While there is still a great deal of uncertainty about a recovery in air travel, we have successfully implemented the commitments we made in response to the impact of COVID-19 and are on track with further measures.

MESSAGE FROM THE CEO

Dr Mpumi Mpofu

CEO

CHARTING A COURSE
THROUGH FY2020/21

FY2020/21 was a year that tested our mettle; as a business, a team and as individuals. Just before the start of the financial year, the WHO declared the rapid spread of the COVID-19 virus a pandemic, triggering a seismic change at an operational level. The safety of our employees and our stakeholders in the airports was our primary concern at the beginning of the pandemic and we moved quickly to implement the necessary measures in line with national and international best practice. In addition, we had to provide cargo and repatriation services. Air transport remains one of the hardest-hit global industries.

Our departing passenger numbers are down 78.2% for the year under review, as were our top tourist markets. The UK’s Airport Operators Association reported a 75% decline in passengers in 2020 and the US Bureau of Transportation Statistics reported a 62% drop in 2020 compared to 2019.

After the first quarter, during which for the most part our airports were closed, it became evident the pervasive uncertainty in our external environment was becoming business as usual. The threat to our sustainability as a company required a strong, agile and strategic response. Our finance team, in close engagement with our investors, was also realising that forging a path towards financial sustainability through this crisis required a significant readjustment to our financial position. A revised financial plan, based on the assumptions of the internationally predicted recovery, was developed. With the support of the Board, Minister of Transport, rating agencies as well as investors and lenders, amending and implementing our Recover and Sustain Strategy and Financial Plan gained momentum. In addition, recognising that we could not sustain the previous level of expenditure with diminishing revenue, a cost containment programme was implemented. This forced the Company to pare down in light of lower revenues and streamlining our business.

In the process of reassessing our business, it became evident that we need to hone in on our key capabilities and initiatives that will drive the sustainably of our business in the future. Running airports is our core business and will be our primary focus in the next five years as we regain ground.

Our revised strategy was submitted to our shareholders. We continue to fine-tune this strategy in response to external pressure but also with a view of where we want to be in a post-COVID-19 world. 

To ensure we deliver on the new strategy, we reviewed our operating model and aligned our strategic pillars and new strategic objectives. 

Initiatives to boost the balance sheet in a weak passenger market include diversifying the aeronautical business model to include new service offerings around cargo and reviewing previously outsourced airport functions.

In the short term, our Develop airports and Grow our footprint pillars remain on our radar but take a back seat to defending and extending our core business of Running airports. The developments we had planned for this year have been put on hold. As we reprioritised our budgets, a few projects which were earmarked but had not started and others – particularly projects related to augmenting capacity – have been deferred. Our focus for the Develop and Grow pillars in the first strategic timeframe will be identifying and exploring opportunities and partnerships that will enable growth in the future. As demand for air travel increases, we will resume our plans for expanding airport development through the Aerotropolis model to create bigger economic hubs and activity around the major international airports. Our sustainable value creation remains centred on stimulating economic prosperity, social equity and environmental integrity.

We have successfully implemented most of the commitments we made in response to the impact of COVID-19 and are on track with further measures. The core of these commitments is a reduction in annual operating expenditure of R1.2 billion and capping capital expenditure at R1 billion a year for maintenance and refurbishment required to keep airports operating safely and efficiently.

OUR PEOPLE

As part of the revised strategy and in anticipation of the slow and unpredictable recovery, reducing staff costs was a necessary part of our revised Financial Plan. A structured Staff Cost Reduction Programme was introduced, taking into consideration the capabilities that will sustain the business beyond the negative impact of the pandemic. The programme commenced in December 2020 with generous early retirement and voluntary retrenchment offers. This phase was concluded by March 2021 with the targeted R300 million employee cost savings realised, which averted a retrenchment process. The cost reduction and optimisation plan also included constraints on remuneration and incentives across the Company.

FINANCIAL PERFORMANCE

Revenue for the year was down 69.8% to R2.2 billion compared to R7.1 billion in the previous year. Aeronautical revenue, derived from regulated charges or tariffs related to aircraft landing and passenger service charges, was down 78.4% compared to the previous year. This reflects a 59.4% drop in air traffic movements as well as 61.9% and 74.6% decreases in domestic and international departing passengers respectively. Non-aeronautical revenue is dependent on factors such as traffic volumes and commercial activity but was further impacted by relief measures put in place to assist our tenants and support their sustainability. For the financial year, a rental reprieve of R1.2 billion was provided to tenants through reduced property rentals and/or waiver of retail guaranteed minimum rental.

While some operational cost savings occurred as a result of curtailed operations, the employee severance costs were significant.

ECONOMIC REGULATION

Engaging with the Regulating Committee and related stakeholders regarding appropriate tariff assistance is an ongoing priority in the lead up to the 2022 to 2026 Permission application. This engagement included sharing our revised strategy and financial plans as well as demonstrating the impact of tariff assistance on the Company’s long-term sustainability. However, significant uncertainty persists which impacts decision-making for the Company.

RUN AIRPORTS PERFORMANCE

Annual traffic volumes remained significantly below pre-COVID-19 levels throughout the financial year. Total departing passengers decreased by 78.2% to 4.5 million (FY2019/20: 20.9 million) with domestic passengers down by 72.3% to 4.0 million (FY2019/20: 14.5 million); regional passengers down by 92.9% to 37 189 (FY2019/20: 517 960); and international passengers down 92.9% to 412 322 (FY2019/20: 5 822 544). Unscheduled passengers increased by 69% to 97 109 (FY2019/20: 57 575) largely as a result of the repatriation flights that were permitted to operate during the lockdown period. Total air traffic movements decreased by 59.4% to 99 962 (FY2019/20: 248 519). 

OUTLOOK

Global travel restrictions brought on by COVID-19 continue to pose serious challenges to air traffic recovery. It is estimated that global traffic will be between 43%–51% of pre-COVID-19 pandemic traffic levels in FY2021/22.  Countries that have achieved high rates of vaccination are showing signs of recovery;

however, a sustained global traffic recovery will be realised only with an acceleration of vaccination campaigns.

While there is still a great deal of uncertainty about a recovery in air travel, we have successfully implemented most of the commitments we made in response to the impact of COVID-19 and are on track with further measures. Responding effectively is not only crucial for the sustainability of the Company, but also to set the tone for our future.

I want to thank all our people for the great work they have done and for rising to the challenges presented by the pandemic. I commend the Executive and management teams for their flexibility and open-mindedness in plotting a way forward in an unfamiliar and shifting operating environment. To all our airport stakeholders, thank you for your contribution to keeping our airports safe and up and running in exceptional circumstances. I would like to extend my appreciation to our Board for its unwavering commitment and guidance during this challenging year. Lastly to our shareholders, investors and lenders, thank you for your support and confidence in our business.

Mpumi Mpofu

CEO