THE RECENT announcement of the Airports Company of South Africa’s (ACSA) tariff increases for the next five years has resulted in a resurgence of anti-ACSA sentiments in the airline industry. The airlines are extremely angry at what they perceive to be interference with the regulatory process and the imposition of unaffordable tariffs on the industry and passengers to ease ACSA’s financial difficulties.
ACSA’s financial squeeze has been, for the most part, brought about by the construction of airport infra-structure for World Cup 2010. Readers will recall our reporting last year of the ACSA court application to set aside the Permission approved by the ACSA Regulating Committee. Unfortunately, the court application was successful and ACSA managed to have the Permission set aside on a technicality.
This was followed by the Minister of Transport appointing a special “Task Team” to advise him on the correctness of the initial Regulating Committee’s Permission determination. It was intended that this team would fulfil its mandate in two months. However, it took more than eight months for the team to come back with its recommendations. When the Task Team finally reported back, although it did not recommend many changes to the Permission calculation, it did specify that the Regulator should exclude two potentially very large sources of income from ACSA’s projected revenue. This resulted in a larger ACSA tariff increase than the one announced and set aside in 2010. The ACSA’s tariff hike, which will now become effective on October 1, 2011, will increase passenger service, landing and parking charges by almost 70 percent. This year’s increase comes on the back of a 33 percent increase in 2010, a further 34,8 percent raise in 2011, 30,6 percent in 2012, 5,6 percent in 2013 and 5,5 percent in 2014, resulting in a cumulative increase of 161% over a five year period.
As most of the tariff increase will be borne by the passenger, the airlines are extremely concerned that these substantial increases will further reduce the number of passengers taking to the skies at a time when the industry is seeing the worst trading conditions and lowest passenger numbers in the last five years. The resultant higher cost of air travel also flies in the face of the Government’s stated policy to make travel more affordable to the majority of South Africans.
Gidon Novick, joint CEO of Comair and an ardent campaigner for cheaper air travel, had the following to say about the ACSA increases: “Currently only ten percent of South Africans get to travel by air each year. Only with affordable air ticket prices and airport charges will more South Africans have the opportunity to fly. The South African tourism industry depends heavily on affordable air travel into and around our country and this increase will significantly impact the price that consumers pay for an airline ticket. ACSA’s financial shortfall should be funded by its shareholders, not air travellers,” said Novick. Adding to the industry’s concern is the one-sided manner in which the new increases have been proposed. Chris Zweigenthal, CEO of the Airlines Association of SA (AASA), had the following to say regarding the Task Team process: “Other than one meeting with the Minister’s appointed task team, we have had no insight into the process. Nor have we, or any other representatives from the local airline industry, been invited to take part in discussions around proposed airport taxes increases and the possible impact thereof on the industry.”
Although the airlines clearly have the option of going to court to contest the tariff increase – and valid grounds exist for such a review – the signs are that they will not proceed down this road. As the real victims of the ACSA tariff increase will be the travelling public, it seems that the airlines will leave it to Joe Public to communicate their displeasure to the Government about the increases. The airlines, via an information leaflet, will provide their passengers with enough facts and figures to show how unaffordable ACSA infrastructure has become. It will then be up to the travelling public to tackle ACSA and the Government on the issue.
Instead, the airlines will focus their efforts on participating in a DoT lead process to produce regulations to detail and clarify the ACSA/ATNS Permission process. The DoT is hoping that the presence of regulations will prevent a re-occurrence of any misunderstanding as to how the Permission process is supposed to work. The relevant stakeholders are hard at work drafting terms of reference for this process and AASA is currently preparing a submission to the DoT on what it believes the terms of reference should contain. In the submission, AASA will highlight the following areas where it believes that ACSA is either not complying with the Act or being adequately regulated. Firstly, ACSA seems to believe that it is entitled to a guaranteed return on Capital Employed in each year of the Permission. This is a narrow interpretation of Section 12 (10) (e) of the Act and completely ignores the prevailing economic and market environment in which the airlines operate.
There is also no clarity in the Act as to what is considered necessary to finance ACSA’s obligations and what is meant by a “…reasonable prospect of return…”? Also, what level of return can be considered to be a “commercial return”? There has always been a conflict between what ACSA believes it should earn as a commercial return and what the broader economy and aviation/airline industry is earning as a return.
While the airline industry experiences fluctuating profit and loss cycles, ACSA consistently publishes excellent financial results, far in excess of the airlines’ best returns. The new regulations need to clarify these issues.
Secondly, with respect to the requirements contained in section 12(10) (b) of the Act, ACSA pays too little regard to “… the reasonable interests and needs of users at the airport when providing infrastructure.” ACSA continually ignores the fact that the airlines and passengers want more affordable and basic airport infra-structure. Rather, ACSA continues to construct facilities which it believes the industry and passengers should have and pay for.
Finally, in a pointed reference to the massive cost overruns incurred in the construction of King Shaka International, the airlines seek clarity on what should happen when ACSA provides infra-structure in excess of airline requirements and then through inadequate management allows for massive cost overruns. Surely in this case ACSA and /or the Government should pay for this negligence, and not the airlines and the public.
So the next few months promise to be extremely interesting as we all wait to see whether the travelling public take exception to the ACSA tariff increases and what changes the airlines can persuade the DoT to include in the new Permission regulations.
