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South Africa could lose R3.6bn in tourism revenue

Foreign airlines may have to reduce their flights to South Africa because of the mounting cost of building the new international airport in Durban and massive airport tariff hikes by Airports Company

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Foreign airlines may have to reduce their flights to South Africa because of the mounting cost of building the new international airport in Durban and massive airport tariff hikes by Airports Company South Africa (ACSA).

According to the International Air Transport Association (IATA), plans to hike local airport tariffs by 133 percent from next year would make South African airport charges among the highest in the world at a time when the international aviation industry faces one of its worst crises.

The association, which represents the world’s major airlines, warned that the fees would damage South Africa’s economy by discouraging foreign tourists and hamper business travellers from dealing with foreign markets.

IATA estimates that the hikes could reduce visits to South Africa by between 110 000 and 150 000 passengers a year over the next two years – equivalent to a fall of up to 3 percent in visitors – and lose a potential R3.6 billion in revenue to the tourism sector over two years.

In a letter to the Department of Transport’s tariff regulating committee, IATA spokesman Jeff Poole said his association was particularly worried about the rising cost overruns to build the greenfield airport near La Mercy, Durban. He said R3.1bn had been budgeted for the King Shaka airport project between 2007 and 2012, but latest Acsa estimates showed the airport would now cost R6.8bn.

“The airline community did not ask for the development of this new greenfield airport but, under the current network pricing system, will still be obliged to pay for it. This is true whether airlines use the facilities or not… Airlines and passengers should not be asked to pay for a capital investment that will end up costing more than double its original budget.”

But ACSA has challenged the Iata criticism and said it did not think the proposed tariff increase would have “a material effect” on traffic volumes to South Africa.

“ACSA believes its increase may deter a very small proportion of travellers, as was reflected at the time when the airlines introduced their fuel surcharges and fuel prices were at a record high,” said ACSA spokesman Nicky Knapp.

She also disputed claims that the cost of building the new airport had more than doubled. She said the IATA estimate was based on a fundamental misinterpretation of the original cost estimates. The first proper “guesstimates” for the King Shaka project had been around R5.8bn, not R3.1bn as suggested by Iata.

Nevertheless, Iata has appealed to Department of Transport tariff regulating committee chief Muhammed Sizwe not to sanction ACSA’s “unacceptable requests”.

“IATA shares your concern on the turmoil such increases would create in the airline industry and is very concerned that these proposals would place ACSA’s charges as the highest in the world compared with airports of similar size. We now seek your urgent action to formally dismiss the proposals as soon as possible,” Poole said in a letter to Sizwe two months ago.

“We do not believe ACSA has duly considered the negative impact such increases would have on demand. Increasing charges, by the magnitude proposed by ACSA, could also damage the South African economy by forcing capacity out of the market and restricting future growth.”

He said the R6.8bn investment cost for King Shaka was central to the dispute, since foreign airlines and international passengers would have to pay the bulk of the costs to build it, even if they did not fly there.

IATA hinted that some foreign airlines might decide to cut the number of flights if the hikes went ahead.

“A reduction in the volume of passengers could make some services unprofitable, which may consequently be cut. This could further damage the South African economy.

“Frequencies and number of destinations are not only important to leisure travellers and the tourism sector, but are also necessary for business travellers to reach and access overseas markets.”

IATA accepted that some genuine justifications for a tariff hike might be outside Acsa’s control, the airport operator had “underperformed” and there were also strong indications of “a large component of inefficiency that is intended to be passed on to airlines and the fare-paying public”.

ACSA rejected the claims and noted that a 2008 survey by Jacobs Consultancy ranked South Africa’s airport charges as 46th most expensive, far cheaper than Toronto, Athens, London or Paris. It did not say how this ranking would change when the new tariffs took effect.

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