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RUN AIRPORTS

Running airport operations successfully is our core business and vital to Airports Company South Africa’s value creation process. Our primary focus is on our strategic pillar-run airports as we recover from the impact of COVID-19. In response to the pandemic, we have revised our approach to operating airports by improving operational efficiencies, rebuilding passenger confidence, adjusting tenant rental obligations and reducing infrastructure footprint to air traffic. Protecting the health and safety of our employees, stakeholders and passengers is fundamental to our operations. While the impact of COVID-19 on our industry has been severe and the path to recovery will be long, we remain committed to playing our role in supporting the national efforts to reconnect, recover and rebuild economic activity.

Overview

A full explanation of the context in which we operated in FY2020/21 is outlined in the timeline here. As a result of the tumultuous environment, we have experienced a massive drop in traffic through our airports, which severely impacted our aeronautical and non-aeronautical revenue. In FY2020/21, aeronautical revenue of R810 million was 78% lower than the previous year. Non-aeronautical revenue for the year reduced by 60% to R1.3 billion.

We generate revenue from three sources:

  • Core aeronautical revenue from airport operations, including regulated tariffs for aircraft landing, parking charges and passenger service charges.
  • Non-aeronautical revenue from commercial income streams, such as advertising, retail, car parking, car rental and property.

Non-core revenue from the provision of technical advisory and consultancy services – in South Africa and abroad – as well as revenue from our training academy. See Grow Airports here for further details.

The first two are dependent on airport scheduled traffic, which is measured in scheduled aircraft movements, which was 61% lower than the previous year and scheduled departing passengers, which was 78% lower than the prior year.

Our Run airports performance review focuses on security, safety, airport operations and non-aeronautical operations, demonstrating our value creation efforts, and concluding with an outlook for FY2020/21.

SAFETY

Airports Company South Africa is obligated to comply with SACAA regulations concerning the management of communicable diseases posing serious public health risk relating to entry, 

departure and transit of passengers, ensuring that appropriate precautionary measures are taken to reduce the risk of infection. In line with regulations, we had an existing procedure in place for public health emergencies, 

which was amended in consultation with the SACAA to include COVID-19-specific mitigating measures. Before the reopening of our airports, the Company’s state of readiness was approved through the SACAA inspections, to satisfy the regulatory requirements.

Our COVID-19 response programme overview

Airports Company South Africa’s COVID-19 governance structure

Responsibilities:

  • Oversight of the Company’s COVID-19 Response Plan
  • Monitor feedback from the aviation industry and align with emerging best practice
  • Share learnings with industry and peers

Governance at operational level

Responsibilities:

  • Audit of all implementation
  • Identify successes and areas of concern
  • Identify best practice
  • Engage COVID-19 governance structure with findings

Airport operations

Plans in Place:

  • Passenger capacity and processing
  • Flight scheduling
  • Employee induction and Office guidelines

Infrastructure and asset management

Plans in place:

  • Cleaning regimes
  • HVAC system testing
  • Contractor compliance
  • Mothballing procedures

People management

Plans in place:

  • Provision on PPE
  • Staffing plans
  • COVID-19 case management
  • Employee transport

Client and passenger services

  • Stakeholder engagement
  • Staff rosters

A COVID-19 compliance dashboard was implemented to track stakeholder compliance to regulations. Reporting of compliance occurs three times a week and information on the reporting dashboard for all nine airports is updated accordingly. From June 2020 to date, over 10 000 audits have been conducted across all our airports. A central database has been established that allows airports to access stakeholder compliance data, COVID-19 response plans and risk assessments for each stakeholder. As requirements change, we will continue to adjust audit templates in line with these requirements.

We further engaged with the ACI to develop new passenger facilitation protocols based on guidance by ICAO and the IATA. The measures implemented at South African airports conform to the standards recently set out by these organisations.

Occupational health and safety

Over the past year, we gained ground by developing and implementing a safety management system underpinned by the principles of ISO 45001. All historic data was collected and migrated to the new safety management standard to which all its airports subscribe. We have progressed with the development of new procedures and review of existing procedures to align with ISO 45001 standards. However, the IS0 45001 gap analysis was delayed as a result of the pandemic. We made great strides in consistently managing compliance with regard to the management of contractors working on our premises. In FY2020/21, we screened and vetted 138 safety files for contractors doing work across the airports. This was critical in ensuring continuous compliance with occupational health and safety requirements.

We have established on-site clinics at four of our international airports: O.R. Tambo, Cape Town, King Shaka and Chief David Stuurman (Port Elizabeth). These clinics are fully equipped with occupational health equipment to enable the provision of our occupational health programme. The clinics played a significate role in our response to COVID-19. At other airports, including our corporate office, local occupational health service providers were contracted through the nationally appointed service provider to ensure consistent provision of service to all staff and airport users.

SECURITY

We have adopted a risk-based, multi-agency approach to threats and emergency across our network, both relating to landside and airside operations. During lockdown, airports were closed for all but repatriation flights.

These flights were arranged and approved through the DoT on short notice. Security services were operating on skeleton staff numbers and these had to be amended as and when necessary to support the airport operations during repatriation flights. Because of the sensitivity of the COVID-19 regulations, careful consideration was given to security requirements and standards. As a preventative measure, the RAPS K9 Explosion Detection Team was called in and requested to support operations of all repatriation flights.

With the ministerial directive on COVID-19, airports had to align security operations to conform to touchless processes in accordance with the recommendations and guidelines of ICAO, SACAA, IATA and ACI to create a harmonised customer experience without compromising hygiene and safety. We implemented the guidelines of touchless processes to baggage and persons. This touchless security screening process was seamlessly implemented and welcomed by the public and there were no bottlenecks from a social distancing queue management perspective.

Smart security technology was partly operationalised in 2020 at O.R. Tambo. The national roll-out of smart security was deferred as a consequence of COVID-19 budget restrictions. We optimised security deployments across our airports to minimise outsourced contract costs. 

This created efficiencies in operational costs which benefited the organisation at large. Training was deferred to observe COVID-19 regulations. We continue to collaborate with the different service providers to provide a seamless safe and secure service.

The feedback in terms of COVID-19 security response was positive and we are committed to continuous improvement.

A key focus of enterprise security during the lockdown was the protection of our perimeters and access gates and the prevention of vandalism of infrastructure. We heightened security measures by increasing law enforcement visibility in and around our airports and reduced access to the airside and terminal buildings.

AIRPORT OPERATIONS

From an operational perspective, we had to manage the process of bringing our operations to an almost complete halt, barring repartition activities. The total shutdown of airports involved parking aircraft across all airports, which posed considerable space constraints. For the first time, our airports were closed and all but critical infrastructure switched off.

The opening of our airports did not see an immediate return to business as usual. We had to adapt our operations, developing and implementing detailed tailor-made standard operating procedures with respect to passengers, airlines and terminal operations to meet new regulations. Collaboration with stakeholders was a key enabler in this process, as we were all facing extraordinary circumstances.

Airport service quality (ASQ)

All airports are registered on the ACI Airport Health Accreditation programme. The programme provides airports with an assessment of how aligned their health measures are with the ACI Aviation Business Restart and Recovery guidelines and ICAO Council Aviation Recovery Task Force recommendations along with industry best practices. Our participation in the programme demonstrates to passengers, staff, regulators and governments that we are prioritising health and safety in a measurable, established manner. During the lockdown, the passenger throughput was insufficient to comply with the ASQ data collection and fieldwork criteria. As a result, we have not been able to measure passenger satisfaction at our airports.

NON-AERONAUTICAL OPERATIONS

Improving, identifying and securing non-aeronautical revenue growth continues to be key to augmenting and enhancing overall revenue flows.

Commercial operations

The non-aeronautical revenue is generated from two businesses: core commercial portfolio and non-core commercial portfolio. The core portfolio includes five commercial businesses: property, retail, advertising, parking and car rental. The non-core commercial portfolio includes consultancy and advisory services, training and IT business. In addition to revenue generation, these businesses provide an opportunity to further our transformation agenda by supporting black businesses and creating jobs. Read here.

Our Commercial 2025 strategy, launched in May 2019, focuses on maintaining and improving existing nonaeronautical revenue flows and identifying new nonaeronautical revenue approaches and opportunities. Although the pandemic derailed our strategic plans, we will continue to track Commercial 2025 initiatives but at a reduced level than was originally envisaged.

The implementation of the national lockdown significantly impacted our business and that of our concessionaires with a reduction in passenger numbers and commercial activity. A 61% drop in core commercial revenue to R1.2 billion, compared to the R973 million; change to normal colour. Strategy to confirm budget and the BEE revenue previous year, reflected the turbulent operating context. Even though airline operators are gradually increasing capacity, the demand for air travel remains subdued to levels last seen more than two decades ago.

To support our commercial stakeholders during the pandemic, we offered unprecedented relief in the form of a minimum rental waiver for all our commercial partners, with tenants paying only a turnover-based rental. The granted rental reprieve was offered for the period April to October 2020.

Advertising

When lockdown started, all airport operations were suspended. Advertising concessionaires were granted rent-free occupation as a result for the months of April and May 2020. The portfolio received no minimum rentals for this period. For the ensuing months, rental reprieves were granted to concessionaires. In terms of this clause, concessionaires paid only turnovers due and no minimum rentals were payable.

International flights remained prohibited and no revenue was generated from these advertising offerings from approximately June to September 2020. Concessionaires reported dampened demand as most organisations cut down on their advertising budgets following the economic downturn triggered by the pandemic. The reduced demand for airport advertising was further fuelled by a significant drop in passenger numbers across the network of airports.

Retail

Retail turnover fell by 74.9% year-on-year to R310 million against revenue in FY2019/20 of R1.2 billion.

The loss in revenue was mainly as a consequence of the impact of the unprecedented level of disruption in retail operations, driven by international travel, tobacco and liquor restrictions and temporary operational shutdown of airports as a result of COVID-19. Across our network of airports, 48 retail shops have since permanently closed owing to unsustainable trade levels. We expect more closures which will result in a loss of guaranteed future minimum rentals.

International departures contributed 82% towards total pre-COVID-19 retail sales. With most international departures shops not trading in the year under review, this has resulted in a decline in revenue. Our retail business experienced a shift to domestic and intraregional travel, with declines in international and business travel. The spend per departing passengers reduced from a previous average of R174 to an average of R33.08 per departing passenger. Performance improved in October, November and December across all categories except curios which is driven by the tourism market, due to the peak of the summer holidays and the lifting of travel restrictions.

Rental discounts offered form October 2020 to 31 March 2021 to business partners amount to approximately R248 million. These discounts have been offered to consider Airports Company South Africa’s needs, as well as retailer’s needs, since all parties have been by the pandemic. Forty-two requests for rental review have been received across all airports, with more rental review letters anticipated in the new financial year.

Car parking and car rental

Car parking revenue decreased by 72% compared to the previous year, in line with a similar decline in passenger volumes.

Car rental services were allowed to operate to service essential workers under Lockdown Levels 5, 4 and 3 but only four out of 10 elected to trade. Full car hire services were restored at Level 2 with all 10 operators trading at our airports. Minimum rentals for kiosks and parking bays continued to be waivered. As a result of the limited passenger volumes, only a 9% turnover rental was generated for volumes traded.

A COVID-19 minimum rental waiver, with a turnover-only billing, was granted for May and June 2020. A submission was made to the COVID-19 Strategic Monitoring Committee to uphold the waiver on minimum rentals with a turnover percentage only billing until passenger volumes are within 65% of those processed in FY2020/21 and was approved. This rental model is ongoing.

Property

Revenue from property has exceeded our new normal budget projections. Credits amounting to R381.8 million were provided to tenants in FY2020/21. Fewer tenants vacated property units than anticipated, thanks to the relief offered. Our industrial portfolio was less affected by the pandemic compared to our other two property portfolios:

  • Commercial (terminal, lounges)
    – 46.9% of total credits
  • Diverse (hotels, fuel depots)
    – 36.4% of total credits
  • Industrial (cargo warehouses, hangars)
    – 16.7% of total credits

Non-core commercial revenue

The non-core commercial portfolio recorded R13 million in revenue and accounts for 1.3% in non-aeronautical revenue.

Cargo handling at our nine South African airports

Most cargo volumes are moved through ‘belly space’ on passenger flights. However, with the passenger services suspended or severely diminished over the year, additional dedicated freighters were deployed to maintain the flow of goods.

We have well-established cargo precincts at many of our airports, particularly O.R. Tambo International Airport and Cape Town International Airport.

During the year under review, we focused on the operational and infrastructure planning needs of the precincts. Once approved, these initiatives will be adopted throughout the network to ensure better cohesion of service provision to our cargo stakeholders.

Our network of airports harnesses connectivity, accessibility and excellent locations with each being an important development node in its own right. We have an exceptionally well-developed airport network and system and want to leverage this in the air cargo arena.

We completed a full review of our cargo strategy. We aim to capitalise on growth opportunities in this sector. A multidisciplinary team undertook market research, considered external and internal environmental factors, and engaged with the air cargo and logistics industry to ascertain future trends. This will inform the development of an enhanced cargo business model that considered commercial and operational aspects.

OUTLOOK

COVID-19 will continue to impact the financial sustainability of our business as long as our operations are curtailed. The recovery of the sector depends on better management of the pandemic and acceleration of vaccine procurement and distribution which will go a long way in restoring confidence for people to travel again.

We will remain focused on our core business of running our airports. We strive to provide the optimal passenger experience at the airport by ensuring operational efficiencies and strategic network management. We will continue to maintain a good collaborative partnership with our business associates.