Feature Article: Can South Africans feel proud of SAA, their ‘national carrier’?

How many poor South Africans will look up to the sky at the shiny new aircraft bearing our national flag and feel proud? How many of this nation’s people realise that even though it may be beyond their wildest dreams to ever fly in one of the new aircraft, or any aircraft for that matter, it is their hard earned incomes that are a source for the funds that subsidise the travels of South Africa’s elite and those foreigners who choose to fly South African Airways (SAA)?

In April, the government gave the perennial loss-making airline another guarantee, this time R5-billion, on the condition it developed yet another turnaround strategy. SAA has cost taxpayers at least R12-billion over the last decade. The opportunity cost of the money being swallowed by SAA is staggering. Considering the cost of one RDP house, this money could have been used instead to build approximately 218,000 houses which would have considerably improved the lives of hundreds of thousands of poor South Africans who still have no adequate shelter.

The chance to turn this parastatal around still exists. SAA, its subsidiaries and sister outfit, South African Express, could all be auctioned off to private owners. The government would receive funds from the sales and a vast new source of tax revenue would be created. There is no time like the present.

But the problem with all state owned enterprises (SOEs) is that they lack any economic incentive to be profitable. Many of them even have a monopoly on the services they provide. SAA, effectively, has destroyed all, barring one, of its competitors in the South African aviation industry. It was fined under the Competition Act for the host of illegal acts it committed to do this, but no matter what it does, it continues to receive the blessing of the Treasury bestowed on behalf of all of us, the taxpayers, rich and poor. SAA’s behaviour has probably prevented other airlines from even contemplating operating in South Africa, to the detriment of all South Africans. And this will not change as long as SAA has access to a bottomless well of funding (us, the taxpayers) and for as long as our Public Enterprises Minister thinks that our “national carrier” is a “strategic asset”.

In contrast, private companies have been subject to the ruthless discipline of the market (and SAA’s cheating antics). When they made perennial losses, they went under. The government needs to start forcing public enterprises to face up to potential competitors and stop simply using taxpayers to pay for their mistakes.

At the International Air Transport Association (IATA) conference held in Cape Town at the beginning of the month, Public Enterprises Minister Malusi Gigaba called for greater co-operation between SAA, Kenya Airways and Ethiopian Airlines. The three largest African carriers were urged to increase connectivity within the continent and to work together to improve infrastructure and skills in Africa. This is a step in the right direction. There is, however, already an agreement in place to open up Africa’s skies to competition.

In 1999, African ministers responsible for their aviation sectors met in the Ivorian city of Yamoussoukro and 44 African states became signatories to what is known as the Yamoussoukro agreement. This agreement commits the signatory countries toderegulate air services and promote regional air markets open to transnational competition. Despite this agreement, though, African countries have been reluctant to adopt an “open skies” policy and relax the government regulations that prevent foreign airlines from using African airports.

These restrictions are inefficient and not only hurt the prospects of attracting more tourists but also negatively affect cargo volumes. Moreover, if South Africa is nursing any aspirations of becoming a regional hub (like Dubai and Singapore), it needs to act quickly as it is unlikely that there is room for two successful regional hubs on the African continent. To do this requires further liberalisation, specifically an open skies policy. The open skies policy of Dubai and Singapore has not only increased their air traffic numbers but their cargo, trade and import-export services have also grown considerably. The gains to be had for South Africa through liberalisation of its skies are immense.

According to the United Nations World Tourism Barometer, South Africa received the second largest number of Africa's tourists. In 2011, Morocco received 9.3 million tourists and South Africa received 8.3 million visitors. The third biggest travel destination in Africa was Tunisia (4.7 million), followed by Zimbabwe (2.2 million), Botswana (2.1 million) and Algeria (2 million). Overall, however, Africa accounts for a mere 5.1 per cent of global tourism traffic and 3.2 per cent of international tourism receipts. Africa faces many obstacles to increasing tourism numbers but a significant reason for the low market share is a reluctance to liberalise the African skies.

South Africa should not wait for other countries to reciprocate and open their skies. We need more competition in our local airline business and opening our skies will drive down prices for consumers. Of course, SAA will vehemently oppose any idea that increases competition and government would need to auction off SAA and its sister airline to the highest bidder prior to the admission of any further competitors. Otherwise, we, the taxpayers, will find ourselves footing an even larger bill when any new operators arrive in our skies and cause SAA’s losses to spiral even further out of control.

Source: This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

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