The Airports Company of SA on Monday reported a R310 million loss for its last financial year – and it doesn't like it. Despite spending billions on new infrastructure, Acsa considers itself entitled to continuous profits, and thanks to its stranglehold on air travel in SA and an incestuous regulatory system, it will be getting them again next year. BY PHILLIP DE WET.
Sometimes operating airports isn’t as easy as you may think. During it’s last financial year, to the end of March, Acsa took a R2 million a month hit in car park revenue at Johannesburg’s OR Tambo International Airport because travellers started using the Gautrain. That was before the Gautrain system was significantly expanded, and ignoring the negative impact on car rentals at the airport. Or consider what happened when Emirates introduced a direct flight between Luanda and Dubai: with dollar-flush Angolans no longer passing through SA, retail sales at airport malls declined.
But for a company that charges a toll on just about every passenger that boards or disembarks an airplane in South Africa, that is small change. With the World Cup providing a fillip to passenger numbers, Acsa saw its revenues increase 34%, with increases in everything from aircraft parking fees to the money made from billboards inside airports. It was real money too; cash takings were up by R1 billion.
The only thing missing was a profit. The core company reported a R310 million after-tax loss for the year, more than six times the real-world loss it would have reported for the previous year, if it hadn’t been for a highly profitable property sale. Its entire operational profit, and then some, was eaten up by almost R1.5 billion in finance expenses as it rolled out huge upgrades to the two biggest airports in the country, and built a new one in rural KwaZulu-Natal.
Dipping into the red on the back of a build programme of that scale would have been acceptable for many companies, especially if they still had R578 million in cash in hand afterwards. After all, during the last financial year Acsa built what it values at R5 billion in buildings, and another R2.76 billion worth or runways, aprons and roads. Those investments allowed it to increase the space available for retail in airports (which now makes up 32% of its revenues), display more billboards, land more and bigger planes, and generally put in place the foundation for future growth.
Acsa, however, expected to turn a profit throughout its expansion, and is miffed at what it considers its first-ever loss since 1993. (A handy R821 million profit booked on the sale of land around the new King Shaka airport in the 2010 year masked a small loss.) It is determined to reverse the “unfavourable economic regulatory regime” it blames for that loss. That would require increasing its operating margin from 24.4% to a healthy 31.1% – and that can only come from higher prices.
After a long battle with its regulator and the transport ministry, which ended up in court, it will get its wish this year, it seems, one way or another. The airline industry believes Acsa has already been granted tariff hikes that will amount to a 70% increase this year, with more to come. Acsa, however, is under the impression that talks are still required around compensating it for the long delay in price increases, plus some recalculation to be done. In other words, it doesn’t believe the increases about which the airlines are already screaming blue murder are big enough.
The ultimate referee in the dispute between Acsa, the airlines, and the regulator, is sadly anything but neutral. Acsa is 74.6% owned by the department of transport (as opposed to the national Treasury), and another 20% is effectively owned by the pension fund that looks after government employees. It is in the interests of neither to put Acsa under pressure to contain costs or improve services. A nice smooth increase in fees, buried in airline ticket prices and borne by consumers a hundred rand or so at a time, is so much simpler.DM
- Acsa 2011 financial results.