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Speech by Minister Lynne Brown at the AASA in Windhoek, Namibia

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Speech by Minister Lynne Brown at the AASA in Windhoek, Namibia

Chairperson

Executive Committee Members of AASA
Chief Executive Officer of AASA
Ladies and gentlemen

It is a great honour for me to address in Namibia the 46th Annual General Assembly of the Airlines Association of Southern Africa (AASA). Namibia is a country that shares its cultural identity and epic history of human emancipation with the rest of sub-Saharan Africa.

Ladies and gentlemen, to unlock growth in the air transportation industry and to fully exploit concomitant enterprise opportunities, as a region we must address the lack of:
(i) Infrastructure or poor infrastructure
(ii) financial resources,
(iii) human capital,
(iv) extensive traffic connectivity,
(v) regulation, and
(vi) poor levels of safety and security.

Governments and industry players within the region through the SADC Civil Aviation Community and the African Civil Aviation Commission must act speedily to integrate air transportation market in order to standardise civil aviation regulatory and oversight frameworks and thereby attracting investments to develop new infrastructure within the aviation industry. The intensity of the responsibility to attract greater investment requires the aviation industry and especially flag carrier airlines to review level of aviation consolidation and focus on the convergence of low-cost and full-service business models. Moreover, a McKinsey and Company brief warns that given the intensity of the structural competitiveness in the aviation industry, the “rise of low-cost carriers (LCCs) and the ‘Gulf Plus’ airlines (the three big Mideast carriers Emirates, Etihad Airways, and Qatar Airways, plus Turkish Airlines) – are going to continue to reshape the sector”.
 
The provision of a seamless, affordable, safe and secure air transportation service system should be our yardstick to measure our achievements in regional air transportation growth, cargo and passenger counts.  I am therefore expecting AASA as a regional industry representative body to intensify its efforts in advocating for an integrated air transportation market for the benefit of the industry, its role players and society at large.

Whilst it is clear that Africa continues to grow and prosper, it is a fact that the turbulence and uncertainty of the global financial crisis is impacting on domestic economies on our continent. Yet throughout, the continent continues to strive for greater economic growth and connectivity to positively change and improve the lives of all African people.

Potential for Aviation growth in Africa

The existing aviation players are confronted with a number of challenges that are impeding their ability to take advantage of the opportunities. More rapid development of intra-African route networks requires the liberalisation of the continent’s skies. Further challenges to aviation development are safety, air transport infrastructure, and adequate numbers of skilled people.

Intra-African air traffic is at a low level. Intercontinental traffic to and from Africa by African airlines, according to the African Airlines Association, is only about 20 per cent compared to about 80 per cent by non-African airlines. The best opportunities for growth and expansion lie in the under-served, niche African regional and domestic markets. There exist a total of about 660 regional and domestic city-pairs of which more than half are served by less than five flights per week. This implies that over half of the current city-pairs in Africa are underserved. However, in order to adequately serve these regional and domestic markets requires, the right aircraft.
 
Collaboration

Air connectivity is critical for the development of Africa’s economies. This requires collaboration among governments. At present air connectivity is being constrained by high taxes; charges and fees on passengers; expensive fuel prices; a lack of full implementation of open skies protocols; restrictive visa requirements; and cumbersome customs and excise clearance processes. So, to address these challenges requires collaboration by a wide range of stakeholders across Africa, including airlines, airports, the Ministries of Transport, Tourism, Trade, Finance, Customs and Excise.

I can confirm, chairperson, that in South Africa especially in my public enterprises portfolio, we have a deliberate strategy to train and develop scarce and critical skills that are required to support economic growth. This initiative includes the training of artisans, developing of technical and engineering skills.

In the aviation industry in particular, we must recognise, which is both a need and demand, for an increased level of interdependence across our African continent, and horizontal-sharing (across countries) of advanced technologies.

It is not going to be a straightforward or easy task but Africa’s regional economic integration is a challenge which represents arguably the continent’s most ambitious political innovation since decolonisation began in the late 1950s. If we are to realise this grand vision, it will largely depend on the extent to which we, as Africans, are committed to investing in adequate energy, transportation and telecommunications infrastructure. Air transportation and associated logistical services, may well be the catalyst to the continent’s regional economic integration.
Competition

Ladies and gentlemen, we need greater and inter-airlines collaboration across the aviation industry and the continent to ensure that different countries on our continent can compete against out-of-continent airlines.

Kenya is emerging as an important regional hub, and its recent ‘Operation Pride’ campaign requires all state officials to fly only on airlines registered in the country—like Kenya Airways—when traveling for public business or spending taxpayer funds. Our Southern African airlines are not alone in struggling for profitability in this tough economic environment, and airlines such as Kenya’s are doing whatever it takes to win air passengers.

Infrastructure development

The African aviation industry is growing at a rate above the global norm, which implies that in the absence of investment in aviation infrastructure and allied transport infrastructure, we are all going to experience high levels of congestion at airports and in air traffic networks over the coming years. This underscores the need for cooperation among Africa’s airlines by sharing their future plans with airports, ground handlers and air navigation service providers.

African airlines also have to operate within a high-cost environment. According to recent studies, Africa’s transport costs as a percentage of the value of its exports vary between 30 to 50 per cent. For instance fuel prices are on average 21 per cent higher than the world average. Through our local airlines – SAA, SA Express, SA Airlink and Mango – we are working through the African Airlines Association and International Air Transport Association (IATA) to lobby governments to push down these costs.

Much of the infrastructure in Africa is below international standards contributing to the high-cost aviation environment hinders the goal of intra-African aviation development and keeps the percentage of air travel served by African airlines at the low level of 20 per cent. If air transport is to continue to grow at above global average rates, then governments have to invest substantially in the sector to modernise and expand current capacity and to improve on safety and security.

Ensuring safety and security

Aviation on the continent will only develop to its fullest potential when African states attain and maintain global security and safety standards. There is need for substantial investment in the development and retention of skilled personnel in support of the aviation sector’s growth and to maintain and improve safety standards.

Strategic alignment

It is clear that we need to create, manage and maintain synergies between our aviation entities if the African continent is to succeed as a whole. This is so, despite the fact that the aviation sector is a highly competitive industry with different products whether long haul, short haul, regional haul and that of a specialised service for the low-cost price-sensitive market. All these markets need to be serviced. While SAA focuses on long- and short-haul markets; SA Express focuses on regional and niche routes primarily for the full-service business market; and Mango aims at the price-sensitive market.

If this aviation industry arrangement can work so well with three independently managed state-owned carriers, what stops African airlines from agreeing to cooperate on a substantial level. Together with our partners in Africa and alliances, we can offer the continent an extended inter-airline network of destinations, seamless customer service and shared benefits for frequent flyers.

The South African Experience – Path to Group Corporate Structure for SAA, SAX and Mango

Ladies and gentlemen, the Government of the Republic of South Africa owns three airline brands with unique value propositions – SAA which is a full service flag carrier, SA Express which is a regional feeder carrier to SAA and Mango which are low costs service carrier. Very few airline owners and operators around the world have a portfolio of assets with such an extensive premium service proposition.
South African Airways is the leading carrier in Africa, in partnership with SA Express, SA Airlink and low-cost carrier, Mango. They jointly serve 56 destinations within South Africa and across the continent, as well as nine intercontinental routes, which includes membership of Star Alliance international airlines network.

SAA’s core business is the provision of passenger and cargo air transport services through its subsidiaries: SAA Technical; Mango; and Air Chefs, the catering entity of SAA. SA Express, our full-service regional airline, caters primarily to the business community with route networks covering major local and regional cities. The carrier’s strategy includes focusing on remote destinations generally neglected or under-served by other airlines, and to focus on destinations where the demand outlook for a premium product is strong, load factors are high and where traffic flows in both directions.

Our South African experience, which is now in the process of fixing the fragmented corporate structures of our airlines given separate and an asymmetry of fiduciary responsibilities that limit coordination, collaboration and resource allocation amongst the airlines. This fragmented corporate structure is compounded by our antitrust regulatory regime. As the South African government (between the DPE, DoT and NT) decisive action was taken to address inefficiencies and structural deficiencies through a process of merger of our state airlines, which is in its initiation stage through the appointment of a transaction adviser. The development of the optimal group corporate structure to realign the state airlines is premised on our Long-Term Turnaround Strategy of SAA and the 20:20 Vision Strategy of SA Express. 

Finding an optimal group corporate structure has been done elsewhere around the globe and there exist a litany of case studies in America, Asia, Europe and Australia wherein airlines were compelled to restructure to address their inefficiencies in response to prevailing market conditions so that the airlines stay relevant to the market it serve. The same is the case with SAA, SA Express and Mango that are in need of such restructuring to effectively and sustainably deliver on their respective mandates.

The optimal group corporate structure for airlines to address fragmentation is based on shareholding, oversight, governance, corporate administration, and flight operations. As such, the structural realignment of our airlines seeks to rationalise overlapping airline mandates. The strategic intent of the South African Government is to maintain control and oversight over state airline assets by:

(1) streamlining existing business processes,
(2) fostering a central decision-making,
(3) establishing a coordinated deployment of the airline assets unto the market,
(4) enabling a share of resources, commercial information and business intelligence, and planning and procuring; and
(5)  external support services and aircraft collectively.

All of these elements are critical in the future success of our state airlines for what Government intends to achieve by maintaining its shareholding on airlines. Our government departments (Departments of Public Enterprises, Transport and National Treasury) are in the final stages of procuring the services of an external expert on airline mergers and acquisitions to assist in the development of the anticipated optimal group airline structure.

The greatest trend in South African aviation in recent years has been the growth in low-cost carriers. This global trend, which is becoming more prevalent in Africa, will certainly be the major trend over the coming decade. According to the African Airlines Association, low-cost carriers now make up more than 50 per cent of the intra-Southeast Asia market up from less than 5 per cent about ten years ago. We can expect to see the same in sub-Saharan Africa. Low-cost carriers have brought air travel to the mass market, and will also potentially bring air travel to many secondary points that are currently not viable. For this to occur, and to penetrate the mass market, we would need to see a significant reduction of charges, taxes and fees on fuel and passengers, and greater collaboration, stronger relationships and solid alliances among African airlines.

Conclusion

Working shoulder to shoulder, acting in collaboration, and purposely partnering for success, all our public and private sector stakeholders can support African jobs, economic growth and sustainable development through aviation. Raphael Kuuchi, International Air Transport Association (IATA) Vice President Africa reminds us that:

Governments and organisations need to focus not only on national issues but also on the strategic development of Pan-African aviation. Policies that promote investment in air transport infrastructure, improve safety and enhance air connectivity must be implemented. Aviation has the potential to make a much more significant contribution to economic growth and development within the continent if its power is unleashed.

Together, in partnership, we can assure that the aviation sector becomes the catalyst that propels the Southern African and African economies through a steady upgauge of fleets to allow for growth in capacity and pricing tickets. We also need optimal use of data that helps the aviation industry making better decisions regarding safety, customer services, operational efficiencies and profitability. 


Thank You.

Page last modified:25/10/2016 12:35