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SAA route cuts could harm hospitality sector

Fewer flights, fewer tourists.

South African Airways (SAA) announced on Wednesday that all of its long-haul routes were unprofitable, confirming that this had prompted the airline to institute route cuts as a means of recovering costs.

The tourism and hospitality sector, however, is concerned that fewer flights to South Africa could hamper growth in foreign visitors to the country.

“I talk to travel agents who complain about the lack of flights to South Africa and say it puts tourists off that they have to go via Johannesburg, which often means an overnight stay, so incurs more costs,” said Lorna Simone, head of sales and marketing for Hylton Ross.

Hylton Ross offers guided coach and private tours in Southern Africa. Simone said the tour operator’s revenue reflects an uptick in foreign visitors to South Africa and she expects these numbers to continue growing, partly fueled by the weak rand.

However, she does not believe that there are adequate flights to South Africa from international destinations to cope with the increased demand.

SAA recently cut its London-Cape Town route, so that travelers now have to go via Johannesburg. Further route cuts include those between OR Tambo and Kigali in Rwanda, as well as OR Tambo and Buenos Aires, Argentina.

Although a number of code-sharing agreements partly offset these cuts, by enabling SAA to service these routes using the infrastructure of other airlines, the fact that there are fewer flights to and from certain international destinations could prove harmful to one of the few sectors that is actually benefiting from a weak rand: tourism and hospitality.

Capitalising on the weak currency

Figures from SA Tourism for the year ended March 31 2013 reveal that there was a 9.8% increase in annual foreign visitor arrivals, to 13 451 565 over 2011. Total foreign direct spend from international tourists grew 7.39% from 2011 to 2012, from R71 billion to R76.4 billion. Further, it states that spend by visitors from the Americas, Asia and Australia as well as Europe have all increased, driven in part by the weaker rand.

The rand has weakened further since the reporting period, so presumably these numbers will increase.

Airports Company South Africa (Acsa) said the 5.4% year-on-year growth in international inbound movements it recorded between December 2012 and December 2013 was largely due to a 10.6% growth in inbound volumes from Africa.

Acsa spokesperson, Unathi Batyashe-Fillis, said that most neighouring countries use OR Tambo as a connection hub. She said that there were sufficient flights over the December period.

Nicholas Barenblatt, group hospitality manager for the Protea Hospitality Group, attests to the fact that OR Tambo is sub-Saharan Africa’s main airline transport hub. He believes that we should be enabling more international flights into South African airspace and said that SAA’s decision to cut its Buenos Aires route is a blow, due to an emerging outbound leisure tourist market from Argentina.

“We need those flights to bring business travellers into both South Africa and Africa as a whole. The continent is standing on the cusp of an economic development tsunami and nothing should be allowed to stand in the way,” Barenblatt told Moneyweb.

“Destination marketing means leisure travelers are looking at long-haul destinations again rather than short stays closer to home,” Barenblatt continued, saying that the recovering global economy played a role in increasing international traveler numbers.

Similarly, Michael Farr, group GM of corporate brand and communications for Sun International, said that while it’s difficult to attribute 100% of the growth in tourist numbers to a weakening rand, the fact is that a weak currency does benefit a long-haul destination.

Farr said that more direct flights to Cape Town may need to be looked at.

That direct flights between major international locations helps boost tourist numbers is reflected in the fact that from January to December 2012, the total tourist arrivals from mainland China (Hong Kong included) to South Africa reached 132 334, an increase of 55.9% over the same period in 2011.

Non-stop flights between Johannesburg and Beijing were launched in January 2012.

Although this route is loss making, Minister of Public Enterprises, Malusi Gigaba, said at SAA’s AGM on Wednesday that it would remain open and is a “very strategic route for us as a country”. “

“We are in discussions with China around how to make this profitable,” he said.

SAA is in the process of upgrading its fleet, which will introduce massive cost savings in the form of enhanced fuel efficiency. Unfortunately, companies like Boeing and Airbus could have as much as an eight-year backlog on aircraft orders, which casts serious doubt on whether it will manage to get its fleet right in time to capitalise on a weak currency.

Either way, greater numbers of long-haul flights to South Africa from more foreign destinations would meet the increasing tourist demand, contribute to a thriving hospitality sector and ultimately provide a much-needed injection of funds into the economy.

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