The Airports Company SA (ACSA) has been inducted into the air transport industry’s Hall of Shame for proposing a 132.9% increase fees, the International Air Transport Association (IATA says.
“This is just in time to greet all of the visitors who will be coming to the Soccer World Cup,” says IATA director-general and CE, Giovanni Bisignani, of the move.
Bisignani says the planned fees will raise the cost of travel to SA 2.8% next year and 4% in 2011.
“If this cost is fully passed on to the ticket price, we estimate that the increased airport charges will reduce the number of passengers travelling to SA by up to 110 000 in 2010-11, which corresponds to a 2.3% reduction in passenger numbers and up to 150 000 in 2011-12, which corresponds to a 3,3% reduction in numbers,” IATA says.
ACSA executive finance director Priscillah Mabelane last week said the increase would up the passenger service charge from R42 to R99 on a single domestic trip.
The airline lobby organisation has written to the Economic Regulator (airport regulator) calling for the requested fee hike to be turned down. “IATA shares your concern on the turmoil such increases would create in the industry and is very concerned that these proposals would place ACSA’s charges as the highest in the world compared to airports of similar size,” it said in a letter to the regulator.
ACSA says it needs to increase its fees to recoup R17 billion in capital investment spent on new airport infrastructure the last five years. Under current rules ACSA may only reclaim its costs after having incurred them, including the about R7 billion cost of the new La Mercy airport outside Durban that the airline industry says it didn’t want and doesn’t need.
The move comes as airlines go through one of their toughest financial periods since the invention of flight,with IATA expecting global airlines to lose $5.6 billion next year on top of $11 billion this year.
Airlines believe that the proposed increase will further harm the industry. “State intervention in the form of either a capital injection or government guarantee will allow ACSA to get away with a much reduced increase,” said Chris Zweigenthal, CE of the Airlines Association of Southern Africa to Business Day.
The increase comes after several years of profits at ACSA and dividend payments to its sole shareholder, government.
The Democratic Alliance (DA) says the increase will be a further burden “on the already stressed consumer” and adds the decision is particularly problematic given the reasons that ACSA has used to justify the hike.
The party’s transport spokesman Stuart Farrow says ACSA has denied that the tariff hike was necessitated by a funding shortfall due to accelerated infrastructure development for the 2010 World Cup as they were able to secure loans to cover this.
“This is misleading – acquiring a loan results in the ancillary responsibility of re-payment. ACSA may indeed have been able to successfully borrow money, but they do not appear to have the funds to pay this money back, thus presumably necessitating the tariff hike.”
Farrow suggests the Minister of Transport can assist ACSA though:
A large cash injection from the 2010 World Cup infrastructure fund
Lifting the moratorium on the sale of ACSA shares
Allowing ACSA to consider listing on the JSE
Taking over some of the loans entered into by ACSA for its development projects by the state to alleviate the burden on ACSA
The returning dividend funds derived as the major shareholder in ACSA
Farrow adds the model and the methodology of determining the tariff by the Economic Regulator needs to be re-examined. “The current regulator is of a temporary nature and only meets on an ad hoc basis. Legislation needs to be passed making it a permanent structure and its mandate widened to include long term interests of the airline industry.”
The regulator was due to make a decision this month on a new tariff . However, a draft recommendation is now likely only early next year, followed by a final proposal by the end of March, in time for implementation by July 1 .
Acsa spokeswoman Nicky Knapp said “ACSA does not believe that the proposed increase will have a material effect on traffic volumes. We believe that it may deter only a small number of (travellers) as it did when airlines increased fuel surcharges when fuel hit record highs last year.”
Business Day in September reported that airline passengers in SA face paying up to seven separate charges — to the Airports Company SA (Acsa), to the airlines and to the South African Revenue Service (SARS) — each time they buy an airline ticket.
“This startling array of charges is accumulated under the misleading label of ‘airport taxes’ and often makes up more than half the average airfare, driving up the overall cost of air travel,” the paper reported at the time.
“It was for this very reason that Nimrod Zalk, chief director of industrial policy and industry development in the Department of Trade and Industry, recently suggested that the Competition Commission investigate the breakdown of these charges, particularly fuel levies,” the paper added.
“There is a concern that all these additional costs could constrain the growth of tourism in SA. It also appears that airport charges and other government levies make up only a small portion of the charges with the larger portion coming from the airlines in the form of fuel and other levies. Therefore there is a worry that airlines are misleading the public by claiming the additional charges are purely government charges,” Zalk said.
Further investigation was needed as air transport was not the department’s area of expertise, he said.
“We have tasked our tourism sector desk to do further investigation before making a decision on whether to refer the issue to the Competition Commission or not,” said Zalk.