Acsa airport charges cut long overdue, still not enough - CEO

Cape Town - The reduction in tariffs announced by Airports Company SA (Acsa) is welcome relief to airlines and the flying public, but does not go far enough, Erik Venter, CEO of Comair, told Fin24 on Thursday.

Comair operates under its low-fare airline brand, kulula.com, as well as under the British Airways livery, as part of its British Airways license agreement.

Acsa announced earlier on Thursday that a cut in airport charges of 35.5% for the 2017/18 financial year will be implemented as from 1 April 2017. It will be followed by an increase in charges of 5.8% in the 2018/19 financial year and an increase of 7.4% in the 2019/20 financial year.   

According to Venter, the reduction in Acsa tariffs is long overdue in terms of the regulating formula in the Acsa Act that determines the state-owned enterprise's revenue.

"It does not, however, address the super profits Acsa has made over the past two years, when it underspent its capex budget, but continued to collect tariffs at exorbitant rates set for the Fifa World Cup. These World Cup increases saw tariffs rise by around 160%," claimed Venter.

He said there is provision in the Acsa Act for the regulator to "claw back" excess profits resulting from over-collection of tariffs or under-spending on budget.

"We hope this legal provision is applied and the claw back is used to offset future increases in the passenger tax and landing fees to the benefit of airlines and customers," said Venter.

"The claw back must also address the sale of Durban International Airport to Transnet for approximately R2bn. This went directly to Acsa’s bottom line, despite the fact that airlines and their customers paid for the airport, as well as its replacement, King Shaka."

Venter wants the claw back also to be considered on interest earned on what he calls "super-profits" as well as proceeds from the sale of Durban Airport.

Chris Zweigenthal, CEO of the Airlines Association of Southern Africa (Aasa) told Fin24 that Aasa has been involved in the consultation process leading to the finalisation of the permission and the promulgation in the Government Gazette.  

"We welcome the finalisation of the permission, which has taken a number of years to complete. We are still to study the full impact of the permission decision, but are pleased that a 35.5% reduction in charges will be passed on to both the passengers and the airlines for flights effective 1 April 2017, said Zweigenthal.

"This also enables both Acsa and the airline industry to work together on new developments and capacity enhancement projects where required."

Hemant Mistry, director of global airports infrastructure and fuel at the International Air Transport Association (Iata) told Fin24 that Iata welcomes the decision on the reduction in Acsa tariffs.

He said Iata will continue working to ensure service providers' charges are fair, affordable and represent good value for airlines and their customers.

READ: Price cut in airfares no guarantee with Acsa slashing airport charges

The big question

For low-cost airline FlySafair the big question now is whether or not the reduction in Acsa airport charges will mean a further reduction to airfares in 2017.

“Overall pricing of tickets is a complex issue where we need to consider a number of factors. Fuel alone can account for 40% of direct costs, so our exposure to the rising price of oil and a weakening rand tends to have a stronger influence on fares. That said, the decrease in these tariffs is great and is a saving that we will most certainly seek to pass onto our customers,” said Kirby Gordon, head of sales and distribution at FlySafair.

South African Airways' spokesperson Tlali Tlali told Fin24 that SAA collects the passenger services charges published in the Government Gazette on behalf of Acsa.

"These charges are collected separately on our tickets under a specific tax code and paid over to the respective authorities or Government entities," explained Tlali.
 
"The reductions or revised tariffs as published in the Gazette will, therefore, result in a reduction on the total fare that passengers pay."

Two year delay

An Acsa spokesperson explained to Fin24 that there was a two-year delay in finalising and promulgating tariffs for the five year cycle from the financial year 2015/16 to the financial year 2019/20. It said the reason for the substantial cut in tariffs in year three of the current permission (therefore the financial year 2017/18) is due to the delayed pronouncement for years one and two, resulting in a 0% increase for both years and a sharp decline for year three.

"The independent regulating committee, therefore, took into account the two-year delay in finalising the current cycle’s tariffs," said Acsa.

According to Acsa, the new permission sets out aircraft landing fees, aircraft parking fees and the passenger service charges that Acsa can levy.

From 1 April the passenger service charge per departing domestic passenger will decrease from R127 to R82 and per departing international passenger it will decrease from R346 to R223. The passenger service charge per departing passenger for an airport within Botswana, Lesotho, Namibia or Swaziland will go down from R263 to R169.

As for whether the reduction in tariffs will lead to cheaper airline ticket prices, Acsa said the reduction that it can confirm is on the passenger service charge, levied to passengers and payable to Acsa through airlines.

Acsa, however, cannot say what the impact of landing and parking charges will be on the price of airline tickets. That would be for the individual airlines to comment on.

READ: Acsa posts R1.9bn profit

Financial impact

Acsa said the final tariff is in line with its expectations and what it proposed to the regulating committee.

"We anticipated this outcome for some time and factored it into our financial and business planning. These new tariffs, despite showing a sharp decline in year three of the cycle (2017/18), are not in any way a threat to the medium- to long-term sustainability of the business," said the Acsa spokesperson.

"There will be some positive spin-off for the economy and employment creation as we embark on our infrastructure maintenance and build programmes. These will allow our airports to continue being recognised as world class facilities, as is currently done by international organisations such as the Airports Council International."

The spokesperson said Acsa remains fully able to service its debt.

"The key aspect of this tariff permission is that it provides clarity not only to Acsa, but to airlines and other stakeholders, enabling all parties to operate with certainty over the next three years," said Acsa.

Acsa reported a profit of R1.9bn for its financial year which ended on 31 March 2016. Earnings before interest, taxes, depreciation and amortisation (Ebitda) were up 7.1% to R5.2bn.

Revenue increased 6.8% to R8.3bn. According to Acsa this was as a result of the introduction of new routes, growing passenger numbers from Europe and Asia and the performance of its non-aeronautical operations.  

The R1.1bn in revenue from retail was driven by increased volumes in the passenger base, and the depreciation of rand against major currencies.