I would like to thank you most heartily for attending tonight’s dinner.
I thank you for your time because you are all critical stakeholders for two of our
country’s key assets. In the context of an increasingly globalised economy the building of competitive airlinks between South Africa and key trade, investment and tourism partner countries is an extremely strategic process.
The deterioration of these airlinks can result in a significant broader slowdown in the South African economy as potential partners choose to do business in destinations with more seamless access.
In contrast, the opening up of new air routes and destinations can act as a catalyst to qualitatively new investment and tourism relationships. South Africa is located on the Southern tip of Africa and is consequently not a natural location for the building of either an airline or a strategic hub.
It is also consequently not a natural destination for an overseas airline except in so far as there is confidence that a route will be run profitably. It is also the nature of the industry that if a route becomes unprofitable there are very few barriers to decreasing or even removing capacity to an unattractive destination.
Consequently, sustaining security of air-supply to and from South Africa is a key strategic national priority. A key instrument to underwrite this security of supply is our ownership of South African Airways and South African Express.
The airline industry is a turbulent sector which faces intrinsic cost and revenue volatility. In the recent global recession we saw the worst of both worlds, namely a drop in demand combined with very high fuel prices. This had a devastating impact on a number of airlines causing bankruptcy and many mergers.
Hence, given all the positive externalities associated with air transport, the South African government has been a committed shareholder of SAA for eighty years. It is worth noting that when the privatised New Zealand airline went bankrupt, the New Zealand government stepped in to rescue the enterprise, rather than risk having their airlinks supplied at the discretion of overseas airlines.
South Africa has no intention of making the same mistake as New Zealand. The government of South Africa has taken a number of policy steps to build a highly competitive airline sector that would give consumers as much choice as possible.
However, SAA’s annual contribution to South Africa’s gross domestic product (GDP), which was quantified in an Oxford Economics study, is R8.6 billion, which constitutes 0.3% of the country’s overall GDP. The air transport industry is a key employer, supporting 222 000 jobs in the country.
About 56 000 of these jobs are in direct aviation services. As the aviation and tourism industries both shift their focus towards the African market, it is crucial for both industries to identify synergies and aim for alignment in order to achieve their respective objectives. The new millennium has seen a significant turnaround in Africa’s growth prospects.
During the period 2000 to 2010, Africa’s economic output tripled, increasing from US$587 billion to US$1.7 trillion. Poverty rates have dropped over the last twenty years from 60% to 38%. Going forward, seven of the ten projected fastest growing economies in the world over the next five years are located in Africa.
Africa as a whole is projected to grow at over 5,5% per annum over the next five years. Sub-Sahara Africa is projected to grow at an average of 5.4% per annum over the next five years. The market size will grow by 30% to $1,7 trillion.
Until 1994, South Africa was an isolated island at the Southern tip of Africa. Africa’s growth creates opportunities for the South African economy to grow and vice versa. Investment integration allows for the flow of capital and capabilities between partner countries so that economic opportunities in the region as a whole can be exploited even if an individual country has limited capital and industry experience.
It effectively allows national companies to leverage on their core competences in developing surrounding economies. Opening up new regional sources for inputs into our economy should result in a lowering of costs. Trade will allow us to build scale in focusing on those areas where we want to build a competitive advantage.
As a medium-sized economy, South Africa is at a structural disadvantage in building our industrial base given our remoteness from major global markets. This hinders our ability to invest in adequate economies of scale, realise technology learning curves and build robust clusters that are the backbone to a competitive industrial economy.
By failing to foster high levels of economic cooperation and integration in Africa, we are effectively imposing limits on the South African economy. A prosperous future for South Africa is intrinsically linked to a prosperous future for Africa. We need to recognise that we will not achieve regional integration simply by removing trade tariffs, as non-trade barriers are even more restrictive to intraregional trade.
Investment in infrastructure will be a key driver in ensuring inter-connectivity between the different regional economies. In comparison to other parts of the developing world, Africa lags behind on about every measure of infrastructure coverage. In this context, air transport has a very clear competitive advantage.
It can unlock new investment and trade relationships and can lead to cultural exchanges, education and business skills transfers to remote areas of the continent. Consequently, SAA needs to continue to develop and implement a robust African Strategy that seeks to meet and surpass the demand for connectivity inherent on the continent.
It is important that the airline seeks to grow in strategic markets – either through code shares, joint ventures or skills transfer. SAA will focus on servicing relatively long-haul hubs, whilst SAX will focus on building feeder services to these hubs.
The growth of routes into Africa has a major role to play in overcoming SAA’s end-of hemisphere disadvantage. SAA already operates to nearly half of the African Union member-states, so our African passenger and cargo capacity is already considerable and our intention is to grow that further.
African passenger traffic was forecast to grow by an average rate of 6,2% pa between 2011-2031. Currently, SAA and SA Express serve 11 of the 20 fastest growing markets with further destinations covered through code-shares with various African airline partners, including Ethiopian Airlines, Egypt Air and LAM.
In the last year, since the delivery of SAA’s Long-Term Turnaround Strategy, SAA has added further capacity to existing routes such as Lusaka, Harare, and Windhoek. SAA has also added Abidjan as a new route and Mango has introduced services to Zanzibar.
From May, we have more good news, as SAA will be adding further frequencies to a number of destinations in the SADC region. In order to further embed the airline on the African continent and enhance our regional operating efficiencies, SAA is committed to establishing a new operating hub in Africa to complement our existing regional network.
We are presently evaluating the potential for a hub in West Africa and are searching for the right partner for this endeavour. We have a strong belief in the potential of West Africa as we already operate to several markets in the sub-region. We will continue to build further capacity into key markets such as Ghana and that is an area of focus in the near-term.
SAA Technical is also growing their African business and has increased aircraft line maintenance presence in markets like Namibia and Zambia. Our ambition is to “self-handle” in all markets that we operate SAA aircraft to and eventually handle “third-party” airlines in them as well. We are also evaluating the potential for a new maintenance hub in another African state, potentially in West Africa.
Aviation under the African skies is a growing and exciting industry and it is a sector that will be core to South Africa’s future. As the South African economy recovers from the slump occasioned by the global economic downturn, so must we also become aggressive in terms of our route networks, financial sustainability, fleet procurement and business model for the airlines.
We are happy to inform you that Chinese authorities have allocated us a better slot than the one we until now had. In the near future, we should finalise the “Whole of State Aviation Policy Framework”, the funding plan as well as the consolidation of our airlines into a single group.
For this successfully to happen, we need strong leadership at the strategic levels of all our aviation assets, in regard both to the executive and non-executive director levels. I have great faith in our ability to turn our airlines around and achieve the long-term turnaround goals we have set ourselves.
We sincerely appreciate your steadfast support as our stakeholders amidst all the storms and the Shareholder would like to assure you, in turn, of our steadfast support for the airlines, and particularly their staff.
I thank you!
