Open-skies could boost tourism and trade

By BARSA CEO June Crawford

Aviation is one such industry. There is virtually no large-scale business in the world that does not make use of aviation, whether to transport its employees to bustling commercial destinations or airlift cargo to far away markets. Aviation is the glue that holds the economy together and often acting as a catalyst that fuels tourism, trade, and investment.

Before the introduction of aviation in 1929, South Africa conducted trade with the rest of the world through sea transportation. Aviation made people and goods reach their destinations quicker than any other mode of transportation, boosting trade and investment flows between South Africa and the rest of the world.

Aviation has played a major role in the development of our economy and is a key contributor to the Gross Domestic Product (GDP), accounting for 3.5% of the GDP. A research paper published in 2016 by academics, Oswald Mhlanga and Jacobus Nicolaas Steyn, revealed that the airline industry pays nearly R6 billion in taxes and generates over 227 000 jobs.

Another study by Oxford Economics on aviation’s economic contribution to the South African economy noted that, in total, the air transport sector supported 490 000 jobs. The study, which was released last year on behalf of the International Air Transport Association (IATA), estimated that air transport contributed R154.8 billion to the GDP and directly supported businesses such as airlines, airport operators, airport on-site enterprises (for example restaurants and retail shops), aircraft manufacturers and air navigation service providers.

Explored from a global perspective, the contribution of aviation is staggering. According to the Air Transport Action Group, the industry supports $2.7 trillion (3.5%) of the world’s GDP with the world’s airlines transporting over three billion passengers a year and 50 million tonnes of freight.

The figures quoted prove beyond a shadow of doubt that aviation is vital to the global economy, airlines, airport operators and air navigation service providers are making an immense contribution to ensuring a safe, efficient and viable local aviation industry that integrates our country into global markets.

However, Africa could benefit more if African governments were to deregulate their domestic aviation sectors and opened their skies to participation by more airlines, particularly low-cost carriers (LCCs).

While air traffic volumes into, from, and within Africa have grown exponentially, African airlines have not maximised benefits from this growth. This drawback is borne out of the fact that there is no regional open-sky and bilateral agreements, which means that African airlines are mainly restricted to flying inside their home territories.

To illustrate this point, Africa is divided into 52 air traffic control regions, compared with just two in the Unites States (US) and one in the European Union (EU) region. Think-tank Oxford Business Group (OBG) points out that the continent, despite accounting for less than 5% of global air traffic, has 227 airlines compared to just 10 in the US. OBG argues that the presence of multiple air traffic control regions in Africa is designed to protect state-owned national carriers from competition. This protection prevents competing African airlines from attaining landing rights in other African countries. The overall downside to this protection is that travellers pay more than what they should be paying for air tickets, restricting the number of people that could potentially use aviation to travel or to do business around the continent and visit exotic African tourist destinations. BARSA has been engaging with regulators with a view of encouraging them to open African skies to establish one air traffic control region for the continent. If adopted, this could grow aviation in Africa exponentially and pave the way for more LCCs to enter the airline business. But this has to be done in a manner that does not result in overcapacity and threaten the overall financial viability of the industry.

We have seen the positive effects of de-regulation in South Africa, whereby since after the 1991 de-regulation we saw many operators entering the sector, resulting in national carrier South African Airways (SAA) reducing its market share from 95% in 1990 to 36% in 2016. This increase in competition has decreased ticket prices and enabled more people to access air travel.

Today, around 17 million people travel by air in South Africa, which is something that was unthinkable about three decades ago. In the US, de-regulation led to the emergence of LCCs, resulting in low-cost competition to 70% of US routes.

The Pan-African approach to deregulation is something that African governments need to expedite through opening African skies. As indicated, this will require merging the 52 air traffic control regions that exist in the continent into one region.

BARSA believes that a regional open-sky agreement will boost air traffic volumes, enabling the airline industry to create more opportunities for enterprises that operate in its value chain.

The emergence of new players will drastically reduce air fares, boost passenger numbers and usher in new opportunities for the continent in tourism, trade, and investment.

June Crawford – CEO: Board of Airline Representatives of South Africa

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