Scramble to develop airport cities as ACSA strikes back after Covid-19

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The coronavirus pandemic and the weak South African economy resulted in significant revenue and cost pressures for ACSA. (Getty Images)
The coronavirus pandemic and the weak South African economy resulted in significant revenue and cost pressures for ACSA. (Getty Images)
  • Plans to establish aerotropoli at the Johannesburg, Cape Town and Durban airports have already been completed.
  • The impact of the coronavirus pandemic has increased pressure to get those as well as airport cities established around all nine ACSA airports.
  • In the financial year ending 31 March, revenue declined by 0.03% to R7.12 billion, while profit rose to R1.2 billion from R224 million compared to the previous financial year.

The effect of the coronavirus pandemic on the business of Airports Company SA has "propelled" it to work faster on establishing airport cities around - eventually - all nine airports it owns, CEO Mpumi Mpofu has said.

This is as the company implements aggressive strategies to mitigate Covid-19's impact, which Mpofu expects to last up to five years. 

Plans to establish aerotropoli at the three major airports - Johannesburg, Cape Town and Durban - have already been completed, while other airports like George, Port Elizabeth and Bloemfontein lend themselves to the creation of smaller "airport cities" to integrate trade facilitation and commercial development around them. 

An aerotropolis is a metropolitan subregion whose infrastructure, land use, and economy are centred around an airport. It functions on a larger scale than an airport city.

Covid-19 and the weak South African economy resulted in significant revenue and cost pressures for ACSA, which announced the results of its financial year ending 31 March 2020 on Tuesday.

Revenue declined by 0.03% to R7.12 billion, while profit rose to R1.2 billion from R224 million compared to the previous financial year. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) reported was R2.6 billion. The group generated sufficient cashflows of R2.5-billion to fund its operations, investment in capital expenditure and servicing of debt.

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 compared to R6.5 billion in 2019.

Debt has been reduced by R11 billion since 2012 when gearing stood at 60%.

Cutting costs

Mpofu says the improvement in profit is due to accounting adjustments and events such as the R721-million fair-value adjustment to investment properties and R157 million in rates refunds.

But bolstering liquidity has, among other things, meant securing R3 billion in credit facilities and the company is pursuing additional credit facilities. It has taken cost-cutting steps to mitigate the impact of Covid-19 and travel restrictions, foregoing performance bonuses and cutting other operating expenses towards the end of the financial year. These included offering early retirement and voluntary severance packages to staff and creating job sharing opportunities.

"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," says Mpofu.

"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."

Cargo

Mpofu says ACSA's aeronautical revenues used to mainly be passenger driven. Analysis indicated the potential of greater opportunities to be found in cargo operations. For example, the pandemic has led to an increase in e-commerce and this is an area where ACSA wants to drive the use of air transport in the process of getting goods to consumers.

"E-commerce growth is an opportunity for ACSA to look at critical economic sectors which traditionally did not use aviation even if was cost effective to do so. We want a road-to-air strategy to maximise and facilitate trade through air transport. This is very important also for the development of intra-Africa trade," she says.

Tourism

Although ACSA is preparing for a surge in domestic travel during December, Mpofu says it will not be to the same extent as last year December.

"SA is usually highly mobile in December and even regarding the list of countries from which leisure travel is still banned, I think it might be open to more countries by December," she says.

New normal

According to Mpofu, the "new normal" for ACSA starts with how their operations have changed. Only passengers are allowed inside the airport building and traffic is restricted in certain parts. Furthermore, a touchless environment has been created as far as possible, including at check in and boarding. Another new feature is monitors ensuring that people comply with the law regarding protocols.

Major components of the cost base included security services and asset maintenance costs in response to security threats, regulatory compliance. 

"When people don't meet the health protocol requirement they are asked to go back home. It is not a joke. We try to keep a safe environment. Building passenger confidence is critical for us. The regulations are legal and not just nice to haves. So, any transgression leads to action taken immediately," she says.

"ACSA has been really hard hit by Covid-19 - more than we expected and the indications are that it will take about four or five years for the recovery. Yet, we see a silver lining which is to change the nature of our airport business, including building new developments around our airports so that we do not only relay on passengers. Revenue diversification is very important for us."

The runway ahead

"It is important to note that the financial position of the group was solid prior to Covid-19 in spite of the difficult operating environment. We continue to take great pride in our standing as a well-run state-owned company that has made a profit in all but one of its 26 years," says Mpofu.

"The road to recovery will be difficult but we are in good position not only to recover ourselves but to support a wider recovery across the aviation and tourism value chains. ACSA is well positioned to weather the storm despite uncertainty in the domestic market and low growth in passenger demand. We will focus on running effective airports and review our capital investment programme."

President Cyril Ramaphosa recently officially unveiled the R950 million Radisson Hotel & Convention Centre, Johannesburg, O.R. Tambo located in the City of Ekurhuleni, which forms part of the 30-year aerotropolis masterplan, seeking to transform the city into a global logistical hub and using the OR Tambo International Airport as the springboard.  

Of the total capital investment, R545 million was spent on the development of the 248-room hotel boasting state-of-the-art facilities. The hotel and convention centre are owned 20% and 80% by both Akani Properties and the Municipal Employees Pension Fund respectively and managed by Radisson Hotel Group.

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