DEPARTMENT OF
ENVIRONMENTAL AFFAIRS
AND TOURISM
Strategy for Growth
in
International Tourism
to
South Africa
Presentation to
June 2003
Confidential
Presentation Structure
Strategic Context
The Growth Strategy - Summary
Major Constraints to Success
Recommendations
CAS-COD-Prez-Date-CTL
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Copyright © 2001 Monitor Company Group LP — Confidential — XXX
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South African Tourism is reconfiguring itself to drive tourism’s contribution
to the nation’s transformation programme
In the Tourism
Sustainable GDP
Act, SAT must
growth
contribute to …
… through
delivering
sustained ...
… by acting
in a focused
way to …
CAS-COD-Prez-Date-CTL
Sustainable job
creation
Redistribution and
transformation
Increases in
tourist volume
Increases in
tourist spend
Increased length
of stay
Improved
geographic
spread
Improved
seasonality
patterns
Promote
transformation
Understand the
market
Choose the
attractive
segments
Market the
Destination
Facilitate the
removal of
obstacles
Facilitate the
product platform
Monitor and learn
from tourist
experience
3
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Domestic and International Short-Haul Tourism are the bedrock of the
tourism industry, but SA Tourism’s core business is foreign tourism
Split of SA’s International
Tourists by Long-Haul and
Short-Haul (2000)
Split of SA’s International and
Domestic Tourists (2000)
5.75 million
Long-Haul
1.55 million
(Overseas and
North Africa)
Domestic
63%
27%
International
Short-Haul
37%
(SADC, Central & East Africa)
73%
4.20 million
9.8 million
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Current international arrivals are driven off a hand-full of core markets
Split of SA’s Inbound Tourists
by Long-Haul and Short-Haul
(2000)
400,000
Long-Haul Tourist Arrivals to South Africa
from Top 10 Source Markets (2000)
300,000
200,000
100,000
(Overseas and
North Africa)
27%
Short-Haul
1,600,000
Sw Ita
itz ly
er
la
nd
Ca
na
da
te
d
Ki
1.55 million
Un
i
Long-Haul
ng
do
m
G
e
Un r m
an
ite
y
d
St
a
Ne
te
s
th
er
la
nd
s
Fr
an
ce
Au
st
ra
lia
Be
lg
iu
m
0
Short-Haul Tourist Arrivals to South
Africa from Top 10 Source Markets (2000)
(SADC, Central & East Africa)
1,200,000
73%
800,000
4.20 million
400,000
Le
so
Sw tho
az
ila
Bo nd
ts
wa
na
Zi
m
ba
M
oz bw e
am
bi
qu
Na e
m
ib
ia
Za
m
bi
a
M
al
aw
i
An
go
la
Ke
ny
a
0
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Copyright © 2001 Monitor Company Group LP — Confidential — XXX
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The steady growth in tourism arrivals post 1994 has slowed to 0.3%
between 1998 and 2001
The major declines in tourism arrivals from Lesotho have been a major issue, but even
without Lesotho, overall growth has slowed to 3.2% CAGR between 1998 and 2001
Total Arrivals to South Africa over the 7 Year Period from 1994
700000
CAGR
(94-01)
CAGR
(98-01)
6.9%
0.3%
600000
500000
400000
Arrivals to
South
Africa 300000
6 Month Moving Average of Total Arrivals
200000
100000
Ja
n9
Ju 4
n9
N 4
ov
-9
Ap 4
rS e 95
p9
Fe 5
b96
Ju
lD 96
ec
M 96
ay
-9
O 7
ct
M 97
ar
A u 98
g9
Ja 8
n9
Ju 9
n9
N 9
ov
-9
Ap 9
rS e 00
p0
Fe 0
b01
Ju
lD 01
ec
-0
1
0
Source: South African Tourism Table K
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Arrivals to South Africa have under performed the world tourism arrivals
and most of the world regional arrivals over the period 1998 to 2001
The forecasts for many of the world regions are lower for the period to 2020
Compounded Annual Growth Rate of Arrivals
6.2
Arrivals to South Asia
3.1
7.1
Arrivals to Middle East
14.2
3
Arrivals to Europe
2.3
6.5
Arrivals to East Asia and the Pacific
9.4
3.9
Arrivals to America
0.4
CAGR WTO Forecast (95-20)
5.5
Arrivals to Africa
World Arrivals
4.2
CAGR Arrivals (98-01)
4.1
CAGR Arrivals to SA (98-01)
3.4
0.3
Total Arrivals to South Africa
10
0
20
Percentage (%)
Note:
Source: Tourism Market Trends, WTO 2001 Edition ; Tourism Highlights 2001, WTO
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South Africa’s current portfolio is driven off 21 countries which account for
90% of the arrivals
Many of the markets were (until 2001) in decline which suggests a need to defend current
share, while at the same time rebalancing the portfolio of source markets
Graph Showing Share of Arrivals to South Africa by Country (2001)
100%
80%
60%
% Share
of Arrivals 40%
Arrivals projected to decline
Arrivals projected to increase
20%
Le
s
Sw oth
az o
Bo ilan
ts d
Zi w a
m n
M ba a
U oza bw
ni
te mb e
d
i
Ki que
ng
U
ni
G dom
te
er
d
m
St
a
at
N
es am ny
of
ib
Am i a
N
et eri
he ca
rla
n
Z a ds
m
b
Fr ia
an
M ce
al
A u aw
st i
ra
lia
It
Be aly
Sw lg
itz ium
er
la
nd
In
C di a
an
ad
An a
go
l
Ja a
pa
n
0%
Source: Monitor analysis; Statistics South Africa, 2001; Foreign Visitor Departure Surveys, 2000 & 2001
CAS-COD-Prez-Date-CTL
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When the contribution to revenue is assessed, it is seen that the high value
countries contribute the least in terms of arrivals
Thus, although Lesotho accounts for 22% of the arrivals, its contribution to revenue is only
7%, while the UK accounts 6% of arrivals, its contribution to revenue is 14%
Graph Showing the Relationship Between Volume of Arrivals and Tourist
Revenues
100
Malawi
90
France
Other
Zambia
80
Netherlands
70
USA
% Revenue
Namibia
60
Germany
50
40
Mozambique
UK
Zimbabwe
30
Botswana
20
Swaziland
10
Lesotho
0
0
10
20
30
40
50
60
70
80
90
100
% Arrivals
Source: Monitor analysis; Statistics South Africa, 2001; Foreign Visitor Departure Surveys, 2000 & 2001
CAS-COD-Prez-Date-CTL
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Seasonality presents a major constraint on capacity for growth
The deep seasonal pattern of arrivals into South Africa creates significant challenges for
investing in capacity to serve increased demand.
Asia (98-01)
Europe (98-01)
20
150
15
125
Arrivals to South Africa (1998-2001)
100
700
75
10
5
50
600
Sep-01
May-
Sep-
Jan-01
May-01
Sep-00
Jan-00
May-00
Sep-99
Jan-99
May-99
Sep-01
500
Arrivals (000’s)
Jan-01
May-01
Sep-00
Jan-00
May-00
Sep-99
Jan-99
May-99
Sep-98
Jan-98
May-98
North America
(98-01)
Sep-98
Jan-98
0
0
May-98
25
400
300
200
Africa (98-01)
25
500
100
400
15
300
200
100
Jan-01
Sep-00
May-00
Jan-00
Sep-99
May-99
Jan-99
Sep-98
0
May-98
Dec-01
Sep-01
May-01
Jan-01
Sep-00
May-00
Jan-00
Sep-99
May-99
Jan-99
Sep-98
Sep-01
May-01
Jan-01
Sep-00
May-00
Jan-00
Sep-99
May-99
Jan-99
Sep-98
May-98
Jan-98
0
May-98
5
Jan-98
0
10
Jan-98
20
Source: South African Tourism Strategic Research Unit
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SA Tourism recognised that tourism growth faces some key challenges

Despite increases in overall funding of the marketing campaign, the total
budget is small in global terms, and as the currency weakens, is getting
smaller. SA Tourism needs to focus its efforts and resources on those
countries and customer segments which are most valuable to South
Africa

Arrivals to South Africa are too dependent on a few large markets. The
mix of arrivals needs to lessen dependence on volatile markets and at the
same time increase our share in high-value markets

Generic “spray and pray” marketing averages messages and has low
returns. SA’s marketing needs to focus on specific sets of customers, and
speak directly to their specific holiday buying criteria. We need to move
from pushing what we like about SA to selling customers what they want.

Behind the strategy the tourism industry needs to redefine and upgrade
products and services to deliver against the promise offered by the
marketing message.
Focus effort and
resources
Re-balance the
portfolio
Marketing to be
based on a view
of customers
Create alignment
within the
tourism sector
Note:
Source:
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Presentation Structure
Strategic Context
The Growth Strategy - Summary
Major Constraints to Success
Recommendations
CAS-COD-Prez-Date-CTL
12
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Confidential
The strategy is about re-balancing the portfolio through four areas
Seeking out the countries and markets that will address these various components is key to
establishing the portfolio
Growth
in
volume
Growth
in
Revenue
Defend the
Current
Position
Reducing Seasonal
Variations
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To obtain growth and defend the current shares, an integrated strategy
needs to focus on five key drivers
Clearly different countries and / or segments will drive growth in different ways
2.
Stimulate current
uses with existing
consumers
4. Attract
5. Attract
new-toyou
1.
Retain uses by
existing consumers
consumers
Competitor
new-to
category
consumers
Dairy Company
3. Generate new uses by
existing consumers
Increase Volume with Current Consumers
1. Maintain current
purchasing pattern
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2. Stimulate your
current customers to
come here more
often
Acquire New Consumers
3. Get them to come
back to SA to do
different things
14
4. Convert
customers from the
competitor to South
Africa
5. Convert short-haul
travellers to longhaul travellers
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Africa — The Main Driver of International Tourism to South Africa
Europe

North America

1,252,710 arrivals
19,5% of total
216,275 arrivals
3,36% of total


Middle East


33,401 arrivals
0.5% of total
Asia


117,415 arrivals
1,8% of total
Central & South America


Australasia
38,311 arrivals
0.6% of total


85,775 arrivals
1,3% of total
AFRICA


4,455,971 Arrivals
(4,435,218 mainland)
Other



3,64% of total
69.3% of total
(69% mainland)
Source: SA Tourism - Table A December 2002
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Given that 60% of South Africa’s arrivals are accounted for by 5 of the
neighbouring states, the strategy for SADC is largely one of “defend”
Given the high market share already in SADC and the absence of any true competition the
focus for SADC shifts to one of retention and the extraction of additional value. Outside of
neighbouring SADC however, there is scope to attract smaller high-end leisure volumes
which long term may provide growth
2.
Stimulate current
uses with existing
consumers
4. Attract
new-toyou
5. Attract
1.
Retain uses by
existing consumers
consumers
Competitor
new-to
category
consumers
Dairy Company
3.
Generate new
uses by existing
consumers
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Africa and specifically neighboring SADC are important source markets for
South Africa
Africa accounts for 72% of the arrivals to South Africa, with neighboring SADC countries
representing the majority of these arrivals
Breakdown of Africa Arrivals to
South Africa, 2000
Regional Share of Arrivals to South
Africa, 2000
Central and
South
America
1%
100%
Middle East
1%
Rest of Africa (3%)
Other SADC (5%)
90%
Australasia
1%
80%
North
America
4%
Asia
3%
70%
60%
50%
Africa
72%
Neighboring
SADC
(92%)
40%
Europe
18%
30%
20%
10%
0%
Source: Statistics South Africa
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Nearly two-thirds of arrivals come from just 5 countries with little growth
and therefore we need to look at air travel in Africa for growth
SA Market Share
Arrivals CAGR (98-01)
Top 5 Source Markets to SA (2001)
83.72%
100%
90%
80%
37.4%
Other
Share of Arrivals to SA (%)
69.79%
70%
60%
7.8%
50%
8.6%
40%
11.1%
30%
12.9%
98.29%
Swaziland
98.74%
20%
10%
22.2%
99.56%
0%
2001
Source: Statistics South Africa, Foreign Visitor Departure Survey, Monitor Analysis
CAS-COD-Prez-Date-CTL
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Air Travel from Africa is Growing
Overall, travel into SA from neighbouring SADC is stagnant, but air arrivals are growing
fast, including out of neighbouring SADC states.
Breakdown of Air Travellers to SA (98-00)
CAGR (98-00)
300,000
250,000
200,000
19%
Arrivals
150,000
31%
18%
29%
17%
1%
29%
4%
100,000
50,000
51%
53%
54%
1998
1999
2000
10%
0
Breakdown of Land Travellers to SA (98-00)
Other Africa
4,500,000
4,000,000
4%
3,500,000
Non-neighboring
SADC
Arrivals
3,000,000
2,500,000
2,000,000
1,500,000
Neighboring
SADC
0%
97%
97%
97%
1998
1999
2000
1,000,000
500,000
0
Note: The land travellers out of the rest of Africa are insignificant
Source: Statistics South Africa
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Initially, we considered 27 countries in East and West Africa
Tunisia
Morocco
Why East Africa?
Algeria
Western
Sahara
Cape Verde
Mauritania
Mali
Niger
Senegal
Eritrea
Chad
Cote
d'Ivoire
Sierra Leone
Nigeria
Central
African
Republic

Appears to be easiest region to generate
significant increase in demand

Initial findings indicate that additional
consumer research could generate
significant leverage
Ethiopia
CameBenin roon
Burkina Togo
Congo Democratic
Faso
Ghana Gabon
Republic of
Sao Tome and Principe
Congo
Equatorial Guinea
Liberia
Good flight connections and outbound
tourist potential
Sudan
The Gambia
Guinea-Bissau
Guinea

Somalia
Kenya
Uganda
Rwanda
Burundi
Tanzania
Angola
Why West Africa?

Limited current knowledge on region, but

Sizeable populations, wealth, and relatively
high outbound tourist numbers imply
significant potential

Seeing this potential, some airlines have
recently been moving into this market
CAS-COD-Prez-Date-CTL
Why not North Africa?
Seychelles
Malawi Comoros
Saint Helena

Djibouti
Zambia
Zimbabwe Mozambique
Namibia
Madagascar
Botswana
Mauritius
Due to proximity to Europe,
and language barriers,
conversion deemed relatively
more difficult
Why not Middle Africa?
Swaziland
Lesotho
South Africa
20
Reunion

Low current outbound numbers
imply very limited short and
medium term potential
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Of these 27 countries, nine appeared worth pursuing
Screening Matrix
90,000
250,000
Nigeria
(pop = 58,287,100;
travel = 240,236)
Kenya
80,000
Total Outbound Air Travel (1999)
70,000
60,000
Senegal
50,000
Ghana
40,000
Mali
Benin
Tanzania
Ethiopia
30,000
Guinea
20,000
Rwanda
The Gambia
10,000
Cape Verdi
Comoros
0
0
Note: Green shaded
area is worth pursuing
Source: World Bank
CAS-COD-Prez-Date-CTL
Uganda
Liberia
Togo
Niger
Somalia
Burundi
Burkina Faso
Eritrea
Sierra Leone
Mauritania
2,000,000
Djbouti
Guinea-Bissau
4,000,000
Cote d’lvoire
Madagascar
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
60,000,000
Total Urban Population (2001)
21
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Prioritisation of these markets tended to confirm the hypothesis of
focus on Nigeria and Kenya
Relative Attractiveness of Target Markets
100
Nigeria
Cote
D’Ivoire
Top right hand box is
most attractive area
Senegal
Kenya
Tanzania
Total
Travel
Potential
Index
30
Uganda
Mali
Ghana
Ethiopia
0
0
Note: Size of bubble denotes size of urban population:
=
5 million; indices evenly weight component parts; indices from
previous calculations
Source: World Bank, ITU, IATA, OAG, Monitor Analysis
CAS-COD-Prez-Date-CTL
30
100
Total Current
Travel Index
22
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Challenges in Africa: There appear to be several country groupings with
significant internal travel (like South Africa has with SADC)
Capacity:
Band 1 (25,000 – 50,000)
Band 2 (50,000 – 100,000)
Band 3 (100,000 – 200,000)
Band 4 (200,000+)
11
3
10
12
4
14
5
Benin
Burkina Faso
Cape Verde
Cote D’Ivoire
Gambia
Ghana
Guinea
Guinea-Bissau
Liberia
Mali
Mauritania
Niger
Nigeria
Senegal
Sierra Leone
Togo
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3
7
1
15
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
16)
13
2
8
West Africa
4
6
East Africa
5
16
9
11
13
6
9


Kenya, Tanzania and Uganda appear
to be tightly linked
Two country groupings appear to
exist in West Africa
1
12
10
2
– Nigeria and Ghana
– Cote d’Ivoire, Senegal and Mali

Cote d’Ivoire might act as the bridge
between Anglophone and
Francophone West Africa
7
8
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
Burundi
Comores
Djibouti
Eritrea
Ethiopia
Kenya
Madagascar
Reunion
Rwanda
Seychelles
Somalia
Tanzania
Uganda
Source: OAG, Monitor Analysis
23
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Additional Information:
Inter-regional Capacity Flows
Band 1 (25,000 – 50,000)
19
Band 2 (50,000 – 100,000)
1
Band 3 (100,000 – 200,000)
11
Band 4 (200,000+)
18
North / Central /
West Africa
17
7
22
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
16)
17)
18)
19)
20)
21)
22)
23)
24)
25)
Algeria
Benin
Burkina Faso
Cameroon
Cape Verde
Central Africa Republic
Chad
Congo
Congo, Dem. Rep of
Cote D’Ivoire
Egypt
Gambia
Ghana
Guinea
Guinea-Bissau
Liberia
Mali
Mauritania
Morocco
Nigeria
Saint Helena
Senegal
Sierra Leone
Sudan
Togo
CAS-COD-Prez-Date-CTL
4
24
20
3
2
13
10
East & South Africa
6
25
5
4
14
6
17
8
12
9


1
16
While Ethiopia
appears to be a
northward facing
hub, Kenya
appears to be
southward facing
Nigeria appears to
have moderate
links to East Africa
2
8
18
19
10
7
9
11
15
Source: OAG, Monitor Analysis
24
1)
2)
Burundi
Comoros
3)
4)
Djibouti
Eritrea
5)
6)
Ethiopia
Kenya
7)
8)
Madagascar
Malawi
9)
10)
Mauritius
Mayotte
11)
12)
Reunion
Rwanda
13)
14)
Seychelles
Somalia
15)
16)
South Africa
Tanzania
17)
18)
Uganda
Zambia
19)
Zimbabwe
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Additional Information:
Inter-continental Capacity Flows
Europe
North
America
Asia
Middle
East
11
10
3
South
Asia
12
4
15
5
2
8
5
7
1
16
4
6
3
Band 1 (25,000 – 50,000)
13
Band 2 (50,000 – 100,000)
17
9
Band 3 (100,000 – 200,000)
11
West Africa
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
16)
17)
Benin
Burkina Faso
Cape Verde
Cote D’Ivoire
Gambia
Ghana
Guinea
Guinea-Bissau
Liberia
Mali
Mauritania
Niger
Nigeria
Saint Helena
Senegal
Sierra Leone
Togo
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13
6
Band 4 (200,000+)
9
East Africa
1
12
10
14
2
7
8
1)
2)
Burundi
Comoros
3)
4)
Djibouti
Eritrea
5)
6)
Ethiopia
Kenya
7)
8)
Madagascar
Reunion
9)
10)
Rwanda
Seychelles
11)
12)
Somalia
Tanzania
13)
Uganda
Source: OAG, Monitor Analysis
25
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Africa is a very focused market at travel costs are high and markets
relatively small
SA’s Market Share
Outbound Departures by Region from Africa (1999)
6,294,442
SADC (Excluding SA)
Longhaul
ShortHaul
—
(67.2%)
192,172
(2.5%)
3,563,803
North Africa
231,650
—
(8.4%)
—
(10.4%)
(17.1%)
(2.1%)
(0.6%)
(20.9%)
391,554
Western Africa
308,544
274,300
Eastern Africa
108,881
128,169
Indian Ocean Islands
9,837
23,055
Middle Africa
Long Haul
17,455
0
2,000,000
6,000,000
4,000,000
Short Haul
8,000,000
Outbound Departures
Note: Data for Mozambique is missing from SADC analysis. The only data on Mozambique are outbound departures from South Africa to Mozambique (2000).
Missing data points for 1999 were projected based on historical growth rates and triangulated where possible with other sources
Source: World Tourism Organization 1999; Monitor Analysis
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An assessment was made of the expatriate markets in these countries,
which boosts the overall attractiveness of many of these markets
Although the markets are small relative to one UK segment, South Africa’s relative proximity
and dominance in the air market makes these markets potentially easier to penetrate
Sum of the National Leisure Travellers and Expatriate Markets
Egypt
Nationals
Expatriates
Nigeria
Mauritius
Kenya
Ethiopia
Tanzania
Angola
Ghana
Zambia
Malawi
UK Group Tour Segment*
0
200,000
600,000
400,000
800,000
1,000,000
1,200,000
Potential Leisure Arrivals to SA
* Segment includes all UK leisure travellers on group tours across all age groups
Source: Telephonic interviews with High Commissions or Trade Missions in countries, Monitor Analysis
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The Rest of the world
Europe

North America

1,252,710 arrivals
19,5% of total
216,275 arrivals
3,36% of total


Middle East


33,401 arrivals
0.5% of total
Asia


117,415 arrivals
1,8% of total
Central & South America


Australasia
38,311 arrivals
0.6% of total


85,775 arrivals
1,3% of total
AFRICA


4,455,971 Arrivals
(4,435,218 mainland)
Other



3,64% of total
69.3% of total
(69% mainland)
Source: SA Tourism - Table A December 2002
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In looking for growth opportunities, the eleven largest long-haul leisure
markets cannot be ignored
These markets are forecast to continue growing and would be key in any portfolio
Country
Size of LH Leisure
Travel (Holiday + VFR)
Estimate of the LH
Holiday Travel
Ranking on
Leisure
Arrivals to SA, 2000
Arrivals
Ranking, 2000
1
US
20,932,893
12,237,691 2
174728
3
2
Japan
14,076,641
14,076,641 1
22662
13
3
UK
8,604,193
7,127,271 3
349652
1
4
Germany
5,828,967
5,239,521 4
210227
2
5
France
4,847,124
3,540,034 5
89573
5
6
Canada
3,696,141
2,850,552 6
27531
10
7
Australia
3,500,183
2,245,261 7
56040
6
8
Italy
1,703,360
1,510,763 8
38195
8
9
Netherlands
1,548,637
1,259,025 10
91154
4
10
China
1,498,134
1,270,157 9
18306
17
11
Sweden
1,348,714
1,027,194 11
20213
15
12
Argentina
1,159,014
701,938 16
15383
20
13
Switzerland
1,124,213
985,611 12
33181
9
14
Spain
1,070,516
923,318 14
17941
18
15
Korea
1,056,369
802,983 15
8574
28
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Different strategies will be required against these different markets
Territories like Japan are highly attractive, but are very difficult as a result of product
barriers, while a market like the Netherlands has much lower attractiveness, though is
comparatively much easier to activate
Graph showing Potential Marketing Effort against Potential Gain
30
DEFEND
25
OWN and GROW
Germany
Netherlands
20
How much
easier is it
to get yield
from this
market?
UK
15
Italy
France
10
US
Australia
Sweden
INVEST for GROWTH
PICK-OFF VALUABLE
SEGMENTS
5
Canada
China
0
0
Japan
5
15
10
20
25
30
How attractive is this market
for SAT’s goals?
Source: Monitor Analysis and South African Tourism workshop.
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The portfolio of countries focuses on identified pockets of value balanced
by actionability
•Lesotho
•Swaziland
Niche Opportunities
•Botswana
Additional markets where
value has been identified
•Zimbabwe
Kenya
•Mozambique
Nigeria
•Namibia
Egypt
These countries account
for 18% of arrivals, but
40% of revenue
•Australia
•Zambia
Mauritius
•Canada
•Angola
•France
•Malawi
Tanzania
MICE Markets
•Germany
•Belgium
•Switzerland
•India
•Japan
•Netherlands
•Sweden
•United Kingdom
•China
•United States
•Italy
Top Eleven
Outbound Markets
of the World
Top 20 Countries
Accounting for 90% of
Arrivals
Watch List
These are markets which
SAT may investigate further
to find value segments
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•
•
•
•
Austria
Argentina
Brazil
Denmark
•
•
•
•
Finland
Greece
Hong Kong
Indonesia
•
•
•
•
31
Ireland
Israel
Malaysia
Mexico
•
•
•
•
Norway
New Zealand
Philippines
Poland
•
•
•
•
Portugal
Russia
Saudi Arabia
Singapore
•
•
•
•
South Korea
Spain
Taiwan
Thailand • UAE
Copyright © 2001 Monitor Company Group LP — Confidential — XXX
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Effective defense (to hold current share) and 2% growth per annum over
five years in growth segments changes the mix in the portfolio
Comparison of Current SA Portfolio and Predicted Portfolio, 2001-2005
100%
11.00%
12.30%
Other
90%
10.3%
10.4%
2.9%
3.5%
3.5%
9.3%
6.2%
2.8%
4.3%
Share of Arrivals to SA (%)
80%
70%
60%
7.8%
50%
8.6%
40%
11.1%
9.1%
6.5%
6.9%
Netherlands, France, Zambia, Malawi,
Australia, Belgium, Italy, Switzerland,
Canada, Angola, India
USA
Namibia
Germany
UK
Mozambique
Zimbabwe
Botswana
10.7%
30%
12.9%
Swaziland
10.2%
20%
10%
22.2%
17.6%
Lesotho
0%
2001
2005
Note: The 2005 portfolio was obtained using the assumptions outlined on the previous slide
Source: Statistics South Africa, Foreign Visitor Departure Survey, Monitor Analysis
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And changes the results dramatically
Tourism to SA is increased in 2002, however a clear targeted strategy needs to be followed
to ensure that this is sustainable and not a temporary phenomena
What the strategy can deliver
Results if we do nothing different
(based on growth to the end of 2001)
Revenue
Growth
Arrivals
Growth
Revenue
Growth
1.2%
Arrivals
Growth
0.8%
2002 Arrivals : 5,835,117
0.0%
1.0%
13.2%
2.0%
3.0%
4.0%
5.9%
Projected 2005 Arrivals : 7,273,900
0.0%
5.0%
4.0%
8.0%
12.0%
% Growth
% Growth
Source: Monitor analysis; Foreign Visitor Departure Surveys, 2000 & 2001
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Presentation Structure
Strategic Context
The Growth Strategy - Summary
Major Constraints to Success
Recommendations
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SA faces some key challenges if it is to realise the growth potential
Sustainable strategy depends on four areas. SAT controls only a few of the necessary
levers
Focus
Channels
Access
Product


Choices about which segments to target and serve are required
SA needs to differentiate itself - not be all things to all people

Channel strategies must be based on reaching target consumers and
maximising the value captured in SA

Choices about which segments to serve must be backed by strategies to
ensure adequate and easy access to South Africa

Choices about which segments to serve must be supported by
appropriate products with sufficient capacity
Note:
Source:
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Marketing alone cannot deliver results - key constraints on delivery need to
be removed
Maintain our
presence in noncore markets
Align tourism
product and
services
Make it easier to
get access to
South Africa
Enable adequate
and competitive
airlift

SAT cannot afford representation in all markets which are important, but
SA needs to maintain some marketing presence

The new strategy requires that in our product and services we begin to do
things differently from the past - and keep ahead of the competition
Provide for a focuses tourism safety strategy


In certain key markets - particularly Africa - our immigration and visa
procedures represent a major constraint

At certain times of the year, and in certain markets, the availability of
airline seats is lower than would support growing demand. This combined
with channel economic issues drives up the cost of holidays to SA
compared to our competitors.
Note:
Source:
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Growth from these focus markets depends on increasing airlift capacity
Across the core markets, there are a number of challenges regarding airlift
Vulnerability to
Unpredictable
Foreign Supply
Access

Direct access is not
available from some
of the key markets in
the SAT portfolio.

Capacity
Constraints
Certain air links to
key markets are
either fully under the
control of, or
dominated by,
foreign carriers with
no commitment to
the SA market

Dramatic variations
in arrival volumes
through the year
(high seasonality)
has led to airlines
restraining growth in
capacity in order to
manage profitability
across the year
Price

On certain key routes,
limited demand has
led to few or only one
operator serving the
market. This limited
competition has
resulted in
uncompetitive prices
versus our competitor
destinations
Government faces key choices about creating the conditions which will lead to
alignment between tourism strategy and the airlines in meeting these challenges
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Access:
Future success requires expansion in airlinks between SA and key markets
Two of SA’s key source markets for the future currently have no direct airlink whatsoever and
a quarter of our future key source markets are currently not served by an SA-flag carrier on a
direct service.
Direct Services
SA Carrier
Foreign Carrier

US
UK
Germany
France
China (Excl Hong Kong)
Japan
Zimbabwe






Mauritius
Zambia
Tanzania
Nigeria

Egypt
Note:

SAA and Cathay Pacific serve the Hong Kong-Johannesburg route. However, leisure tourism growth in China is coming largely from the mainland
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Dependency on Foreign Carriers
Airlines serving SA have declined since 1997
Between 1997 and 2001, the number of airlines serving South Africa dropped from 75 to 54
80
60
40
20
0
1991
1996
1997
1998
1999
2000
2001
Source: ACSA
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Capacity constraints
Bi-laterals are an issue only in the minority of cases
In overall terms, plenty of spare capacity exists within the bi-lateral air services framework,
as well as on average on aircraft
International Seat Utilisation into JIA
(Aug.2000-Jul.2001)
Bi-Lateral Air Services Agreements
500000
98
80%
400000
60%
45
300000
Agreements
40%
Active Agreements
200000
Breakdown of Weekly Frequencies
20%
100000
374
0
999
314
0%
Seats
Pax
Average Load-Factor
625
311
Available
Frequencies
Frequencies
Used
Frequencies
Not Used
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SA
Operated
Foreign
Operated
62
Other
SA carriers
SAA
40
 Average Seats per Month:
388,000
 Average Passengers per Month:
197,000
 Average Load factor:
50.73%
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Capacity Constraints
Seasonal patterns on key routes create pressures at key times of the year
High fluctuations in demand on key routes put airlines under pressure not to put capacity
which is then under-utilised most of the year — putting pressure in peak months
Monthly German Arrivals (2000)
30,000
SAA Load Factors — European Services
2000/2001
20,000
1,000
20,000
90%
80%
800
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Monthly UK Arrivals (2000)
45,000
40,000
70%
60%
600
50%
40%
400
PLF
0
ASK/RPK (millions)
10,000
30%
20%
200
35,000
10%
25,500
15,000
ASKs
10,000
5,000
Mar
Feb
Jan
Dec
Nov
Oct
Sep
RPK
PLF
Over 70% load factors between October and March
indicate customers are starting to be turned away
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
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Aug
20,000
Jul
Apr
0%
Jun
0
25000
May
30,000,
41
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Price
The cost of the airfare is often uncompetitive where competition is limited
Indexed Cost of Air ticket From Tokyo (Long-Haul
Destinations)
Indexed Cost of Air Tickets From London
(Long-Haul Destinations)
180
120
160
100
154
154
148
100
140
79
80
120
68
60
112
100
66
96
100
54
54
54
51
50
50
81
50
73
80
40
60
40
28
40
17
20
20
Indexed Cost of Air Tickets From New York
(Long-Haul Destinations)
160
144
140
Thailand
Hong Kong
Cancun
Johannesburg
Rio
Sydney
Indexed Cost of Air Tickets from Frankfurt (Long-Haul
Destinations)
160
144
Melbourne
Brisbane
Hong Kong
Thailand
Netherlands
Melbourne
Brisbane
Sydney
Cancun
Copenhagen
Paris
Vienna
Rio
Casablanca
Johannesburg
Reykjavik
0
0
138
146
146
146
140
120
120
110
100
100
103
100
100
80
99
97
80
58
60
45
40
30
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42
Casablanca
Sydney
Netherlands
Paris
Copenhagen
Vienna
Reykjavik
Rio
Hong Kong
Casablanca
Thailand
Johannesburg
Brisbane
0
Melbourne
20
0
Sydney
20
Cancun
20
Rio
22
Johannesburg
31
Thailand
40
51
Hong Kong
35
Melbourne
45
Brisbane
59
60
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Flag Carriers are important to building destinations
For the majority of destinations that have emerged in the last ten years, the airline has
been a key feature of their success
CAGR
‘95-’99
Total Tourism Arrivals 1995-2000
10
Thailand
5.52%
Total Tourism Arrivals (Millions)
8
Total International Pax Carried 2000
Thai Airways
+- 60%
SAA
+- 35%
Varig
6
South Africa 7.37%
Brazil
26.48%
Australia
5.50%
+- 50%
Qantas
4
Emirates
U.A.E.
28.00%
Morocco
10.50%
Kenya
17.81%
2
0
1995
1996
1997
1998
1999
Kenya
Airways
0
2000
Update
CAS-COD-Prez-Date-CTL
Royal Air
Maroc
2
4
6
8
10
12
Millions
43
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Airlines and the success of destinations
There have been two routes by which emerging destinations have achieved alignment
between their tourism strategies and the flag-bearing airlines
Indirect Regulation and Facilitation
Direct State Involvement
Thailand’s government built Thai with the explicit
mandate:-
Australia explicitly developed a competitive approach
to air services, and privatised Qantas against these
objectives through:-
1. To develop and expand company business, as
THAI* is a national flag carrier, to become one of
the world best airlines
1. Providing Qantas with a three-year preprivatisation period where the regulatory
environment was liberalised to allow it to “get fit”
2. To promote Thailand as a gateway into the AsiaPacific region
2. Privatisation was used to enable major reinvestment and fleet expansion by Qantas with
private-sector capital
3. To support Thailand’s tourism industry
4. To maximise profit in order to raise funds for
human resource development and equipment
necessary to achieve the above objectives.
3. Created an environment in which Qantas was
encouraged to work in close alignment with the
tourism industry and the Australian Tourist
Commission
Flag carriers’ financial interests are largely based on traffic into and out of a destination.
This means a strong alignment of the airline financial interest and the national tourism
interest, thus creating the basic conditions for strong common interest and alignment in
strategy
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Importance of Flag Carriers to tourism destinations
The examples of Thai and Qantas investing with demand growth
Part of Australia and Thailand’s success has been in how their airlines have invested in
capacity to meet increasing demand…
Qantas
ASKs against Arrivals to Australia
6
Thai
ASKs against Arrivals to Australia
100
Arrivals
12
60
ASKs
Arrivals
5
ASKs
10
80
3
40
2
40
Asks (Millions)
60
Arrivals (Millions)
8
Asks (Millions)
Arrivals (Millions)
4
6
4
20
20
1
2
0
0
1995
1996
1997
1998
1999
0
2000
1995
Qantas provides capacity in line
with growing demand
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0
1996
1997
1998
1999
2000
Thai historically provided capacity ahead
of demand growth
45
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Importance of Flag Carriers
Thai and Qantas have been major investors in the success of tourism
Flag carrier airline alignment to national objectives, and their direct investment in tourism,
have been key to both Thailand and Australia’s success stories.
Tourism to Australia
has more than
doubled from 2 million
visitors in 1990 to 4.9
million in 2000
Tourism to Thailand
has almost doubled
from 5 million in 1990
to 9.6 million in 2000
Qantas has been a key role-player in
achieving this success through:
Thai airways has been a key investor in
Thailands success through:

Building a strong brand consistent with
Australia’s brand intent

Promotion of Thailand as a destination, and
as hub into the South-East Asian Region

Investing in destination marketing that more
than doubles Australia’s leverage

Selling seats and holidays in ways
consistent with Thailand’s value proposition
Building a loyalty programme that promotes
service improvements

Development of holiday programme which is
now the largest operator in the country
Direct investment in national tourism
marketing campaigns

Strong promotion of regional destinations in
line with government strategy



Consciously building alignment with
government strategy, product and the trade
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South Africa
SAA has not kept pace with growing demand
SAA on the other hand, has historically not kept capacity in line with tourism demand, and
its most recent capex plans only deal with replacement of old aircraft.
International Passenger Demand and Planned SAA Capacity
Moving South Africa Findings in 1998
SAA International Capacity w/ 1995 Proposed Fleet Expansion
SAA International Capacity w/ Currently Approved Fleet expansion
Passenger Demand
Passengers
International arrivals
against SAA market
share
1996
2000
2004
2008
2012
2016
2020
Source: SAA
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SAA and SA’s tourism strategy
Focusing on the business traveller pulls against tourism objectives
As SAA has consolidated its routes and focuses on retaining share in the lucrative business
market, the structure of seat pricing and product works against South Africa’s ability to drive
growth out of the leisure market.
10,000
12,000,000
9,000
8,000
10,000,000
— Peter Martin, Business Day (January 9, 2002)
7,000
Passengers
BUT
The focus on business travel is on the smallest
section of the outbound travel market
8,000,000
6,000
5,000
6,000,000
4,000
Purpose of Travel out of the UK
4,000,000
3,000
Business
16%
2,000
2,000,000
Passenger Revenue (Rands million)
“Dire straits of airline industry are partly
due to an over-reliance on business
travel”
1,000
0
Leisure
84%
0
1996
1997
Pax
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1998
1999
2001
Revenue
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South Africa
Uncompetitive airfares and inadequate capacity — the cost to SA in the US
The “Wonderluster” segment in the US is worth between $ 77 million and $ 387 million over
the next three years if the cost of the airfare could be dropped from the average $ 1,500.00
to $ 1,000.00
Variation in Segment Value, Activation Rates of 2% (Conservative) and
10% (Optimistic) of Interested Travellers
1000
$875 M
(276,368)
900
10% Activation Rate
Currently the “Wonderlusters”
don’t travel to SA despite them
being the most positive and
interested segment in the US
market
2% Activation Rate
800
$663 M
(186,651)
700
600
$485 M
(167,958)
500
$435 M
(157871)
$387 M
(168,172 visitors)
400
300
5. Next Stop SA
1. Hesitant
Travellers
0
4a. Convertible
Positive Apathetics
$28 M
(14,769)
$133 M
(37,330)
$87 M
(31,574)
$46 M
(12,247)
6. Well-Travelled
Seniors
$97 M
$77 M
(33,634 visitors) (55,274)
3. Family Explorers
100
$175 M
(55,274)
4b. Hopeless
Apathetics
$138 M
(73, 843)
2. Wanderlusters
200
By bringing the cost of a 10-day
holiday to the price of US$
2000.00 (including airfare of US$
1000.00), SA could immediately
begin to activate this segment
worth between US$ 77 million
and US$ 387 million if only
between 2% and 10% of this
segment actually do travel to SA
$9 M
(2449)
Source: Monitor Analysis, WTO Data
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Stacking SAA financial performance against the revenue earned by SA
from passengers delivered by SAA
Assuming a conservative 35% overall market-share, the revenue to SA attributable to
tourists delivered by SAA is almost R 7.5 billion compared to SAA headline loss in 2001 of
R 735 million
SAA Financial Performance (‘97-’01)
Spend Attributable to South Africa from
Air Arrivals (98-00)
25
21.31
20.69
20.13
20
15
Tourist
Spend
(R billions)
10
7.05
7.24
7.46
5
0
1998
1999
2000
1
The figures are brought to 2001 by using the inflation rate of 6%
The spend attributable to South Africa was calculated as [ 0.6* (Prepaid Accommodation)+ Spend in SA]
Source: Statistics South Africa, Foreign Visitor Survey
2
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Prioritising Government’s Objectives
Government’s objectives for tourism, aviation and SAA are many and at times competing and need to be prioritised.
Finance
- Maximise value
- Privatisation revenues
- Future dividends
- Contingent Liabilities
- Tax base
- GDP Impact
Foreign Affairs
- Diplomatic Relations
Tourism
- Maximise access
- Maximise airlift
- Sustainability
- Safety
- Service
Government
Objectives
Trade
and
Industry
Transport
- Safety
- Sustainability
- Competitiveness
- Consumer Protection
- Commercial access
- Freight capacity
Public
Enterprises
Labour
- Job Creation
- Labour
protection
- Efficiency
- Profitability
- Restructuring
- Transformation
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Confidential
Recommendations for aligning tourism, airlines and the national interest
As tourism strategy starts to stimulate increased volumes through focused marketing and
product investment, airlift will become a key barrier. It is recommended that Government
takes the following steps to address these critical questions:

Review the competitive / regulatory environment on key routes to:– Stimulate increased competition on low competition routes
– Create more flexible conditions for airlines to manage capacity
around seasonal fluctuations

Implement sector-level strategy to create conditions for the sustainable
emergence of strong, SA-based international carriers

Implement corporate governance processes and performance measures
in the SAA shareholding relationship which are aligned to tourism
objectives and prioritised against against other government objectives,
such as profitability

Establish mechanisms, through the restructuring process or other
funding instruments, to enable SAA to embark on a more comprehensive
growth-oriented strategy underpinned by significant investment in
additional international capacity

Ensure that the restructuring process, including the privatisation process
is aligned with the needs of tourism to achieve sustainable air service
capacity, at competitive prices and service from the key markets to SA
Tourism growth
Competitive Environment
Strong, sustainable flag
carrier/s
Strategically aligned corporate
governance of SAA
SAA capex strategy aligned to
serve demand growth
Restructuring process of SAA
to be guided by tourism goals
in addition to existing
priorities
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Confidential
Conclusion
Focused on growth from
tourism, and backed by:





Strong Brand
Consistent with Brand
SA
Invested in the
destination
Marketing aligned to
SAT
Strategy aligned with
Brand SA, products and
channels
Strong promotion of
holidays, not just flights
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Strategic
alignment,
Mutually
reinforcing
action
Focused on growth from
high volume, high yield
tourism markets, backed by:





53
Focus on customers
Informed by consumer
insight
Strong Brand
Consistent with Brand
SA
Marketing aligned to
products, channels and
airlines
Copyright © 2001 Monitor Company Group LP — Confidential — XXX