South Africa: Aerial Dogfight
WHEN the first airlines went into operation after the First World War, 6000 passengers travelled by air each year.
By 2010, industry bodies predict that the number of global passengers will pass the 5-billion mark, and will almost double by 2025.
Clearly, there is huge growth ahead for the travel sector, although that is not to say it is a one-way bet in terms of profits, far from it. The industry is notoriously cyclical as the behaviour of fickle tourists is affected by many variables, which has of late centred on safety concerns after terrorists found airlines to be particularly vulnerable targets.
Nevertheless, the advent of low- cost carriers has made air travel far more accessible to hundreds of millions of people, driving passenger numbers upwards, if not profits. This has a knock-on effect for governments and companies around the world, demanding more of airlines and airport operators. The Geneva-based Airports Council International (ACI) estimates that airport capacity for an additional 1-billion people will be needed in the next 20 years. And far more aircraft will be in the air to meet rising passenger and freight demand.
Of particular importance for SA, the study found that much of the growth would come from developing countries in Asia, Africa and the Middle East. Air travel in Africa is set to rise 8,6% this year, 7,5% next year and 7,3% in 2009. This will be driven by the deregulation of these markets and the growth of low-cost carriers.
On the airport side, construction will be a feature of SA's airports for many years to come. The state-owned Airports Company SA (Acsa) is planning to expand its infrastructure at a cost of more than R5bn. All 10 Acsa airports are now undergoing major upgrading to enable them to carry a total of 40-million passengers a year from 2010.
Airlines have an equally challenging task. Not only will they have to open new routes to cater for the growth, but most will have to buy new aircraft to boost capacity. SA is currently in the throes of a full-blown airline tussle, with the advent of SAA's low-cost carrier Mango having shaken up the market. Inevitably, Mango came in with low ticket prices, matched by the other carriers, kulula.com and 1time. Just as inevitably, prices will rise, but the challenge of the low-cost carriers will be to keep overheads as pared back as possible.
This is particularly difficult as all three low-cost carriers are looking to expand their fleets. They need to do so if they are to keep up with burgeoning demand, as the domestic market is expanding in line with the country's strong economic growth. But by far the biggest aircraft order coming out of SA, and possibly even Africa, will be from South African Airways (SAA). The national carrier is looking to acquire a new fleet to expand its route network -- the third such transaction it will make in less than a decade. Former CEO Coleman Andrews opted for an all-Boeing R4bn fleet upgrade in 2000, a decision that was trumped less than two years later by his successor, Andre Viljoen, who bought 41 new Airbus aircraft.
Part of this order was subsequently shelved, leaving SAA with a mix of Boeing and Airbus aircraft in its fleet. The two aircraft manufacturers are now once again buzzing around SAA in the hope of clinching another big order from the southern tip of Africa. From SAA's point of view, this is no bad thing. Boeing and Airbus are gripped in a mega battle as they seek to gain dominance in the multibillion-rand aircraft market. Both took a serious knock in the wake of the September 11 terrorist attack on the US which sent the airline market into a decline, and they are fighting to regain market share. So it's a good time for SAA to be negotiating with the two manufacturers and, given that SAA already has both Boeing and Airbus in its fleet, it can concentrate on product and price rather than uniformity when making a decision.
But let us not forget that SAA is cash-strapped and management is looking for a R4bn cash injection to recapitalise the airline. The planned acquisition of nine long-haul aircraft seems modest in comparison to the last order, but it will nevertheless require a big capital outlay. This time around, SAA needs to consider all its options, including leasing and buying second-hand aircraft. Taxpayers should not have to fork out more money than is absolutely necessary.
Article from http://allafrica.com/More flights, more cars from http://www.southafrica-carhire.com
Labels: South Africa - Airlines
