SA airports boss voices concern over long-term traffic volumes

Airports Company South Africa on Tuesday (27 October) reported revenue of R7.12 billion, down marginally from the prior period as the Covid-19 pandemic and weak economy generated significant revenue and cost pressures.

The state-controlled group, which operates nine of the country’s airports including O.R. Tambo International Airport, Cape Town International Airport, and King Shaka International Airport, said that profit rose to R1.2 billion from R224 million.

However, chief executive officer Mpumi Mpofu said the improvement in profit is to a large extent at odds with the underlying operational performance of the company.

She said the significant improvement in profit is attributable to the impact of accounting adjustments and events such as the R721 million fair-value adjustment to investment properties and R157 million in rates refunds.

“The impact of Covid-19 and travel restrictions resulted in the company foregoing performance bonuses and reducing other operating expenses towards the end of the financial year in order to mitigate the liquidity challenges, but it also necessitated an increase of R270 million in provision for doubtful debts,” she said.

Mpofu said the 1.7% decline in aeronautical revenue reflected the impact of a tough operating environment and effect of no tariff increase which contributed to the overall 0.03% drop in revenue.

“A 1.9% increase in non-aeronautical revenue offset the muted aeronautical revenue. However, earnings were eroded by significant cost pressures which saw operating costs rise by 2% to R2.6-billion.

“Major components of the cost base were security services and asset maintenance costs in response to security threats, regulatory compliance, and previously anticipated growth in traffic volumes in a bid to improve passenger experience,” the chief executive said.

The group repaid R296 million of debt and ended the financial year with cash reserves of R1.7 billion.

As of 31 March 2020, the company’s debt amounted to R6.4 billion (2019: R6.5 billion) which resulted in a gearing ratio of 17%.

Mpofu said that in spite of the challenging environment, the network of airports had been on track to weather the economic storm underway before Covid-19, recording 3.3% total passenger growth up to the end of February 2020. This comprised muted growth of 0.3% for cross-border traffic and 4.7% for domestic travel.

Overall, Airports Company South Africa recorded a 1% decline in departing passenger numbers to 20,924,465. Aircraft landings for the year were down 4% to 248,519 (2019: 259,169).

“Up until the end of the third quarter, we were able to withstand economic headwinds. Unfortunately, the pandemic and subsequent travel bans led to a drastic contraction in departing passengers and aircraft landings, resulting in an overall decline for the year,” Mpofu said.

Leading up to the last quarter, the company’s plans to grow non-aeronautical revenue were yielding good results. Compared to the previous year, commercial and retail revenues were up 4% and 1% respectively. Annual escalations pushed car rental and property revenues were up 4% and 9% respectively, while advertising recorded an increase of 10%.

“The onset of the Covid-19 pandemic caused our earnings to take a dramatic downturn and this trend is set to continue in the next financial year,” said Mpofu.

Recovery plan

“We anticipate that the impact on traffic volumes and airline sustainability will be long term. Significant responses that have been introduced to mitigate the impact of the anticipated traffic volume decline include considerable reductions in operational and capital expenditure,” said Mpofu.

The result of this scenario leads to a funding requirement over a five- to six-year period of up to R11 billion. Of this amount, up to R3.5 billion will be required in the next three years given current assumptions, the company said.

Looking ahead, Mpofu said the only certainty is that high levels of uncertainty about the future will prevail for some time. Risks abound, including the re-emergence of new waves of Covid-19, the chief executive said.

She said that the resilience of domestic and international carriers is unclear. The future of domestic airlines is uncertain and exposure of capacity to airlines from the Middle East, which rely on oil-sourced funds, is concerning in the light of projected low oil prices.

“Capacity rationalisation is inevitable, and we are prepared to look for new ways of diversifying our revenue.”

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SA airports boss voices concern over long-term traffic volumes