IT IS never a good idea to kill the goose that lays the golden eggs, but this is exactly what many governments are doing with respect to their airline industries. This trend is also evident in South Africa.
With costs such as fuel escalating out of control and passenger numbers falling faster than at any time since 2001, airline management teams all over the world are huddled together piecing together strategies aimed at cost cutting and increased revenue generation in order to keep aircraft in the air and employees in jobs. For South African carriers, over the past six months, fuel prices have increased by approximately 22% and the Rand has weakened by 15% against the dollar, thereby increasing dollar-based costs. However, one of the greatest threats to the well being of, and employment prospects in, the airline industry in South Africa and the United States is the rampant increase in a variety of governmentrelated
taxes and charges.
In the US for example, the expectations are that the tripling of the Passenger Security Fee together with the creation of a new $100 Departure Tax, will have a “devastating effect on the US economy and
airline travel demand”. In South Africa, the industry is facing a similar predicament. These
airlines and their customers are bearing the burden of a 27% increase in the Air Passenger Tax on international flights, a 70% hike in ACSA airport user fees, and a 50% increase in the Passenger Safety Charge levied by the South African Civil Aviation Authority (SACAA). There are already signs that passenger volumes on Golden Triangle routes have dropped by as much as 10%.
This all comes at a time when last year’s financial results for the South African private sector airlines (these results relate to the time before the latest tax and charge increases came into effect) were the
worst in decades and indicate that these businesses are either lossmaking or marginally profitable. Who knows what the 2011/2012 financial results will look like except that they promise to be much
worse than those of last year? The profitability of the South African airlines is being further
eroded by the fact that each carrier is required to collect all levied charges and taxes from the passenger on behalf of ACSA, the SACAA and the Government, free of charge, as well as pay any credit card
charges owing on the amounts collected.
Just the collection of the ACSA tariffs alone can cost one of the smaller airlines on average between R5- and R7-million in credit card charges per year. Apart from this collection requirement being
ridiculous and unfair, this credit card charge expenditure all comes off the airline’s bottom line.
In the US, the estimations are that if the new taxes are introduced nearly 10 000 airline industry jobs could be lost within a year. However, there will be a much larger job loss knock-on effect in the
rest of the US economy. The predictions are that nearly 181 000 jobs could be shed across the entire US economy related to reductions in aircraft manufacturing, airports and supporting businesses.
The CEO of the US Air Transport Association, Nicholas Calio, commented: “The proposed new taxes will impact fares and reduce service, which equates to a one-way ticket to the unemployment line
for thousands of Americans.”
The fear is that jobs will be lost due to the cost of taxes reducing passenger demand. The most recent market research clearly shows that airlines have limited ability to pass through cost increases to their
customers due to the elastic relationship between pricing and demand.
Although the South African airline industry employs a fraction of the number of people employed in the US, a recent study commissioned by IATA indicates the importance of the South African
aviation (airline) sector as an employer and contributor towards South African Gross Domestic Product (GPD).
The study reveals that 227 000 high productivity jobs exist within the sector and aviation directly contributes 2,1% to South Africa’s GDP. Business activity around airlines, airports, ground services and
aerospace activities inject around R51-billion directly into the South African economy through output and employee spending. Also, air transport to, from and within South Africa creates three
distinct types of economic benefit. Firstly: an aviation economic footprint measured in terms of contribution to GDP, jobs and tax revenues generated by the sector and its supply chain; secondly:
consumer benefits for passengers and shippers and, lastly, output that enables long-term economic growth.
Furthermore, the tourism enabled by the airlines generates a further R21-billion in economic activity and 116 000 jobs. The report concludes that the airline sector is “…a critical and strategic
component of the SA economy.” Although, we now have figures on the importance of the airline
industry to the South African economy, there are currently no firm estimates as to how many jobs could be lost as a result of the latest tariff and tax increases. Some insiders predict that worse case
scenario, these losses could be in line with the capacity contraction in the market. Be this as it may, the current approach of the Government and especially the Department of Finance towards the airline sector
is hardly nurturing or appreciative of the economic importance of the industry.
Indeed, the approach followed by the Department of Finance towards the aviation/airline sector, seems to be at odds with that being applied to other businesses in the economy. It is strange that
while government revenues are being collected left right and centre from the airlines and their clients with little thought being given to the effect this will have on airline profitability and job retention, the
Minister of Finance has announced his intention to provide R25-billion worth of economic support measures over the next six years to promote business investment and job creation in the rest of the
economy.
The only conclusion that can be drawn from all of this is that the Government, and Minister of Finance in particular, have yet to appreciate the valuable contribution that the airline sector makes as a major provider of decent jobs and contributor towards GDP growth in the South Africa. Hopefully this realisation will dawn sooner rather than later with measures being introduced to support airline profitability, maintain
jobs and save the proverbial mother goose from the suffocating weight of ever increasing government charges and taxes.
