Acsa defends its tariff application

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ACSA wants to increase tariffs by 133%.

Allowing Airports Company South Africa (ACSA) to levy the proposed tariff increase of 132,9 percent for the 2010- 2011 financial year will enable the Company to reward its investors adequately for their investments. In terms of the application, the Passenger Service Charge will increase from R42 to R99 on a single domestic trip," says Priscillah Mabelane, ACSA's Executive Director: Finance.

Mabelane was responding to various statements made yesterday about ACSA's proposed tariff increase of. "The additional R57 in view of the additional infrastructure worth about R17 billion we would have provided by March 2010 is certainly affordable. Our tariff application is simply based upon common financial principle of return on investment (ROI). ACSA's Independent Economic Regulator determines what the ROI should be and we have accordingly submitted our application," she explained.

Mabelane pointed out that when ACSA embarked on a capital investment programme in 2006, followed robust consultations with the airlines about future infrastructure requirements to support burgeoning passenger traffic at the time. In view of the impact of the current global financial crisis, ACSA made a prudent decision to reduce capital expenditure from R22 billion to R17 billion by deferring and rationalising some projects.

"Unfortunately, when approving the current tariff structure, the Independent Economic Regulator changed the regulatory regime from a tariff that allowed pre-funding to one that requires infrastructure to be in operation before tariffs, to cover development costs, can be levied. This meant that ACSA had to pre-fund these this sizable investment project. "At that time ACSA expressed concern that the bulk of the developments would come on stream in early 2010, requiring a sudden, sharp increase in tariffs," Mabelane said.

Against this background, Mabelane expressed disappointment with the statements made by Yasas Sri-Chandanas, the chief financial officer of Comair and a member of the Airlines Association of Southern Africa, describing them as showing "a remarkable lack of understanding ACSA's financial structure, the industry's regulatory regime and is a deliberate obfuscation of the issues at hand".

Mabelane said ACSA was not faced with a funding shortfall, adding that the Company has a good credit rating which enabled it to access various sources of funding. As a result, ACSA has successfully managed to raise all the funding required to finance its capital investment programme in a tough economic climate and at favourable rates and terms.

"The statements made by Sri-Chandana are yet another attempt to deflect attention from the fact that the airlines continue to deceive passengers into believing that ‘airport taxes' accrue to ACSA only through an opaque ticketing system. In reality, the airlines get the lion's share of the ‘airport taxes'. It is unfortunate that airlines continue to hone these fears to deflect attention from their own derelict practices" she added.

"The view that ACSA is anti-competition is rather rich coming from Comair, which does not allow competition at Lanseria airport because it wants to recover its investments. For the record, we are not afraid of competition; if Comair wants to build and operate an airport anywhere in this country, it is free to do so," Mabelane said.

It may be convenient for certain passengers to use Lanseria airport, but the air fares are generally not different from flying out of O.R. Tambo International, where there is better connectivity to other destinations and quality facilities. We have also done analyses of Kulula's pricing and have noted that their pricing for the quoted Durban route ranges between R399 to R949, depending on demand. It is interesting that Sri-Chandana erroneously quotes R300 as an average low cost fare in his impact assessment of ACSA proposed tariff increase on demand while knowingly that most of their airfares are much higher than that. In some instances, it is actually cheaper to fly out of O.R. Tambo International.

Incidentally, Sri-Chandana was in the same meeting that the airlines agreed on a need for an additional R17 billion on infrastructure during the next five-year cycle ending in 2015. If ACSA is not granted the tariff that it has applied for, ACSA will not be able to invest in future expansion, certainly constraining potential traffic growth. One would expect Sri-Chandana to know that even if the government was to inject capital, similarly to the kulula.com/Lanseria Airport case, a commensurate return on their investments would still be required.

Furthermore, Comair is suggesting that the government should subsidise air travel. Is it fair for the general taxpayer to carry the additional burden of paying for facilities that are only used by people who travel by air, approximately 10 percent of the population (this percentage according to Sri-Chandana)?

"Surely, with airlines charging in excess of R600 in fuel levies in some instances, Comair cannot claim that an additional R57 in passenger service charge will cause a mad panic with passengers dashing between Cape Town and Johannesburg in their cars," concluded Mabelane.