Almost 6½ years after Covid brought aviation to a juddering halt, Airports Company South Africa (Acsa) can finally say it is more or less back where it started.
Acsa’s passenger traffic reached 98% of pre-pandemic levels in the year to end-March, with 20.58-million departing passengers, 8.5% more than the previous year. International traffic has recovered completely, regional traffic is 4% above its old level and domestic traffic is at 97%. Aircraft movements, though, remain at about 93% of where they were, reflecting fuller planes and higher load factors.
“We are back,” CFO Luzuko Mbotya told the FM after the results presentation.
There is another way of reading that number. Linden Birns, MD of aviation advisory firm Plane Talking, says South Africa’s recovery has been conspicuously slow compared with the rest of the continent.
“While traffic numbers are recovering to pre-Covid levels, we are five to six years behind the rest of Africa, which had recovered by 2023 and has seen demand for air travel return to an average 4.5% compound annual growth rate,” he says.
Birns does not primarily blame Acsa. He points instead to transport policy, regulation and the allocation of international traffic rights. Acsa can improve terminals and security, but it cannot manufacture the airlines and routes that use them.
Financially, the recovery looks pretty convincing. Revenue increased 11.6% to R8.81bn, profit before tax rose 10.1% to just under R2bn and after-tax profit increased 5.3% to R1.2bn. Aeronautical revenue rose 15.2% to R4.68bn, helped by passenger growth, a 1.3% rise in aircraft movements and a 6.5% tariff increase. Non-aeronautical revenue, from property, parking, retail and other commercial activities, rose 7.7%.
A R2.76bn staff bill
There is, however, a rather large asterisk attached to the recovery: people.
Acsa’s employee bill increased by an eye-watering 33.9%, from R2.06bn to R2.76bn — almost R700m in a single year. Operating costs excluding employees increased just 4.1%. As a result, ebitda actually declined 1.5% to R2.84bn despite the strong revenue growth. The ebitda margin fell from 37% to 32% and the cost-to-income ratio rose from 63% to 66%.
That’s a number sure to raise eyebrows among airlines already sensitive to increases in charges levied by a largely government-owned monopoly. Mbotya says the explanation lies in the peculiar road Acsa has travelled since Covid.
“During the Covid years, we had to let go of about 700 people,” he says. The voluntary severance programme was necessary to protect liquidity at a time when airports had almost no traffic. Acsa found itself, he says, with “really no activity at our airports”, but still roughly 3,000 employees to pay. Now that traffic is almost back to its old level, some of that capacity has had to be rebuilt.
“The activities at our airports have now peaked and therefore we need the skill and the capacity to attend to the traffic growth.”
There was another Covid hangover. Acsa had frozen increases even as inflation kept eating into employees’ pay.
“We obviously did not give any increases, while inflation had increased,” Mbotya says. “So we still needed to address that particular factor.”
Acsa has also filled critical vacancies, improved employee benefits and set aside R353m for incentive bonuses. Some security functions have been brought in-house, shifting expenditure previously paid to outside contractors onto the employee line. Mbotya says the board decided to insource security in sensitive areas because airports are points of entry into the country.
“There are certain areas where we did not feel comfortable outsourcing to third parties, but we needed to ensure that there’s full control and oversight in those areas.”
Mbotya acknowledges that the combination of factors pushed employee costs up “at a much higher rate … than expected”. He is plainly aware of the risk of the rebuild turning into permanent bloat.
“What we don’t want [is to] find ourselves with a bloated headcount,” he says. “Costs, they’re very sticky up. Once you employ someone, it becomes very difficult to retrace that person.”
Acsa has begun what Mbotya calls a “capacity and capability modelling intervention” to work out its optimal structure. This could involve moving people out of areas considered overstaffed. “We may even repurpose some of the resources where we feel that they are a bit bloated,” he says. “We will certainly address the headcount issue in the current year.”
There is some justification for treating the staff number carefully. Airports draw the line between employees and contractors in different places, particularly in security, so crude international comparisons can mislead. The rate of increase, however, is clearly unusual.
The experience factor
For Guy Leitch, publisher and editor of SA Flyer magazine, the bigger question is whether Acsa’s improved finances are translating into a better airport experience.
“It’s great that we have an SOE [state-owned entity] performing so well financially, but is it doing its job properly?” he asks. “Is it providing the necessary quality travel experience to incoming tourists and is it keeping its costs affordable? And the answer to those questions is, well, the jury’s still out.”
Leitch says passengers still encounter unreliable escalators and travelators, tired toilets, remote aircraft stands and too few functioning boarding bridges. “Profit’s great; service delivery not so great,” he says.
The reported profit also flatters the underlying operating performance a little. Acsa booked R574m in fair-value gains on investment properties, up from R406m, while finance costs fell 13.8% to R618m. Those two items helped lift pre-tax profit even as ebitda declined.
The timing matters because Acsa is shifting from recovery into investment mode. It spent R1.08bn on capital projects this past year, mostly refurbishing existing infrastructure. But a much larger programme lies ahead.
Mbotya calls the backlog another legacy of Covid. “Most airports had put the refurbishment and maintenance programmes during Covid on hold. Now we are starting to catch up,” he says.
The programme includes an OR Tambo jet-fuel pipeline and runway expansion; terminal work and runway realignment at Cape Town; and new landing, security and airport-management systems across the network.
Birns says the overdue investment will be welcomed by airlines frustrated by deterioration in the passenger experience, particularly “the lack of sufficient and functioning contact boarding air bridges”.
Acsa says about 70% of the R3.6bn originally planned through the end of the 2026 financial year has been executed. It has now identified about R15bn of near-term investment through FY2029 and an indicative R37bn over the five years to FY2031. The figures overlap, but they illustrate the scale of what is coming.
Financially, there is room to manoeuvre. Gearing has fallen from 8% to 6%, while cash and short-term investments have risen to R6.4bn. The immediate issue may therefore be less whether Acsa can finance the programme than whether it can get the projects built efficiently.
Acsa isn’t planning new airports. Mbotya reckons there are still “a few millions” of passengers’ worth of spare capacity in the existing network. The company is forecasting about 42-million passengers by 2029/2030, with international and regional traffic growing faster than domestic.
Achieving that growth is not entirely in Acsa’s hands.
Mbotya points out that Joburg once functioned far more effectively as an African hub when SAA had a large continental network. “We used to be the hub of connectivity in Africa when SAA had a huge footprint. With the loss of SAA, we’ve lost that hub status,” he says.
Birns goes further. He argues that the regulatory system is constraining recovery. SAA, he says, continues to hold long-haul route rights it has not reactivated since 2020, including JFK, Atlanta, Washington, Heathrow, Frankfurt, Munich, Zurich and Hong Kong. At the same time, under South Africa’s bilateral air-services agreements, many designated foreign carriers are already flying the maximum frequencies available to them.
“So we are limiting the growth in business and private travel and tourism,” Birns says.
Leitch makes the same point more colourfully, describing SAA as the “classic dog in the manger” for retaining routes it does not currently operate while preventing competitors from filling some of the gap.
Acsa has finally got back to where it was before Covid. Its more interesting challenge now is what it does with the recovery: getting South African aviation growing again, delivering an overdue investment programme and improving the passenger experience while ensuring that a 34% increase in its staff bill does not become the new normal.
