.

Threats

• Climate change and the increasing severity and frequency of extreme weather events.
• Competition from African airlines, notably Ethiopian Airlines, is eroding South Africa’s position as the aviation hub for sub-Saharan Africa.
• Economic pressures, domestically, regionally and globally dampen passenger and cargo volumes.
• Exchange rate volatility.
• Further supply chain disruptions will negatively affect the provision of airfreight services.
• Health risks and continued pandemic-related disruptions on travel and tourism.
• Heightened safety and security risks, both internal and external, from terror attacks, crime, aircraft crashes, accidents, diseases and cyber-attacks.
• The disruptive impact of power interruptions.
• The potential for a resurgence in civil unrest.
• The volatility of the jet fuel price.

Outlook

Introduction

This report focuses on the air transport industry, including passenger and cargo services, and airport ground handling services including operation of airports, flying fields and air navigation facilities, and excluding manufacturing.The air transport industry is a major contributor to the South African economy as it facilitates the movement of passengers and cargo to, from and within the country. Air transport and foreign tourists travelling by air contribute 3.2% of GDP with the local air transport industry employing 70,000 people. 506,000 aircraft movements carry 42 million people and 477,000 tons of cargo to destinations and markets throughout the country and the world. Local industry developments are dominated by the business rescue of national carrier South African Airways (SAA) and the liquidity crisis of its subsidiary South African Express. SAA, SA Express and SAA Technical are included in the commission of inquiry into state capture, corruption and fraud in the public sector. Travel restrictions, airport closures and flight cancellations following the global outbreak of the coronavirus are reducing global air passenger and cargo volumes.

Strengths

• Air Traffic and Navigation Services has jurisdiction over 10% of the world’s air space and so plays a key role in the global aviation sector.
• South Africa has an established aviation industry, which has a sound safety record and is well-regulated.
• The aviation industry is an economic multiplier. It supports tourism, trade, commerce and industry, generating jobs across the value chain.
• The country’s major airports are of a high standard.

Weaknesses

• Dominant position of South African Airways limits new entrants.
• High capital investment and operating costs, which are also deterrents to new entrants.
• Inability to attract and retain highly skilled staff due to reputational damage caused by maladministration.
• South Africa is a long-haul destination, and this places the aviation industry at a disadvantage, as long-haul flights are costly to operate.
• State capture investigations into South African Airways, SA Express and SAA Technical.
• The business rescue of South African Airways and the liquidity crisis at its subsidiary SA Express.
• There is a shortage of professionals with the requisite expertise.
• There is a very low level of transformation in the industry.

Opportunities

• Meeting the leisure and business travel requirements of the growing middle class.
• Opportunities in the air transport industry for local airlines and ground services providers in other African countries.
• Single African Air Transport Marketing and the African Continental Free Trade Area agreements will increase connectivity and open up markets on the African continent.
• The training of African cadet pilots and /or the establishment of flight schools and technical training academies in African countries where such institutions are lacking.

Threats

• Competition from African airlines decreases South Africa’s role as a gateway to the African continent.
• Competition war between legacy airlines and low-cost carriers.
• Exchange rate volatility.
• Heightened safety and security risks, both internal and external, from terror attacks, crime, aircraft crashes, accidents, diseases and cyber-attacks.
• Negative effect of crime and load shedding on tourism could lead to a reduction in airline passengers.
• Negative effect of travel restrictions, airport closures and flight cancellations, due to the coronavirus outbreak, on global passenger and cargo volumes.
• Negative effect of weak economy on passenger and cargo volumes.
• Shortage of pilots.
• Stringent visa requirements and the relatively limited number of air services agreements hinder the country’s ability to attract international travel
• The increasing severity of extreme weather conditions.
• The volatility of the jet fuel price.

Outlook

According to Airports Company of South Africa chairman Sandile Nogxina, the global airline industry continues to face significant challenges as economic activity remains inconsistent. “Between trade war threats, regional political instability, increased competition and flagging economic growth, global air travel no longer promises consistent profitable routes. Moreover, for airport operators, the pressure to become technologically advanced, to be more efficient and streamline the travel process for passengers has intensified, requiring coherent planning and capital expenditure to stay relevant”.The International Air Transport Association forecasts that South Africa, Nigeria and Kenya are the top three aviation markets in Africa where growth is expected to be the strongest over the next two decades. South Africa has the potential to grow from 25 million to 53 million passengers by 2038, while in Kenya the market is forecast to increase from 7 million to 21 million and in Nigeria from 8 million to 20 million. However, it said that South Africa needs to overcome economic and political headwinds, reform its immigration policies, reduce charges, and undertake a widespread strategic approach to transport and aviation planning.Chris Zweigenthal, chief executive of the Airlines Association of Southern Africa states that the biggest challenge facing the airline industry in Southern Africa is sustainability and implementing strategies to return airlines to profitability, or maintain profitability, under very difficult current trading conditions. “Airlines will need to find means to reduce costs, increase productivity and increase aircraft utilisation and yields in an environment where economic growth in South Africa and within the Southern African region is lower than the rest of Africa and currently lower than the global average.”Arjan Meijer, chief commercial officer at Embraer Commercial Aviation, states that “the market in Africa presents significant opportunities for airlines to deliver the connectivity that the whole continent needs. Aircraft however should be right sized to develop those routes profitably; more than 90% of intra-African flights depart with fewer than 150 passengers onboard. And more than 70% of markets are served with less than one flight per day.”

Introduction

Aviation is a key part of the economic lifeblood of South Africa, transporting people and goods across and outside the country, and stimulating economic activity, job creation, tourism and trade. Research indicates that 482,453 aircraft movements, 41.5 million passengers and 110,000 tonnes of cargo contribute approximately R50bn to South African GDP. The local industry is currently dominated by the precarious financial situation at national carrier South African Airways (SAA) and the grounding of its subsidiary South African Express.

Strengths

• South Africa has an established aviation industry, which has a sound safety record and is well-regulated.
• South Africa is a key regional air transport hub, connecting Southern African countries to international markets, as well as to other countries on the continent.
• The Air Traffic and Navigation Services SOC Ltd (ATNS) has jurisdiction over 11% of the world’s air space and thus plays a key role in the global aviation sector.
• The aviation industry is an economic multiplier. It supports tourism, trade, commerce and industry, generating jobs across the value chain.
• The country’s major airports are of a high standard.

Weaknesses

• Dominant position of the national carrier South African Airways limits new entrants.
• High capital investment and operating costs, which are also deterrents to new entrants.
• Inability to attract and retain highly skilled staff due to reputational damage caused by maladministration.
• The remoteness of South Africa’s ‘end-of-hemisphere’ location places the aviation industry at a disadvantage, as long-haul flights are more costly to operate.
• The unstable state of the national carrier South African Airways and the grounding of its subsidiary SA Express.
• There is a shortage of professionals with the requisite expertise.
• There is a very low level of transformation in the industry.

Opportunities

• Meeting the leisure and business travel requirements of the growing middle class.
• Opportunities in the air transport industry exist for local airlines and ground services providers in other African countries.
• Single African Air Transport Marketing agreement will increase connectivity and open up markets on the African continent.
• The training of African cadet pilots and /or the establishment of flight schools and technical training academies in African countries where such institutions are lacking.

Threats

• Competition from African airlines decreases South Africa’s role as a gateway to the African continent.
• Competition war between legacy airlines and low cost carriers.
• Exchange rate volatility.
• Heightened safety and security risks, both internal and external, from terror attacks, crime, aircraft crashes, accidents, diseases and cyber-attacks.
• Negative effect of weak economy on passenger and cargo volumes.
• Shortage of airline pilots and recruitment of South African pilots by international carriers.
• The increasing severity of extreme weather conditions.
• The volatility of the jet fuel price.

Outlook

The International Air Transport Association (IATA) has forecast that the number of air passenger journeys to, from and within South Africa will more than double from the 23.6 million in 2016 to more than 54 million by 2036, resulting from an average annual growth rate of 4.3% in the country’s local and international air travel, significantly above the expected rate of 3.5% for the aggregated global industry. Airports Company South Africa (ACSA) estimates that its future airport expansion plans will create an additional 330,000 job opportunities to 2023, adding as much as 0.7% to the South African GDP on an average annual basis. Comair’s CEO, Erik Venter, sees implementing air traffic liberalisation in Africa as part of the Single African Air Transport Marketing (SAATM) agreement as being widely beneficial. “South Africa’s aviation sector is hampered by sluggish economic growth and any improvement in those conditions would benefit the sector. Open Skies is likely to stimulate competition and demand on air routes within Africa and between the continent and the world, and could trigger significant growth for airlines and related sectors such as cargo, tourism, business travel and meeting friends and family. But Open Skies may well increase competition: airlines like Comair, which are already efficient and competitive, would probably cope well. Those airlines which are inefficient or are sustained artificially would probably fare less well.”

Introduction

This report focuses on the civil aviation industry in South Africa, within the broader context of intra-African and international air transportation. The sector includes the scheduled air transport industry, which comprises both passenger and cargo services, as well as general aviation, incorporating the charter flight industry and recreational aviation activities. Airport ground handling, described by some stakeholders as the ‘step-child of the aviation industry’, is also covered in this report. Notwithstanding its ‘end-of-hemisphere’ disadvantage, South Africa, which oversees over 10% of the world’s airspace, is regarded as a key regional aviation hub. With total revenue generated across the entire South African aviation value chain estimated to be in the region of R80bn, the sector is regarded as a vital catalyst for economic activity, as well as a key driver of both trade and tourism.

Strengths

• South Africa has an established aviation industry, which has a sound safety record and is well regulated.
• South Africa has jurisdiction over 10% of the world’s air space and, as such, plays a key role in the global aviation sector.
• South Africa is a key regional air transport hub, connecting Southern African countries to international markets, as well as to other countries on the continent.
• The aviation industry is an economic multiplier. It supports tourism, trade, commerce and industry, generating over 200,000 jobs across the value chain.
• The country’s major airports are of a high standard.

Weaknesses

• Although there has been a reduction in theft, baggage mishandling and pilferage continue to tarnish the image of the ground handling services sector.
• Given the high level of risk associated with the industry, institutional funding is difficult to procure.
• Operating costs are high.
• The remoteness of South Africa’s ‘end-of-hemisphere’ location places the aviation industry at a disadvantage, as long-haul flights are more costly to operate.
• The sector is uncompetitive. Passenger fares are generally high, particularly on secondary routes. The airfreight segment is also uncompetitive.
• There is a relatively low level of transformation in the industry.
• There is a shortage of professionals with the requisite expertise.

Opportunities

• Meeting the leisure and business travel requirements of the growing middle-class.
• Opportunities in the air transport industry exist for local airlines and ground services providers in other African countries.
• South African airports are well positioned to serve as gateways into sub-Saharan Africa’s developing economies.
• The provision of intra-African aero-medical evacuation services.
• The training of African cadet pilots and /or the establishment of flight schools and technical training academies in African countries where such institutions are lacking.

Threats

• An escalation in geopolitical tensions worldwide; acts of terrorism, including cyber hijacking.
• Exchange rate volatility.
• South Africa’s regional dominance is under threat from Ethiopia, Kenya, Nigeria and Angola.
• The increasing severity of extreme weather.
• The spread of highly contagious diseases, such as the Zika virus and yellow fever.
• The volatility of the jet fuel price, which, for most airlines, currently represents more than 30% of their total operating costs.

Outlook

South Africa’s beleaguered national carrier continues to face considerable challenges. While many stakeholders are confident that Treasury will provide yet another bail-out to the airline, several commentators believe that SAA is on the cusp of a radical overhaul. With the possible merger of state-owned airlines still on the agenda, some analysts say that given SAA’s R15bn debt burden, the disposal of various state assets remains the only feasible option available to the government. Although cheaper jet fuel and the relaxation of visa regulations have provided South Africa’s aviation industry with a measure of relief, stakeholders warn that the turbulent economic climate will continue to pose a significant threat to the sustainability of the country’s airline operators. With the escalation of geopolitical tensions and the threat of terrorism, security is expected to remain the key focus of airport ground handling services.