Busting the myth that SAA is ‘necessary’ for tourism

We are told over and over by those in power (or in charge) that South African Airways (SAA) “has a specific and important role to play as an enabler for tourism and a driver of economic growth through trade” (former acting CEO Nico Bezuidenhout speaking in 2015).

The ANC’s highest decision-making body, the national executive committee, decreed last month that SAA “should be retained as a national airline”.

Even the business rescue practitioners have in recent weeks stated – as fact – that “SAA is a key strategic asset which needs to be positioned to provide reliable connectivity to markets within South Africa, the African continent as well as servicing selected international routes”.

But is it really?

What is not in question is the critical role tourism plays in our economy.

SAA’s role in that, however, is not as vital as government makes it out to be.

South Africa welcomes between 200 000 and 300 000 foreign arrivals by air per month. In 2018 (the last available full-year statistics from Statistics SA), 3.1 million foreign visitors arrived at our airports, with 2.4 million of those arriving from markets outside of Africa.

The state-owned airline’s long-haul routes (post-February) will comprise London, Frankfurt, New York, Perth, and Washington via Accra. The last of these ought to really be treated as a regional one with an onward routing to the US.

Assuming 320 seats per flight at a somewhat generous load factor of 80% (256), the four remaining SAA long-haul flights (again, excluding Washington via Accra) could ferry as many as 373 760 passengers into the country per year. However, not all on board will be foreigners. With the exception of the Frankfurt route, there are likely equal numbers of foreign visitors and returning South Africans on each flight. So potentially 200 000 of these arriving passengers will be foreigners, and an even smaller number actually tourists.

The canned routes (Munich, Hong Kong and São Paulo … Guangzhou can’t really be counted as it was only introduced last month) presumably had far worse load factors as they were reportedly not profitable. At a 60% load factor, these three routes would’ve landed 179 712 passengers in SA in 2018. Again, using a 50/50 split for foreigners versus returning citizens, you’d arrive at 90 000 visitors (and a smaller number of tourists).

Remember, of course, that SAA does not fly international routes to either Cape Town or Durban. Of the 3.1 million total number, nearly one million (964 844) inbound foreign travellers did not fly SAA as they landed in (mostly) Cape Town (905 000 of them).

The straw man argument is that we’ve ‘lost’ these tourists. This assumes that they would abandon plans to visit. Save for São Paulo, however, there are other options. There is a direct flight to Hong Kong (and practically a direct flight via Singapore) while visitors from Munich are easily able to route through Frankfurt.

The Middle East carriers in particular have been very successful at routing passengers from all over the world to and from South Africa. At last count, Emirates operated 56 return flights to and from Johannesburg, Cape Town and Durban.

From March, SAA will operate 35 a week (daily flights to the five remaining long-haul destinations).

The fact is that foreign visitor numbers are growing in spite of SAA, not because of it.

The airline has been competing, if one can call it that, from a position of weakness and rivals have chipped away at its supply to the point of it becoming unsustainable.

Read: Rivals are strangling SAA’s long-haul business

This is what happens in well-functioning markets. Airlines are allowed to compete, and compete they have.

At the end of 2017, in its much-delayed 2016 annual report, SAA cautioned that: “The Cape Town-Johannesburg route, which is the largest connecting point in SAA’s network, experienced significant challenges from local and international operators. Increased capacity deployed by LCCs [low-cost carriers] and additional capacity from international operators eroded demand on the Durban route, which was the best performing domestic route in the previous year. However, since late 2015, significant additional capacity from international markets was diverted to these subsidiary gateways resulting in the bypassing of our main hub, OR Tambo International Airport.”

And: “The London route remains extremely competitive with major airlines from other regions making a beeline to serve the entire SADC region via Johannesburg. Some of these operators have also commenced operations to Cape Town thereby bypassing our hub at OR Tambo International Airport.”

This competition hasn’t just strangled SAA’s long-haul business, it has seriously impacted its domestic and regional routes as well (a story for another day).

The Cape Town Air Access initiative has been most effective at breaking the SAA-via-Johannesburg monopoly.

Since its inception in 2015, it has helped land 15 new routes and 21 route expansions. It notes that “during this period, more than 750 000 inbound seats were added to its international network”, with around 1.5 million additional passengers between 2015 and 2018.

Along with the previous ‘staples’ of Dubai, Germany, London, France and the Netherlands, there are now direct flights from Cape Town to the US, Hong Kong, Singapore and regional flights to Ethiopia, Kenya, Rwanda, and Zambia.

This growth has meant that the international terminal in Cape Town will “soon reach capacity”, necessitating a R2.8 billion investment by Acsa (Airports Company South Africa) to build a second terminal.

In Durban, a similar story is playing out with the Durban Direct route development initiative. It has secured six new routes, the most recent being a direct flight to London three days a week.

Both of these programmes are examples of what is possible when government agencies actually put in some effort and bureaucrats are forced out of the way.

Minister of Mineral Resources and Energy Gwede Mantashe was right when he said the national carrier should be shut down if it cannot sustain itself.

And there are an awful number of smart politicians (surely including our president and minister of public enterprises) who know deep down that SAA is not “necessary” for tourism or a “strategic” asset.

Maybe sanity will prevail?