Airline industry slowly recovering from lockdown

Figures from the Airports Company South Africa (Acsa) show that the airline industry is recovering very slowly from the travel restrictions imposed by governments worldwide during the last two years.

Importantly, the number of flights taking off and landing at SA airports proves that international travel has hardly improved – and, by implication, neither has international tourism.

“The aviation industry was one of the industries that was hit the hardest by the Covid-19 pandemic. The various lockdowns we experienced and the travel bans that were instituted had a significant impact on the overall aviation sector,” says Refentse Shinners, group executive of corporate affairs at Acsa.

“However, we are seeing a steady recovery, but global projections suggest that we will only see a return to pre-pandemic numbers in 2025.”

She adds: “We have recorded an increase in the number of flights compared to our previous financial year. In the financial year ending March 2021, we had a total of 199 662 air traffic movements, and we are currently on 245 436 air traffic movements 11 months into the 2022 financial year.”

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If the trend continues, Acsa will see close to 270 000 aircraft using its airports in the current financial year, an improvement of some 35%.

Acsa CEO Mpumi Mpofu said in her overview in the group’s most recent annual report that traffic volumes remained significantly below pre-Covid-19 levels throughout the financial year to end March 2021.

“Total departing passengers decreased by 78.2% to 4.5 million (20.9 million in the previous year) with domestic passengers down by 72.3% to 4.0 million, regional passengers down by 92.9% to 37 189 and international passengers down 92.9% to 412 322 (2019/20 year: 5.8 million).”

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However, passengers using unscheduled flights increased nearly 70% to 97 109 as a result of repatriation flights that were permitted to operate during lockdown.

In total, air traffic movements decreased by nearly 60% during the year to end March 2021.

This ruined Acsa’s financial performance.

Usually one of the few SA state-owned companies that reports steady profits – from operating the country’s major airports and collecting the high rents from shopkeepers there – Acsa suffered a loss of nearly R2.6 billion in the year to March 2021. It reported a profit of close to R1.4 billion in the 2020 financial year (which was already affected by Covid-19).

International fights

An analysis of the recent figures that Acsa supplied in answers to Moneyweb’s questions show that international air traffic movements are still very low compared to normal levels.

Acsa notes that global travel restrictions brought on by Covid-19 continued to pose “serious challenges” to air traffic recovery. It estimates that global traffic in 2022 will be up to 50% lower than pre-pandemic levels.

“Countries that have achieved high rates of vaccination are showing signs of recovery. However, a sustained global traffic recovery will be realised only with an acceleration of vaccination campaigns,” notes Acsa chair Sandile Nogxina in his statement in the latest annual report.

“The aviation industry has been one of the sectors most affected by the pandemic as it triggered a complete market collapse at the start of the pandemic. Although there has been a gradual recovery in the market, it is tenuous and uncertain, a situation that will continue until wide-scale global vaccination has been achieved.

“The collapse in air travel demand has been driven largely by public policy as governments worldwide implemented travel bans and border closures as part of containment measures to curtail the spread of the virus,” he says.

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The figures support his views. In the 12 months to March 2020, Acsa reported 76 824 international air traffic movements, which fell to only 20 457 in 2021.

It has recovered since, but by not much. In the last 11 months, international flights increased to 32 372 air traffic movements. This is still more than 50% lower than normal levels.

“Air travel, by its nature, involves people from the four corners of the earth coming together in close proximity and with multiple touch points. These factors not only represent inherent risks, but severely impact potential passenger’s sentiment towards air travel,” says Nogxina.

Acsa points out that the International Air Transport Association (Iata) estimates that airlines will lose $314 billion in revenue this year as revenue will decrease 55% compared to normal pre-Covid-19 levels.

Long road

The decrease in Acsa’s revenue of nearly 70% (to R2.2 billion in financial 2021 versus R7.1 billion in 2020) indicates that the road to recovery will be long.

“Multiple lockdowns affected revenue hardest owing to lower passenger numbers and aircraft movements that created massive revenue losses since the beginning of the financial year,” notes management.

Aeronautical revenue – things such as landing fees and services paid by airlines – fell by “an unprecedented” 78% to R810 million in the last financial year compared to R3.7 billion in the previous year.

Without passengers passing through airports and families saying their goodbyes, non-aeronautical revenue declined too. In essence, Acsa was unable to collect rent from retailers in what is essentially its shopping malls at airports when they were not allowed to trade.

Non-aeronautical revenue declined by 60% to R1.3 billion (2020: R3.4 billion) driven by reduced passenger numbers and retail service offerings because of the containment measures.

“The retail business was severely impacted as a consequence of the forced closure of all retail tenants during the hard lockdown, except for those that provided essential services,” according to Acsa’s annual report.

As Shinners mentioned, full recovery in the SA airline industry is only expected by 2025. Figures suggest that the full recovery is dependent on the return of international travellers with their fat wallets full of hard currency.