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Regional tourism set for growth, but not everyone is happy

The rise of the middle classes in emerging markets seems to be fueling growth in travel and tourism, a sector that is set for massive growth in the next decade despite various challenges.

Travel and tourism in the Southern African Development Community (SADC) made a direct contribution of US$19.2 billion (2.9%) to the world’s Gross Domestic Product (GDP) in 2013, and this contribution was due to reach 5% in 2014, representing about US$20 billion, according to a 2014 report published by the World Travel and Tourism Council (WTTC).

This direct contribution, which primarily reflects the economic activity generated by industries such as hotels, travel agents, airlines and other passenger transportation services, is set to rise to 5% each year between 2014 and 2024, and reach US$32.9 billion by 2024.

The report forecasts a decade of massive growth in every aspect of this sector worldwide, with SADC’s total contribution to the world GDP and total employment set to reach US$92 billion (down from US$55.3 billion in 2013) and 6.86 million jobs (down from 5.33 million in 2014) in 2024, respectively. SADC countries, which invested US$9.2 billion in 2013 to boost the sector, are expected to fork out US$12.9 billion over the next 10 years to help the sector stay afloat and make a significant impact on the world stage.

Mixed fortunes

While the sector overall continues to perform well in other parts of Southern Africa, not everyone in this region of 270 million people is happy about the growth.  The following two case studies can duly demonstrate that yesterday’s losers have become today’s winners.

South Africa

South Africa’s tourism industry figures have been grim when compared to previous years, and even the country’s positive entrepreneurs operating in the sector are said to be finding their perennial optimism strained.

While the International Air Transport Association (IATA) revealed a 21% year-on-year decline in air ticket revenue for tickets bought to South Africa in July this year,  Grant Thornton has estimated that South Africa would receive 100 000 fewer overseas tourists in 2015.

A research report by Tourism Business Council of South Africa (TBCSA) has suggested that the lower tourist numbers could result in as many as 9 300 jobs losses in the tourism industry and a total net loss to the country’s GDP of approximately R4.1 billion (about US$380 million) in 2015.

Business Partners Limited (BPL) Executive Director Gerrie van Biljon says new visa regulations issued by the South African government are the new barriers and a setback to the tourism industry.

“These effectively require many prospective visitors from countries such as China and India, to travel hundreds of kilometres in their own countries to one of the isolated offices that handle South African visa applications,” van Biljon explains.

Namibia

In Namibia, where tourism constitutes the third largest contributor to GDP after mining and fisheries and agriculture, 1.176 million international tourists in  2013 were hosted, from a mere 272 000 in 1995, according to with the World Tourism Organisation’s Yearbook of Tourism Statistics.

However, international tourism’s monetary value (receipts), which reached US$560 million in 2010 (from US$511 million in 2009) and went up to US$645 million in 2011, unbelievably decreased to US$598 million in 2012 and further fell to US$524 million in 2013.

Nevertheless, some critics said the rise of the tourism in Namibia means nothing as long as the mass of tourism enterprises, the group of small firms continue to be marginalised in policy processes.

“The mass of Namibian SMEs have limited marketing and funding capacity which makes it difficult for them to compete with larger enterprises, and this inequality in power also extends to the inability of SMEs to influence the process of policy formulation,” E Nyakunu and Prof CM Rogerson, of the School of Tourism and Hospitality at the University of Johannesburg, wrote on Tourism policy analysis: the case of post-independence Namibia.

Current situation

SADC, which regrets that tourism in the region has not received appropriate attention from governments, openly admitted that governments have not prioritised or budgeted for development of the industry.

Perhaps bearing in mind that previous tourism strategies for the region have proved unsuccessful, lacking effective marketing initiatives or prioritising areas at odds with SADC’s overall objectives, and that few investment incentives and disparate policies have created barriers to cross-border travel, the organisation launched the Protocol on the Development of Tourism in 1998.

SADC Protocol on the Development of Tourism

The aim, SADC said, was to establish tourism as a priority for Southern Africa and sets out its intention to use it as a vehicle for sustainable development.

This Protocol urges Member States to improve their quality of service, safety standards and physical infrastructure as a means of attracting tourism and investment into the region.

Therefore, the Protocol encourages cooperation between governments and private developers through a favourable investment climate that promotes sustainable tourism, preserving the region’s natural and cultural resources.

In terms of infrastructure, some Member States have already responded to this call.

Sani Pass

For instance, a 33km Sani Pass gravel twisting road between South Africa and Lesotho is currently being asphalted to act as a magnet to boost visitor numbers in these two countries.

Mpaiphele Maqutu, Lesotho Tourism Development Corporation CEO, said once completed in 2016, the road would act as an attraction to a broader base of tourists and bring new prosperity and economic development to the kingdom.

“This project will bring to life what was envisaged when the South African and Lesotho governments agreed that tarring the road made sense-both from an environmental and economic viewpoint,” Maqutu said.

The project’s cost is estimated at R887 million.

Hope at the end of the tunnel?

Despite the region’s industry facing several challenges and going through rough paths, WTTC forecasts about the next decade offer some hope and instill some impetus among the region’s tourism players.

Industry watchers have urged companies, especially SMEs, to start innovating if they want to continue operating.

BPL’s van Biljon said: “Tourism entrepreneurs should use any lull in the business to rethink and rework their product offering, costs and marketing so that they are ready when the tide turns, as it always does.”

He added: “Tourism businesses that had been focusing on international tourists need to work on providing enticing packages for the local market to fill as many beds and seats as possible if the international tourists aren’t coming in the numbers that they used to.”

As if desperate times call for desperate measures, the Namibian government has called for collective and innovative actions to continue to sustain tourism in the country.

It also urged companies to develop new customer segments and new markets when traditional source markets are in troubled times. τ

Source: southernafrican


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No More SAA Flights to China, Says Treasury

From May this year, there will be no more direct flights to China by South African Airways, Finance Minister Nhlanhla Nene said on Friday.

This is part of a strategy to turn around the finances of SAA and part of the cost-saving measures that include cancelling loss making routes with China being one of them.

“Indeed we have approved the cancelation of the China route as government because we have a certain obligation. Part of the implementation of the strategy was the closure of loss making routes,” said the Minister.

He was responding to a question at a South African Airways (SAA) media briefing on its 2013/14 financial results. This after the airline held its Annual General Meeting (AGM).

Acting SAA chief executive officer Nico Bezuidenhout revealed that close to R1 billion has been lost on the Beijing route in a three year period since SAA introduced the route in 2012.

Bezuidenhout said SAA will stop operating flights to China in April.

Air China will take over the route in May with SAA placing a code on flights to China.

This comes as the National Treasury announced this week that the airline is to receive R6.488 billion guarantee.

The guarantees to SAA amount to R14.4 billion against which SAA has thus far utilised R8.345 billion.

“We had to put SAA on a business rescue but with the Long Term Turnaround Strategy (LTTS) on the table together with the 90 Day action plan we had to be convinced that we would now be able to see an improvement in SAA’s financial situation,” Minister Nene said.

He explained that some of the drastic steps that had to be taken included the route closures, adding that was what other airlines were doing to save costs.

“It’s not just about closing the routes but also finding ways of still reaching that destination in a much more cost effective way including code sharing and that is part of the strategy.”

The move comes as part of the airline’s 90 Day Action Plan which was launched in December.

Bezuidenhout described the strategy as a living document.

“We had to continuously amend, adjust not radically change,” he said.

Treasury is also working with the national carrier in revising and refining the existing LTTS which will have the primary mandate of returning the airline to financial sustainability.

Minister Nene said that the focus will be on the 90 Day action plan which is based on the LTTS but with an emphasis on executing quick wins including route closures.

He emphasised that it will take time for the benefits to show on SAA’s bottom line adding that the guarantee was issued on the basis that the 90 Day Action Plan is robust and provides firm deliverables.

“The work for SAA will not be over and there will still be other tough measures that they will have to take in order to get the airline back on track,” said the Minister.

The airline had to be self-sustaining as no recapitalisation will be forthcoming from the shareholder, Minister Nene said. The National Treasury recently took over SAA after the airline was transferred from the Public Enterprises Department.

The financial results on Friday showed that operating loss before interest, taxes, depreciation and amortization narrowed to R374 million for the year from R425 million reported 12 months earlier.

Cost containment during the 2013/14 financial year yielded savings of R453 million. The SAA group achieved growth in revenues by 12% (from R27.1 billion to R30.3 billion).

Source: All Africa


 

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Africa wants its own air transport market by 2017

African Ministers of Transport have declared their full support for the African Union Commission’s proposal for the establishment of a single African air transport market by 2017. The South African government has also identified transport as one of its economic pillars and as a major deterrent to the triple scourge of unemployment, inequality and poverty.

This emerged on Wednesday as South Africa’s Transport Minister Dipuo Peters hosted the meeting of the African ministerial working group on the establishment of a single air transport market in Africa. The working group includes members of the current Bureau of the Conference of the African Ministers of Transport.

Screen Shot 2015-01-29 at 8.58.03 AMPeters said air travel was essential to the prosperity of Africa, as it opened up opportunities that did not exist before.

“Fostering the African aviation industry may be one of the driving forces of regional integration on the continent. Better connected African countries and regions, through a viable air transport industry, could be the catalyst that can boost intra-African business, trade, tourism as well as cultural exchanges,” she said.

In the case of South Africa, national carrier South African Airways (SAA) belongs to the largest global alliance in terms of market share – Star Alliance.

The alliance enjoys 27% of the international air traffic market, ahead of Sky Team (19%.) Airlines outside these alliances still command the biggest share at 38% of the global market.

However, the performance of the African aviation industry still lags behind the rest of the world. The demand for air transport has increased steadily over the few years, with passenger numbers and freight traffic growing by 45% and 80% respectively.

Minister Peters said this trend is expected to continue in the coming years due to a number of factors such as robust economic growth, demographic boom, increasing urbanisation and the emergence of the middle class.

“Air transportation contributes directly to economic growth through the creation of direct and indirect jobs in the industry. It also contributes positively to other auxiliary sectors such as tourism.

“The expansion in air transport also creates market opportunities for local entrepreneurs by creating regional and global economic centres,” she said.

Unlocking growth potential

In Africa, the industry is being hampered by constraints such as a poor record of safety and security, lack of adequate resources and infrastructure, distance and limited connectivity, lack of regulation and government actions.

Minister Peters said these constraints add to the competition and high operating costs. Addressing these challenges could significantly unlock the industry’s potential for future growth.

“Other constraints to note in the African air transport industry are poor airport infrastructure, lack of physical and human resources, limited connectivity and lack of transit facilities.

“Despite the growing awareness of the role that the aviation industry could play in the development of the continent, the industry is still not a priority of most African governments,” she said.

Minister Peters said African countries are reluctant, despite increased liberalisation of the African aviation industry, with some African governments still hesitant to open their skies amongst each other but yet are open to non-African countries through the Open Skies and Horizontal Agreements.

“African countries must first link with their own African neighbouring countries before they can forge links with other countries. The fear of competition amongst African counties undercuts national airlines’ [abilities] to enhance their commercial viability,” she said.

The Minister said the challenge requires African governments to enhance the regulation of aerospace management, consumer protection and the safety of airlines.

The AUC Commissioner for Infrastructure and Energy, Dr Elham Ibrahim, said, “We are fully supportive of the realisation of Africa’s long-term vision.

“Now is the time to end the marginalisation of Africa in the air transport market. Establishing a single air transport market will create an extra 155 000 job opportunities in the key markets which are South Africa, Equatorial Guinea, Sudan, Guinea, Namibia, Tunisia, Chad, Kenya, Nigeria, Senegal and Angola.

“Five million passengers are denied the chance to travel between these markets because of unnecessary restrictions on establishing air routes.”

Source: Cape Business News


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