Final Report. Socio-economic Impact of an Air Transport Liberalisation Agreement in the Southern African Development Community

Transcription

1 Socio-economic Impact of an Air Transport Liberalisation Agreement in the Southern African Development Community Graham 30 August 2010 Final Report

2 Table of Contents P a g e i Executive Summary... v Introduction... v Literature Review... v The nine freedoms of the air... v The Yamoussoukro Decision... vii Assessing and forecasting the impact of air transportation liberalisation agreements... x Economic Impact of an air transport liberalisation agreement in SADC...xiii Overview of current status of the SADC Aviation Industry...xiii Cost-Benefit Analysis Methodology... xvi Cost Benefit Analysis Results... xvii Impact of an air transport liberalisation agreement in the Southern African Development Community... xx Impact of an air transport liberalisation agreement reflecting the investment and capital expenditure in airport and navigational infrastructure... xxi Introduction Literature Review Introduction The nine freedoms of the air History of aviation agreements Chicago Convention Formation of state owned or sponsored airlines Liberalisation of aviation agreements Assessing and forecasting the impact of air transportation liberalisation agreements The case study approach The trends model The gravity model Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

3 P a g e ii The stimulation model Air transport cost analysis Case Studies United States United Kingdom The European Union India United Kingdom Impact of an international air transportation liberalisation agreement Forecasted effects of air transportation liberalisation agreements Infrastructure, regulatory body, skills and market size limitations Spread of development from hubs to outlying areas Concluding Comments Impact of air transport liberalisation agreement in Southern African development Community Introduction Overview of the Current Status of the SADC Aviation Industry Angola Botswana Democratic Republic of the Congo (DRC) Lesotho Madagascar Malawi Mauritius Mozambique Namibia Seychelles South Africa Tanzania Zambia Airports in SADC Fleet size of all SADC airlines Analysis of Questionnaire Results Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

4 P a g e iii Airlines Airports Other Stakeholders in the aviation industry Cost-Benefit Analysis Methodology Model Direct Impacts Indirect Impacts Airport and Navigational Infrastructure Cost-Benefit Analysis Results Direct Impacts Benefit to airlines Benefits to passengers Indirect Impacts Airport and navigational infrastructure Impact of an air transport liberalisation agreement in the Southern African Development Community (SADC) Total Computable Benefits Total Costs Impact of an air transport liberalisation agreement in the Southern African Development Community Impact of an air transport liberalisation agreement reflecting the investment and capital expenditure in airport and navigational infrastructure Conclusion References List of References Conversions are based on the following websites List of Tables List of Figures List of Boxes Appendix A Signing States of the Chicago Convention Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

5 P a g e iv Appendix B United States Air transportation liberalisation Partners and status of the agreement Appendix C State ownership for international flag carriers Appendix D Spider Diagram Appendix E Questionnaires Air transportation liberalisation Questionnaire for Southern African Airlines Air transportation liberalisation Questionnaire for Southern African Airlines Air transportation liberalisation Questionnaire for other Southern Africa Aviation Industry Stakeholders Appendix F Destinations within SADC Appendix G Total impact per airport over the 50 year period less airport/navigational infrastructure costs (R Millions) Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

6 Executive Summary P a g e v Introduction This report has been compiled in conjunction with the South African Department of Transport. The project measures the economic impact of implementing an air transportation liberalisation agreement within the Southern African Development Community (SADC) region. The report is divided between a review of literature analysing the impact of air transportation liberalisation agreements around the world, and the forecasted impact of implementing the air transportation liberalisation agreement in the SADC region. Literature Review Air transportation liberalisation is the liberalisation of aviation regulations between countries or within geographic regions. Air transportation liberalisation agreements have largely been adopted and pursued by developed countries. The United States has actively been involved in negotiating Air transportation liberalisation agreements between various countries since 1972, while the European Union initiated its internal common market or cabotage area by means of air transportation liberalisation between member states in The Yamoussoukro Decision (YD) is the inter-african version of air transport liberalisation Agreements and this was signed into operation by member states in 1999, however limited progress has been made on this agreement. The literature review has been structured in such a way that it looks at: Analysing the various components that can be utilised when entering air transportation liberalisation agreement; The short comings of Yamoussoukro Decision and the requirement for the establishment of a competition body to monitor airline behaviour in Africa (or SADC); The various methods of measuring the impact of air transportation liberalisation agreements; and The impact of air transportation liberalisation as measured by existing reports and studies. The nine freedoms of the air Table displays the various freedoms of the air that make up aviation agreements between countries and regions. Air freedoms 1 to 4 make up traditional aviation agreements between countries with very restrictive aviation laws, whereas air freedoms 5 to 9 would represent a relaxing in aviation agreements between countries. Freedoms 5 to 9 have been allowed by certain countries since 1944, but this has largely been the case in a limited number of aviation agreements. Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

7 Table Definition of air freedom rights P a g e vi 1 st Freedom To overfly one country en-route to another 2 nd Freedom To make a technical stop in another country 3 rd Freedom To carry freight and passengers from the home country to another country 4 th Freedom To carry freight and passengers to the home country from another country 3 rd Freedom 5 th Freedom 5 th Freedom To carry freight and passengers between two countries on route (by an airline of a third (home) country) with origin / destination in its home country 6 th Freedom To carry freight and passengers between two countries by an airline of a third country on two routes connecting in its home country 7 th Freedom To carry freight and passengers between two countries by an airline of a third country on a route with no connection with its home country 8 th Freedom or Cabotage To carry freight and passengers within a country by an airline of another country on a route with origin / destination in its home country Traditional bilateral aviation regulations More recent air transportation 9 th Freedom or True Domestic To carry freight and passengers within a foreign country with no connection with the home country Source: ICAO Manual of Regulation (2004) and WTO Secretariat Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

8 Africa AsiaPacific Europe Middle East North America Latin America and Caribbean The Yamoussoukro Decision P a g e vii Over the last three decades the African aviation market has been dominated by national flag carriers that have benefited from government protection and free market economic logic has played little to no role in this industry. Therefore there has been little improvement and innovation in the quality and quantity of air services around the continent. The African tax payer is predominantly the biggest loser as governments subsidise, recapitalise or protect national flag carriers that typically operate under dismal financial conditions. Table below shows the international growth in the aviation market over a 17 year period. It can be seen that while the African aviation market has grown, while this is the fastest growing market after Latin America and Caribbean, the African market is still small when compared with the market size of the Worlds other regions. Table Total number of domestic and international airline passengers, by region Passengers (millions) Source: ICAO, 2007 The YD encourages co-operation between African states through aviation. YD advocates the following: That only African owned airlines would benefit from the implementation of YD The granting of 1st to 5th air freedom rights (as well as cabotage, the 8th air freedom rights); Encouraging the development of new routes; Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

9 P a g e viii Removal of capacity restrictions on passenger seats, freight and flights on certain routes; The removal of expensive and complex tariff regulations; The elimination of all protective policies that protect national flag carriers; The termination of regulations on carriers alliance; Doing away with restriction on the conversion of revenues to hard currency and repatriation; Agree on code sharing; and Allow carriers to have own-ground-service abroad Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

10 History and failure to implement P a g e ix The implementation of the YD was expected to be concluded by 2002, with the complete removal of regulations and all the air freedoms being permitted. Capacity constraints would be removed and a monitoring body would be established to enforce and monitor that countries and airlines do not partake in anti-competitive behaviour. The YD agreement between African states in 1999 was over flowing with optimism and good intention, but has faced a number of obstacles which have brought implementation to a complete standstill. The reasons for this failure were highlighted by the African Union Report (2005): confusion in the monitoring body of the Yamoussoukro Decision; conditions for eligibility of airlines in the Yamoussoukro Decision are inadequate. These conditions allow any airline which has its headquarters, central administration and principal place of business physically located in the state concerned to be eligible to benefit from the advantages set forth in the Yamoussoukro Decision. Such an airline may be totally or in most part controlled by foreign capital or interests. The European Union has put in place very restrictive conditions in terms of eligibility so as to protect the airlines of its community YD makes no mention of economic control of eligible airlines - there should be a provision in YD requiring airlines to avail to audit boards all accounting and financial documents to ascertain their economic status. These audit boards do not exist. competition rules as contained in the Yamoussoukro Decision are inadequate. Competition rules need to be defined further. YD has remained mostly stagnant since its inception, except in the Western African region. African Aviation Competition Authority Instrumental in the success of the YD is the establishment of a competition authority to oversee the implementation of the agreement, while also monitoring that governments, airlines and airports don t partake in uncompetitive behaviour. This authority must be comprised of the various member states and not favour any member state. The completion rules have already been stated, but are worth repeating: Only African owned airlines should benefit from the implementation of YD The granting of 1st to 5th air freedom rights in each member state (as well as cabotage, the 8th air freedom rights); Encourage the development of new routes; Ensure the removal of capacity restrictions on passenger seats, freight and flights on certain routes; Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

11 Ensure the removal of expensive and complex tariff regulations; Ensure the elimination of all protective policies that protect national flag carriers; Ensure the termination of regulations on carriers alliance; Remove restriction on the conversion of revenues to hard currency and repatriation; Agree on code sharing; Allow carriers to have own-ground-service abroad; Not allow any direct or indirect state or parastatal subsidies; Not allow private financial aid that is not consistent with generally accepted rules and regulations governing private financing; P a g e x Allow equal access of all community airlines to state or parastatal markets (travels of state or parastatal officials, tenders and pilgrimages); Ban on airlines who abuse a dominant positions; Clear and equitable rules for the allocation of time slots through the establishment of a time slot co-ordination body comprising airport authorities, airlines and civil aviation authorities. Assessing and forecasting the impact of air transportation liberalisation agreements The literature reviewed displayed various methods of estimating the impact of air transportation liberalisation regulations. The most common methods used to estimate the impacts are: the trends model; the gravity model; air transport costs analysis; and the case study approach. The trends approach uses statistical regression analysis to predict future growth in the aviation market; this method is only applicable where air transportation liberalisation agreements have been in place over period and data is available. The gravity model estimates total unconstrained demand between origins and destinations, by taking into account data such as GDP per capita or population levels, while also considering the distance flown. Equation 1 indicates the mathematical equation utilised in calculating the gravity model for each routes flown. This method calculates weights for each specific route, the higher the weight, the higher demand for those flights. Equation (1) Demand = (GDP Origin * GDP Destination )/Distance The simulation method uses historical data and shows how demand in flights changes as air fares increase and decrease, while this is possibly the most thorough way of calculating the impact of an air transportation liberalisation agreement it is mostly inapplicable as reliable data is unavailable, limited or compromised. Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

12 P a g e xi Lastly the case study approach is the most common method of estimating the impact of air transportation liberalisation agreements; this approach looks at the impact experienced in other countries or regions that have already implemented air transportation liberalisation policies and legislation. Unsurprisingly the case study approach is completely qualitative, speculative, and imprecise; it is also the easiest form of measuring air transportation liberalisation impacts. Case studies Case studies showing the impact of implemented air transportation liberalisation agreements have been conducted between the United States and the European Union, the European Union, and India and the United Kingdom. All case studies indicating the impact of air transportation liberalisation agreements involve developed countries, or at least one developed country, as well as countries with established and large aviation markets. This is partly due to the developed countries being among the first states to open their skies and liberalise their aviation legislation. The other observation is that all the case studies are enthusiastically positive with regards to air transportation liberalisation agreements; there is no mention of any negative side effects and impacts. It is estimated that the air transportation liberalisation agreement between the U.S. and U.K. is responsible for stimulating 9,197 full-time equivalent jobs in the United States and over 16,700 full-time equivalent positions in the United Kingdom. It is also estimated that the gross domestic product of the United States also expanded by $747 million due to the agreement and the United Kingdom by roughly $970 million. Liberalisation of the E.U. aviation market between 1988 and 1993 has led to an additional 44 million passengers being carried annually, which equals a 33% increase in passenger seats. This traffic expansion has encouraged development of both the tourism sector and other industries. Some 1.4 million full-time jobs resulted from the liberalisation, and European GDP grew by $US 85 billion. Most importantly noted is the dramatic market growth in low cost carrier airlines and the market share decline of national flag carriers. Between summer 2004 and summer 2006, the number of direct flights between India and the UK rose from 34 to 112 per week. The increase in capacity and more intense competition has resulted in a reduction in air fares, from 882 to 736 for one-way fare paid by passengers travelling for business class and 251 to 231 for one-way fare paid by passengers travelling economy class. Forecasted effects of air transportation liberalisation agreements While the case studies were overwhelmingly positive with regards to air transportation liberalisation agreements, there were two studies that raised legitimate concerns as they forecasted and analysed the effects of air transportation liberalisation agreements. These reports were conducted by Micco and Serebrisky (2006) and Swan (2008). Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

13 P a g e xii There are two essential issues that these reports raised as they analysed their data s results: Firstly, does the country have adequate infrastructure, a regulatory body, available skills and sufficient market size? And secondly, can a country afford to shift aviation activity away from a central hub airport Answering these questions has particular relevance for Africa and more specifically for the Southern African Development Community. Micco et al. (2006) discovered while running a regression on all countries and airports that operate under air transportation liberalisation legislation, that airport with insufficient infrastructure, skills and limited market sizes could not benefit fully from the effects of air transportation liberalisation agreements. Swan (2008) while analysing aviation data in the Far East discovered that air transportation liberalisation agreements over time will move flights away from major hub airports to smaller airports as flights are added to airline routes. Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

14 P a g e xiii Economic Impact of an air transport liberalisation agreement in SADC The purpose of the study is to go further than just assessing the international experience of implementing air transportation liberalisation agreements and determine the impact of implementing the air transportation liberalisation agreement in the SADC region. The impact has been measured on two levels, firstly the impacts experienced within the aviation market (direct impacts); and secondly the impacts felt by supporting industries to the aviation market (indirect impacts). The study identified the following direct and indirect impacts: Direct impacts: On Airlines On Airports Passengers Freight Customs Overview of current status of the SADC Aviation Industry Indirect impacts: On Tourism On Airport services Aircraft manufacturers Environment Intermodal services Government SADC flight departure and passenger data indicates that certain airlines in SADC service mainly domestic routes and service very few international routes, while other airlines are largely reliant on international business. The general trend for most airlines indicates that there has been a gradual increase in the total number of departures over the years; however a decrease in total departures is noted during the 2007 to 2009 periods for smaller airlines, in all likelihood as a result of the downturn in the global economy over this period. Although the September attacks reduced worldwide air travel significantly, most SADC airlines were unaffected. Other major scares such as the SARS virus and Swine flu also had little impact on most SADC based airlines. SADC airlines more commonly encountered periodic problems due to internal issues such as financial losses, inefficiency and safety of aircraft or due to localised external problems such as political instability in countries where the airlines operate. It is noted that national carriers generally split departures between international and domestic while low cost carriers mainly undertake domestic flights. A country by country analysis reveals that most national airlines struggle financially whilst some are greatly affected by the political situation in the country such as Air Madagascar and Air Zimbabwe. All airlines from the Democratic Republic of Congo (DRC) and Zambezi Airlines have been banned in European airspace as a result of substandard safety management practices. Airlines within the SADC that have shut down over the years due to the inability to cope with operations include Air Lesotho, Air Tanzania and Zambia airways. Airlines with a greater number of international passengers compared to domestic include Air Mauritius and Air Namibia. The most popular airlines within SADC with total passenger numbers greater than 500,000 annually are Air Mauritius, South African Airways (SAA), SA Airlink and Comair. Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

15 P a g e xiv International airports with greater than 1,000,000 passengers annually include O R Tambo Airport, Cape Town International, Durban International, Dar-es-Salaam Airport, Harare Airport and Sir Seewoosagur Ramgoolam International in Mauritius. O R Tambo Airport recorded over 10 million passengers annually. International airports with less than 1,000,000 passengers annually include Kinshasa N Djili, Maputo International, Zanzibar airport, Ivato International, Windhoek International and Lusaka International. International airports that recorded the lowest number of passengers with less than 700,000 annually are Gaborone airport, Maun, Majunga, Lilongwe, Kilimanjaro International, Mwanza and Victoria Falls. South Africa has the largest number of airports within SADC of which 7 are domestic airports. Port Elizabeth airport had the largest number of domestic passengers with over 800,000 annually followed by East London and George airports with over 400,000 domestic passengers annually. Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

16 Analysis of questionnaire results P a g e xv Of 106 questionnaires sent, only 16 responses from the following were received. Category Type of Service Offered Company / Organisation Country Airline Airline Comair Ltd South Africa Airline Airline Federal Airlines South Africa Airline Airline Owenair Pty Ltd South Africa Airline Airline Air Malawi Malawi Airport Airport ACSA South Africa Airport Airport NAC Zambia Other Stakeholders Aircraft leasing and charter AirQuarius Aviation South Africa Other Stakeholders Aircraft sales, maintenance, leasing, charter and management National Airways Corporation South Africa Other Stakeholders Aircraft brakes and landing gear overhauls Mistral Aviation Services South Africa Other Stakeholders Passenger/cargo scheduled/charter flights Phoebus Apollo Aviation South Africa Other Stakeholders Non-profit private association representing SADC based airlines. Airlines Association of South Africa AASA South Africa Other Stakeholders Tourism and incentive charters Namibia Commercial Aviation Namibia Other Stakeholders Passenger, freight and mail services Precision Air Services Tanzania Other Stakeholders Ground handling and cargo services Swissport Tanzania Tanzania Other Stakeholders Charter operations Proflight commuter services Zambia An overview of the fleet size of airlines in SADC shows that South African Airways has the largest fleet within 50 aircraft, while other national airlines such as TAAG Angla, Hewa Bora Airways, Air Madagascar, Air Mauritius, Air Seychelles, Air Botswana, LAM, Air Malawi and Air Namibia have smaller fleet varying between 4 and 12 aircraft each. Fleet sizes of airlines operating on domestic routes vary between 1 and 32 aircraft. Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

17 P a g e xvi Feedback from airlines, airports and other stakeholders was generally positive regarding an air transportation liberalisation agreement, however most respondents stated that implementation was poor. Full implementation has been hindered due to lack of government and SADC member commitment to YD, Corruption, poor or substandard airport infrastructure in many countries and airport security concerns among other factors. In order to successfully implement an air transportation liberalisation agreement, governments will have to play an active role and stakeholders should be afforded the opportunity to participate in the decision making. Major changes to infrastructure, improved aircrafts, up to date avionics and transparent policies are some of the compulsory factors necessary to ensure smooth operation of the air transportation liberalisation agreement. The following changes in status quo are expected by airlines and airports. Airlines Airports Frequency of flights Increase Increase on certain routes Capacity May increase or remain static Increase Pricing Decrease Decrease Volume of freight business Increase Likely to increase Number of competitors on each route Increase on higher traffic route but will decrease on marginal routes n/a Market share on each route Reduce n/a Overall, airlines, airports and other stakeholders are positive about the implementation of air transportation liberalisation agreements but are sceptical about the progress made to date on YD and likely to be made into the future. All the stakeholders involved support the idea behind YD and are willing to open their markets to Africa but are not certain that the current infrastructure, legislation and policies support the rapid implementation of such a decision. Cost-Benefit Analysis Methodology The economic impacts have been measured using the principles of the gravity model. However, actual economic data between origins and destinations has been used. More specifically we ve used GDP per capita, urban population levels per country, city population levels and distance between origins and destinations. Equation 2 and 3 show an example of how the various sources of economic data were used to calculate the estimated demand for each potential route in the SADC region. Equation (2) Equation (3) GDP demand airport A&B = ((GDP per capita index airport A) + (GDP per capita index airport B))/2 Route demand = (GDP demand airport A&B x A)+(City pop demand airport A&B x B)+(Urban pop demand airport A&B x C)+(Airport infra demand airport A&B x Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

18 P a g e xvii D)+(Bus, Pol & Dev demand airport A&B x E)+(Tourism infra demand airport A&B x F) where: A + B + C + D + E + F = 100% With the estimated demand known for each route and the use of South African aviation data (such as: actual pricing; seats numbers available on flights; quantity of flights and distance between airports) potential seat numbers, turnover, costs to airlines, benefits to passengers, indirect costs and tourism impacts can be estimated for each route. The impacts have been estimated over a 50 year period, and this is determined by staggering the potential routes by initially allowing only the routes with a high estimated demand and then every 5 years allowing routes with lower estimated demand. At the 50 year point all routes would be included in the impact analysis. Cost Benefit Analysis Results Total Benefits Total benefits include the following: potential turnover to airlines; time saved by passengers and the direct impact of the tourism industry on GDP. All of these have been reported in 2009 Rands and exclusively look at the aviation industry in the SADC region. Table and Figure 1.3-1, display the total benefits experienced over a 50 year period post the implementation of air transportation liberalisation agreement in SADC. It can be seen Table that the most significant benefit brought by an air transportation liberalisation agreement being implemented in SADC is the direct impact on the tourism industry. Tourism is a very labour intensive industry and we can expect that over the 50 year period that approximately 101 million jobs would be created in this industry alone. Table Total Benefits incurred by the implementation of an air transport liberalisation aagreement in SADC Years* Potential Turnover Passenger Time Saving (Rand per KM) BENEFITS Direct Impact Of Tourism Industry On GDP (2009 Rands) TOTAL BENEFITS 5 R 395,592, R 8,070, R 7,552,340, R 7,956,003, R 615,030, R 14,835, R 13,205,292, R 13,835,157, R 631,437, R 15,242, R 13,673,144, R 14,319,825, R 1,055,829, R 26,510, R 28,251,360, R 29,333,700, R 3,194,221, R 76,673, R 50,738,372, R 54,009,267, R 8,886,816, R 296,141, R 105,672,816, R 114,855,774, R 15,354,301, R 720,722, R 165,457,639, R 181,532,662, R 20,306,047, R 1,242,964, R 217,448,285, R 238,997,297, R 21,592,032, R 1,370,343, R 228,121,055, R 251,083,431, R 21,804,364, R 1,395,717, R 229,837,249, R 253,037,331, Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

19 P a g e xviii Figure below graphs the total benefits over the 50 year period. The s-curve graph is to be expected as it indicates that initially benefits are limited as the market adjusts to the new aviation regulations, and once this adjustment is made large benefits start accruing. Finally after 35 years benefits begin to drop off as all major routes are saturated and lower demanded flights are added to flight schedules. It can also be seen on this figure the sheer size of the benefit experience by the tourism industry and the slight benefit experienced by time savings to passengers. Figure Breakdown of Total Benefits incurred by the implementation of an air transport liberalisation agreement in SADC R 300,000,000, Total Benefits R 250,000,000, R 200,000,000, R 150,000,000, R 100,000,000, Direct Impact On GDP (2009 Rands) Time Saving (Rand per KM) Potential Turnover R 50,000,000, R Years Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

20 P a g e xix Years Total Costs The total costs included: cost of flight cancellation; cost of flight diversions; cost of accident resulting in fatality; cost of minor injury during flight; cost of major injury during flight; cost of pollution; cost of noise pollution; and cost of security. These costs have been shown in Table and Figure These results are shown over a 50 year period in 2009 Rands. Table Total Costs incurred by the implementation of an air transport liberalisation agreement in SADC Cost of flight cancellation Cost of flight diversions Cost of accident resulting in fatality Cost of minor injury during flight Cost of major injury during flight Cost of Pollution Cost of noise pollution Cost of Security Navigation Route Costs (FL 145) TOTAL COSTS 5 R 16,598,813 R 315,380 R 81,715 R 1,258 R 17,046 R 8,913,137 R 8,843,296 R 44,638,920 R 20,021,154 R 99,430, R 30,904,372 R 694,787 R 180,018 R 2,771 R 37,553 R 13,051,508 R 15,498,560 R 77,498,801 R 30,307,051 R 168,175, R 32,305,925 R 768,933 R 199,230 R 3,066 R 41,561 R 13,398,790 R 16,227,904 R 80,718,169 R 31,258,269 R 174,921, R 52,098,054 R 1,204,203 R 312,008 R 4,802 R 65,088 R 23,030,384 R 27,259,232 R 132,556,756 R 53,547,308 R 290,077, R 101,208,861 R 2,207,197 R 571,882 R 8,802 R 119,300 R 75,339,598 R 56,797,664 R 306,044,393 R 162,721,282 R 705,018, R 223,961,750 R 4,561,179 R 1,181,796 R 18,189 R 246,533 R 225,875,003 R 136,752,000 R 753,253,360 R 473,688,910 R 1,819,538, R 356,211,205 R 7,081,210 R 1,834,733 R 28,239 R 382,741 R 413,023,162 R 231,019,712 R 1,247,466,816 R 858,029,359 R 3,115,077, R 465,155,210 R 9,153,407 R 2,371,637 R 36,503 R 494,744 R 570,231,582 R 316,170,624 R 1,656,004,414 R 1,184,967,692 R 4,204,585, R 491,444,508 R 9,652,908 R 2,501,057 R 38,495 R 521,742 R 615,124,875 R 338,780,288 R 1,754,588,698 R 1,277,056,026 R 4,489,708, R 497,433,107 R 9,766,692 R 2,530,538 R 38,948 R 527,892 R 624,335,802 R 345,253,216 R 1,777,045,809 R 1,296,504,038 R 4,553,436,042 *post implementation of an air transportation liberalisation agreement in SADC Once again the S-curve bend can be observed in Figure It can also be seen that the cost of security is by far the highest cost over the 50 year period. The cancellation costs and diversion costs could increase depending on occurrence disasters like the recent volcanic eruption in Iceland, grounding all the aircrafts and costing airlines billions of Euros. Socio-economic Impact of an Air Transport Liberalisation Agreement in SADC: 30 th August 2010

21 P a g e xx Figure Breakdown of Total Costs incurred by the implementation of an air transport liberalisation agreement in SADC R 5,000,000,000 R 4,500,000,000 R 4,000,000,000 R 3,500,000,000 R 3,000,000,000 R 2,500,000,000 R 2,000,000,000 R 1,500,000,000 R 1,000,000,000 R 500,000,000 R Year Navigation Route Costs (FL 145) Cost of Security Cost of noise pollution Cost of Pollution Cost of major injury during flight Cost of minor injury during flight Cost of accident resulting in fatality Impact of an air transport liberalisation agreement in the Southern African Development Community Figure shows the total impact of an air transport liberalisation agreement in SADC being implemented in the Southern African Development community. This Figure graphs both the total benefits and the total costs. It can be seen how marginal the total costs are in relation to the overall economic benefit in the case of an air transport liberalisation agreement being implemented in the SADC region.

22 P a g e xxi Figure The total impact of an air transport liberalisation agreement being implemented in the Southern African Development community R 300,000,000, R 250,000,000, R 200,000,000, R 150,000,000, R 100,000,000, TOTAL BENEFITS TOTAL COSTS R 50,000,000, R Years Impact of an air transport liberalisation agreement reflecting the investment and capital expenditure in airport and navigational infrastructure An air transport liberalisation is unable reach the full potential of the demand indicated in the previous section unless there is a significant upgrade and investment to both the airport and navigational infrastructure and equipment in the SADC region. Annual airport capacities would need to be increased to meet the anticipated passengers expected through the various airports in the region. The information that has contributed to infrastructural costs has been provided by Airports Company South Africa (ACSA) and Air Traffic Navigational Systems (ATNS.) ATNS provided a list of infrastructure required per airport based on expected demand for flights and ACSA provided the airport capacities for each of the South African airports and indicated that for an additional 1 million passenger capacity that the infrastructure would cost R 600 million. Table below lists the various infrastructural investments in the navigational equipment and cost of creating additional passenger capacity per airport. The column benefit s less costs indicates the total weekly costs and benefits per week highlighted in previous sections over the 50 year period. Once taken into account the infrastructural costs the column Total impact after infrastructure costs highlights the

23 P a g e xxii impact per airport. It can be seen that only 5 airports cannot meet the infrastructural costs incurred over the 50 year period, but in total the benefits of air transport liberalisation are overwhelming and cross subsidisation of these airport that incur negative impacts could easily make them feasiable. Table impact over 50 years after infrastructure costs are taken into account per airport Location Benefits less costs Airport infrastructure Airport navigational systems Total impact after infrastructure costs Cabinda R 13,135,594,876 R 30,762,646,164 R 105,500,000 R -17,732,551,288 Catumbela R 15,135,950,379 R 21,704,608,871 R 105,500,000 R -6,674,158,492 Dundo R - R - R - R - Huambo R 18,968,271,072 R 32,799,705,108 R 21,666,667 R -13,853,100,703 Kuito R 18,689,215,470 R 31,326,914,031 R 21,666,667 R -12,659,365,227 Luanda R 35,312,114,184 R 14,454,353,583 R 521,500,000 R 20,336,260,601 Lubango R 32,307,418,877 R 31,374,951,739 R 21,666,667 R 910,800,471 Luena R 37,396,632,803 R 27,386,961,412 R 21,666,667 R 9,988,004,724 Malanje R 33,419,030,001 R 31,857,532,089 R 21,666,667 R 1,539,831,245 Menongue R 42,194,390,670 R 30,677,820,412 R 21,666,667 R 11,494,903,591 Namibe R 52,565,917,229 R 31,967,122,412 R 21,666,667 R 20,577,128,150 Ondjiva R 55,206,012,572 R 29,117,281,210 R 21,666,667 R 26,067,064,695 Saurimo R 66,112,557,006 R 30,955,943,213 R 21,666,667 R 35,134,947,126 Soyo R 73,599,566,822 R 29,976,647,084 R 21,666,667 R 43,601,253,072 Uíge R 60,701,876,855 R 30,352,589,998 R 17,333,333 R 30,331,953,524 Francistown R 112,435,059,703 R 35,135,585,164 R 105,500,000 R 77,193,974,539 Gaborone R 126,747,019,578 R 11,489,436,347 R 521,500,000 R 114,736,083,231 Kasane R 87,449,683,593 R 27,894,701,088 R 21,666,667 R 59,533,315,838 Maun R 104,737,840,516 R 26,245,742,034 R 105,500,000 R 78,386,598,482 Bukavu R 91,974,793,085 R 20,836,679,463 R 13,000,000 R 71,125,113,622 Buta-Zega R 90,872,827,828 R 18,670,970,711 R 13,000,000 R 72,188,857,118 Gbadolite R 97,660,364,082 R 19,005,255,956 R 21,666,667 R 78,633,441,459 Gemena R 102,803,308,089 R 21,174,304,236 R 13,000,000 R 81,616,003,852 Goma R 108,712,929,432 R 21,571,107,575 R 13,000,000 R 87,128,821,857 Isiro-Matari R 120,400,614,619 R 21,672,433,831 R 13,000,000 R 98,715,180,789 Kananga R 97,178,167,198 R 23,874,821,943 R 13,000,000 R 73,290,345,255 Kindu R 102,167,901,405 R 21,663,633,278 R 13,000,000 R 80,491,268,127 Kinshasa R 146,328,475,939 R 8,183,067,357 R 521,500,000 R 137,623,908,582 Kisangani R 131,214,272,888 R 17,332,241,664 R 105,500,000 R 113,776,531,224 Lubumbashi R 155,406,013,907 R 19,548,909,955 R 105,500,000 R 135,751,603,952 Mbandaka R 127,269,799,143 R 22,957,803,412 R 13,000,000 R 104,298,995,731 Mbuji-Mayi R 125,232,224,584 R 24,753,794,341 R 21,666,667 R 100,456,763,576 Maseru R 167,101,320,224 R 15,845,658,240 R 105,500,000 R 151,150,161,984

24 Antanànarìvo R 309,736,207,278 R 8,121,960,886 R 521,500,000 R 301,092,746,392 Mahajanga R 231,990,742,240 R 16,996,112,279 R 105,500,000 R 214,889,129,962 Nosy Be R 225,102,887,915 R 21,804,839,914 R 13,000,000 R 203,285,048,001 Toamasina R 295,708,091,889 R 19,094,988,396 R 105,500,000 R 276,507,603,493 Toliara R 239,258,253,432 R 22,937,552,850 R 21,666,667 R 216,299,033,915 Blantyre R 190,228,104,292 R 17,641,591,388 R 105,500,000 R 172,481,012,904 Lilongwe R 181,331,634,287 R 6,055,562,817 R 521,500,000 R 174,754,571,469 Port Louis R 606,131,604,552 R 12,345,883,086 R 521,500,000 R 593,264,221,466 Beira R 217,136,053,533 R 20,113,697,085 R 105,500,000 R 196,916,856,448 Chimoio R 170,895,781,172 R 23,705,642,728 R 15,166,667 R 147,174,971,776 Cuamba R 159,194,864,421 R 21,423,216,316 R 13,000,000 R 137,758,648,105 Lichinga R 177,744,106,905 R 23,590,797,889 R 105,500,000 R 154,047,809,016 Maputo R 285,106,971,134 R 7,783,416,063 R 521,500,000 R 276,802,055,071 Moçimboa da R 202,459,822,345 R 19,933,260,259 R 105,500,000 R 182,421,062,085 Praia Mueda R 187,439,099,382 R 19,705,744,750 R 13,000,000 R 167,720,354,631 Nampula R 269,697,762,029 R 20,528,698,094 R 105,500,000 R 249,063,563,935 Tete R 195,888,132,266 R 23,765,714,787 R 21,666,667 R 172,100,750,812 Grootfontein R 248,492,530,242 R 21,432,237,428 R 84,400,000 R 226,975,892,814 Karabib R 221,958,472,576 R 24,282,126,981 R 15,166,667 R 197,661,178,929 Katima Mulilo R 229,639,103,367 R 28,014,954,576 R 17,333,333 R 201,606,815,458 Keetmanshoop R 309,841,858,605 R 28,306,690,157 R 17,333,333 R 281,517,835,115 Mariental R 269,882,924,036 R 27,107,878,848 R 15,166,667 R 242,759,878,521 Ondangwa R 258,900,704,039 R 27,454,733,326 R 17,333,333 R 231,428,637,379 Rundu R 257,454,998,068 R 29,184,572,233 R 17,333,333 R 228,253,092,501 Windhoek R 396,517,070,883 R 9,559,680,305 R 521,500,000 R 386,435,890,578 Seychelles R 703,501,657,625 R 8,749,277,162 R 521,500,000 R 694,230,880,462 Bisho R 554,445,228,667 R 38,724,314,820 R 105,500,000 R 515,615,413,847 Bloemfontein R 518,236,753,001 R 42,568,700,235 R 105,500,000 R 475,562,552,766 Cape Town R 850,893,805,391 R 19,395,099,853 R 521,500,000 R 830,977,205,539 Durban R 680,019,685,523 R 38,705,155,564 R 521,500,000 R 640,793,029,959 George R - R - R - R - Lanseria R 623,425,486,875 R 50,916,414,646 R 105,500,000 R 572,403,572,229 Johannesburg R 599,808,390,969 R - R 521,500,000 R 599,286,890,969 Kimberley R 520,597,571,517 R 44,083,043,709 R 105,500,000 R 476,409,027,808 Mafikeng R 456,878,656,267 R 40,811,869,973 R 21,666,667 R 416,045,119,627 Nelspruit R 511,508,260,400 R 42,677,327,211 R 105,500,000 R 468,725,433,189 Polokwane R 459,727,696,484 R 42,265,713,353 R 21,666,667 R 417,440,316,465 Port Elizabeth R 757,947,901,871 R 41,889,245,560 R 105,500,000 R 715,953,156,311 Pilanesberg R 458,020,497,838 R 40,046,339,331 R 19,500,000 R 417,954,658,507 Umtata R 589,451,162,905 R 40,306,034,452 R 21,666,667 R 549,123,461,786 P a g e xxiii

25 P a g e xxiv Upington R 564,438,760,296 R 42,797,693,603 R 105,500,000 R 521,535,566,693 Welkom R 539,261,292,507 R 42,529,814,313 R 19,500,000 R 496,711,978,194 Manzini R 337,187,877,496 R 17,821,283,568 R 105,500,000 R 319,261,093,927 Dar-Es-Salaam R 640,241,051,391 R 8,424,782,414 R 521,500,000 R 631,294,768,976 Dodoma R 460,907,809,563 R 24,775,748,996 R 105,500,000 R 436,026,560,566 Kilimanjaro R 601,328,818,794 R 21,088,863,923 R 105,500,000 R 580,134,454,871 Mtwara R 463,076,216,765 R 24,211,283,510 R 21,666,667 R 438,843,266,588 Mwanza R 599,323,031,470 R 27,957,419,377 R 21,666,667 R 571,343,945,426 Zanzibar R 575,823,890,548 R 27,027,185,021 R 521,500,000 R 548,275,205,528 Kitwe R -770,778,388 R - R - R -770,778,388 Livingstone R 370,996,780,292 R 18,800,111,355 R 105,500,000 R 352,091,168,937 Lusaka R 456,850,384,931 R 8,921,260,504 R 521,500,000 R 447,407,624,427 Mfuwe R 95,333,266,016 R 8,502,307,049 R 8,666,667 R 86,822,292,300 Ndola R 430,933,005,132 R 27,766,951,019 R 21,666,667 R 403,144,387,446 Bulawayo R 307,810,325,118 R 23,414,456,928 R 105,500,000 R 284,290,368,191 Harare R 382,745,641,210 R 6,518,897,873 R 521,500,000 R 375,705,243,338 Hwange R 238,906,513,453 R 17,155,638,949 R 21,666,667 R 221,729,207,837 Victoria Falls R 228,987,817,785 R 10,761,251,323 R 105,500,000 R 218,121,066,462 TOTAL R 24,566,019,405,225 R 2,133,076,262,959 R 12,076,400,000 R 22,420,866,742,266 Conclusion The literature review and impact analysis have both overwhelmingly demonstrated the positive effects of implementing an air transportation liberalisation in the SADC region. However, there are a few issues that need to be considered before implementing an air transportation liberalisation agreement: The establishment of a competition authority, with the power to penalise countries and airlines acting in ways that are un-competitive. The inevitable market share decline of national flag carriers and in some cases the closing of unprofitable nation flag carriers. This will, in all likelihood save taxes. The emergences of privately owned low cost carriers as the dominant airlines within the region. The shifting of connector flights away from historical hub airports. Substantial new investment in airports within SADC and in additional infrastructure, skills and capacity (including aircraft) to take advantage of an air transportation liberalisation.

26 Introduction P a g e 1 This report has been prepared for the South African Department of Transport. The report summarises the methodology and findings of an investigation into the impacts of implementing air transportation liberalisation legislation in the form of implementation of an air transport liberalisation agreement throughout the Southern African Development Community (SADC) region. The report has been divided into two parts: 1) The first part (Section 1) investigates the current literature regarding air transportation liberalisation and the effects and impacts experienced in other countries and regions around the world; 2) The second part (Section 2) of the report takes some of the lessons learnt from the first section and applies these in an analytical and modelling study to forecast the impact of air transportation liberalisation legislation being introduced in the SADC region in the form of implementation of an air transport liberalisation agreement throughout the Southern African Development Community (SADC) region.

27 P a g e 2 1 Literature Review 1.1 Introduction Air transportation liberalisation agreements are concerned with the liberalisation of aviation regulations and agreements between countries. This report comprises a review of the current literature regarding the economic impacts of air transportation liberalisation agreements and of the consequences and potential risks of adopting air transportation liberalisation agreements. This report is primarily concerned with setting the back drop to assessing the impact of an air transportation liberalisation agreement on Africa in the Southern African Development Community (SADC). Key to this study is the African air transportation liberalisation initiative known as the Yamoussoukro Decision (YD) launched in Although this initiative is now more than a decade old, little of it has been implemented and the aviation market within Africa remains largely closed, regulated and dominated by national flag carriers. There has been limited political will in implementing YD in the various African regions and the wider continent. YD relates to the liberalisation of access to the aviation market in Africa and seeks to achieve: Unrestricted access to all air routes; Elimination of restriction on capacity, frequency on any route and in operation in any international markets; Elimination of restriction on charters; Liberalization of air cargo rules; Doing away with restrictions on the conversion of revenues to hard currency and repatriation of revenues; Agreement on code sharing; Permitting carriers to have their own ground service abroad; and Termination of regulations on carriers alliance. At the time of writing this report literature available on air transportation liberalisation agreements and the Yamoussoukro decision was limited and lacking in economic quality. Furthermore, most of the air transportation liberalisation literature is focussed on developed countries (the United States, the European Union and the United Kingdom) and thus the analysis is more applicable to highly developed countries and regions. The emphasis on developed country studies is somewhat to be expected, however aviation markets of these regions are double the size of those in the rest of the world. More specifically, the African aviation market is only 7.45% of the size of the North American aviation market and 8.34% of the size of the European aviation market, as seen in Figure Therefore, the anticipated impact of an air transport liberalisation agreement in SADC would be a fraction of that experienced in developed regions where air transportation liberalisation has been adopted.

28 P a g e 3 The report is structured as follows: Section 1.2 examines the nine freedoms of the air that make up a typical air transportation liberalisation agreement. Section 1.3 looks briefly at the history of aviation and the history of aviation agreements, starting with the Chicago Convention of 1944 and concluding with an in depth analysis of the Yamoussoukro Decision of 1999 (Africa s air transportation liberalisation initiative). Section 1.4 reviews five methods that can be used to assess or forecast the impacts of aviation agreements. Section 1.5 reviews three case studies that detail the impacts of implementing air transportation liberalisation agreements. These case studies review the United States and the United Kingdom; the European Union; and India and the United Kingdom. Included is research conducted by InterVISTA-ga2 in 2006, which attempts to determine the global impact of every country liberalising their aviation regulations. Section 1.6 discusses two significant research reports which highlight some important considerations regarding the economic impact of air transportation liberalisation agreements. Finally section 1.7 concludes the analysis by highlighting the implications of the report for Southern Africa. 1.2 The nine freedoms of the air As a point of departure it is important that the nine freedoms of the air are clearly defined, as they will be referred to throughout the remainder of this study. Aviation agreements between countries and within regions can consist of up to nine freedoms of the air. Table overleaf explains each of the nine air freedom rights in a typical aviation agreement between two nations or a region. Freedom Rights 1-4 are known as traditional bilateral aviation regulations that have been in place since the Chicago Convention of 1944 (discussed overleaf), whereas Freedom Rights 5-9 are the more recent air transportation liberalisation regulations being pursued by a number of countries and regions. Freedoms 5 9 are far more liberal and give airlines and airports far more flexibility and possibilities. For a complete list of countries with air transportation liberalisation agreements with the United States in place please refer to Appendix B.

29 P a g e 4 Table Definition of air freedom rights 1 st Freedom To overfly one country en-route to another 2 nd Freedom To make a technical stop in another country 3 rd Freedom To carry freight and passengers from the home country to another country 4 th Freedom To carry freight and passengers to the home country from another country 3 rd Freedom 5 th Freedom 5 th Freedom To carry freight and passengers between two countries on route (by an airline of a third (home) country) with origin / destination in its home country 6 th Freedom To carry freight and passengers between two countries by an airline of a third country on two routes connecting in its home country 7 th Freedom To carry freight and passengers between two countries by an airline of a third country on a route with no connection with its home country 8 th Freedom or Cabotage To carry freight and passengers within a country by an airline of another country on a route with origin / destination in its home country Traditional bilateral aviation regulations More recent air transportation 9 th Freedom or True Domestic Source: ICAO Manual of Regulation (2004) and WTO Secretariat To carry freight and passengers within a foreign country with no connection with the home country

30 1.3 History of aviation agreements P a g e 5 Aviation as a mode of transport has grown increasingly in importance over the last century, ever since the Wright brothers took their first controlled flight on 17 December Less than a decade later aircraft were being used in World War I for reconnaissance and attacks against both ground positions and enemy aircraft. The first aircraft to start transporting people and cargo over long distances were known as Zeppelin blimps or airships. This short lived technology came to an end in 1937, when the Hindenburg Zeppelin blimp crashed killing 36 people (Bryan, L.A, Taylor, M.S, 2006). The 1920 s and 1930 s saw great advances within the aviation industry, such as the first transatlantic flight in 1927 and the first transpacific flight a year later. By the start of the World War II many towns and cities had built airports, and there were many qualified pilots. World War II brought about a number of advances in the aviation industry, such as the first jet aircraft and the first liquid fuelled aircraft. During World War II the importance of modern aviation was recognised and a conference was convened to agree on aviation regulations. This conference, known as the Chicago Convention of 1944, resulted in regulations that have governed international aviation law and bilateral agreements between countries for the second half of last century (Bryan, et al, 2006) Chicago Convention 1944 The Chicago Convention of 1944 was attended by 54 states (see Appendix A for a list of countries that attended the Chicago Convention) but ended in 52 states signing the Convention on International Civil Aviation. The signed convention was a list of international aviation regulations, standards and procedures decided on by participating nations. The regulations, standards and procedures dealt with included: communications systems and air navigation; airport characteristics; rules of the air and airport traffic control; air worthiness of aircrafts; licensing and operation and mechanical personnel; aeronautical maps and charts; log books; and measures to facilitate air navigation (Bryan, L.A., et al; 2006). Most importantly, the convention affirmed that every nation has sovereignty over the airspace above its territory and that every civil aircraft must be registered, carry the nationality of the country of registration, and bear appropriate identification markings (Bryan, L.A., et al; 2006). However, the convention also granted transit rights and permitted non-scheduled, charter, and private flights. Transit rights refer to the right to fly over another nation s territory and to the right to land for non-traffic purposes, such as refuelling (1 st to 4 th freedoms of the air, see Section 2, above.) The Chicago Conference agreed that a regulatory body should be established to ensure that the contracting states implement and abide by the regulations, standards and procedures decided upon at the convention. This was the initial formation of the International Civil Aviation Organisation (ICAO). The ICAO was formally established in 1947 as an agency of the United Nations linked to the Economic and Social Council (ECOSOC). The Chicago Conference set forth the purpose of ICAO as:

31 P a g e 6 "The future development of international civil aviation can greatly help to create and preserve friendship and understanding among the nations and peoples of the world, yet its abuse can become a threat to the general security; and it is desirable to avoid friction and to promote that co-operation between nations and peoples upon which the peace of the world depends; therefore, the undersigned governments having agreed on certain principles and arrangements in order that international civil aviation may be developed in a safe and orderly manner and that international air transport services may be established on the basis of equality of opportunity and operated soundly and economically. (Preamble to the Convention on International Civil Aviation - Chicago, 7th December 1944) The ICAO s primary mandate was to foster development and promote co-operation in international civil aviation. The major success of the convention was that it greatly advanced aviation safety and standards as well as helping to foster bilateral aviation agreements between participating states Formation of state owned or sponsored airlines The formation of state owned or sponsored flag carrier airlines (such as South African Airways) operating out of a hub airport (such as O.R. Tambo Airport), is a result of the regulations set out by the Chicago Convention. Traditional aviation agreements between countries help protect flag carrier airlines by defining the landing rights allowed, restricting the number of flights on a particular route, restricting the amount of freight or passenger seats available and restricting foreign airlines to specific airports. Therefore, flights are directed through a specific airport, as illustrated in figure 1.3-1, below. As can be seen in this figure an overwhelming majority of South African Airways flights are directed through O.R. Tambo International Airport in Johannesburg. Figure South African Airways International Route Map Source: accessed October 2009

32 P a g e 7 Illustrated in Figure 1.3-1, airlines have traditionally operated out of a central hub airport to various destinations around the world. Therefore, if a person wants to travel from Windhoek (Namibia) to Lusaka (Zambia) on South African Airways, they would need to fly first to Johannesburg before transferring to a flight to Lusaka. The trip to Johannesburg not only adds unnecessary time to the journey, but adds significant cost in airport taxes and flight costs. State sponsorship or ownership of international flag carrier airlines is still very prevalent in Africa and a list of flag carriers and level of state ownership can be found in Appendix C. More than 50% of national flag carriers listed in Appendix C are still owned or funded by the state Liberalisation of aviation agreements Since the Chicago Convention of 1944, aviation technology has accelerated rapidly. Today modern aircraft are far more efficient in terms of speed, service and safety than in the past. However, due to aviation regulations between countries not modernizing in tandem with technology and increased levels of globalisation, these improvements in the aviation industry have had a somewhat limited impact on the commercial aviation market. The InterVISTA-ga 2 report highlights this in the following passage: Commercial aviation still faces a challenge common to many of the newer and technically advanced areas of our society. Our social and political institutions have not kept pace with the evolution of technology or the needs of the public. Commercial aviation remains encumbered by well-meaning but outmoded and arcane rules, principles and institutions. They often prevent fit, willing and able airlines from fully serving passengers and shippers who are completely willing and able to pay. They also impose protective machinery that frustrates innovation and directs the evolution of the industry into a contrived and artificial structure. By sheltering airlines from market forces, they reduce the incentives to pass on to passengers, shippers and investors the benefits of improved technologies. When aviation regulations were created in the first half of last century, aircraft technology, speed and safety were limited and expensive. This encouraged formation of national flag carrier airlines that were either state-owned or state-subsidised. Airlines were treated and run as pure monopolies (within nation states) and cartels internationally, requiring state assistance and regulation to survive. However, as technologies and efficiencies in the aviation industry have improved and become accessible, the overall costs of operating airlines have decreased. The airline market can best be explained by Figure overleaf, which shows the demand curve for a pure monopoly and a monopoly.

33 Figure Demand Curve for both a Pure and Normal Monopoly P a g e 8 When aircraft technology was expensive and airline efficiency was severely limited compared with today, airlines were treated as pure monopolies or members of cartels that needed to be protected and subsidised or owned by government. Thus Part A of Figure shows that the average cost of an airline, characterised as a pure monopoly, is higher than the price, resulting in economic losses. This is due to inefficient technologies which were too costly for commercial viability. To ensure the survival of an industry or company operating under conditions of pure monopoly, it is essential that it is subsidised by the difference of P 2 and P 1. Therefore, in order for countries to access the global market, it was essential for governments to meet this short fall in the operating costs of national flag carrier airlines. In today s world where aviation technology is more advanced and accessible, average costs have decreased and the market can better be described as a monopoly. It can be argued that the average costs of the airline industry have decreased to levels where average costs are now lower than price. National flag carrier airlines operating as monopolies seek to maximise profit through offering a suboptimal quantity of seats. This profit can be seen in Part B of 1.3-2, namely the difference of P 1 and P 2. In an open and competitive market, national flag carrier airlines would be forced to operate at competitive equilibrium (where the marginal cost line, average cost line and average revenue/demand line intersect). As can be seen in the figure, competitive market forces would determine equilibrium at price P E (lower than that of the price set by a monopoly) and quantity of seats Q E (higher than the quantity set by a monopoly), directly benefiting consumers of air transport and freight. Airlines have not only functioned as monopolies in the last 15 years, but also as oligopolies on routes that are shared with competing airlines. Airlines collaborate with each other to reduce competition and keep prices high on certain routes, thus increasing the profit made. In an open competitive market, both

34 P a g e 9 airlines would undercut each other prices and improve their services and capacity on those routes, thereby making air travel more accessible. Thus, the focus of the international aviation community over the last 15 years has been on liberalising aviation agreements between countries and opening up the airways, to eliminate this market inefficiency that is ultimately being paid for by the consumer Air Transportation Liberalisation Agreements The United States started pursuing the first air transportation liberalisation agreement in By 1983 the country had signed 23 bilateral air service agreements. European states followed suite in the 1990s by opening up their airspaces to other European nations (discussed in Section further on). In 1992 a massive step was taken towards liberalising air regulations when the US signed an air transportation liberalisation agreement with the Netherlands. This agreement gave each country unrestricted landing rights. Air transportation liberalisation has been more vigorously pursued by the international community over the past 15 years, particularly at a regional level. Prior to 1994 there were just two regional air transportation liberalisation agreements, namely the European Union that included 15 member states, and the Andean Pact that comprised of five South American states (ICAO, 2005). Since 1995, eight more regional arrangements have emerged: The Caribbean Community (CARICOM) Air Service Agreement amongst 15 States in the Caribbean (1996, entry into force in 1998 for nine States); The Fortaleza Agreement amongst six states in South America (1997); The Banjul Accord amongst six states in Western Africa (1997, a separate more liberal multilateral agreement was signed among seven States in 2004); The CLMV Agreement by Cambodia, Lao People s Democratic Republic, Myanmar and Viet Nam (1998, a formal multilateral agreement was signed in 2003); The Intra-Arab Freedoms of the Air Programme amongst 16 States of the Arab Civil Aviation Commission (ACAC) in the Middle East and Northern Africa (1999); MALIAT Multilateral Agreement on the Liberalisation of International Air Transportation (MALIAT) between Brunei, Chile, New Zealand, Singapore and the United States An agreement amongst the six States of the Economic and Monetary Community of Central Africa (CEMAC) (1999); An agreement amongst the 20 States of the Common Market for Eastern and Southern Africa (COMESA) (1999); and The Yamoussoukro II Ministerial Decision amongst 53 African Union States (1999, entry into force in 2000). Of the eleven agreements listed above, eight have been fully implemented or are in the process of a gradual implementation. The last three in the above list require further discussion or decisions made by

35 P a g e 10 the various governments, one of these being the air transportation liberalisation initiative for Africa the Yamoussoukro Decision. An attempt has been made to find more information on these regional air transportation liberalisation agreements; however the literature available is either in a foreign language or does not give the detail required for analysis. There is no literature available for the Africa air transportation liberalisation agreements The Yamoussoukro Decision The structure of the aviation market in Africa over the last three decades has been shaped by protective bilateral agreements between states, where free market economic logic has played an limited role. The majority of African states have moved towards bilateral aviation agreements and regulations that ensure the protection of national flag airline carriers (Economic Commission for Africa, 2001). There has been a limitation on the agreement of 3 rd and 4 th air freedoms (air freedoms are explained in Section 1.2) and reluctance to authorise technical landing for flights continuing to other destinations. The majority of African countries designated flag carriers enjoy exclusive monopolistic rights in these markets. The consequence of this has been a limited improvement in the quality and quantity of air services throughout the continent. In addition, the vast majority of African airlines either have government as a majority or full shareholder. This has been demonstrated in the table provided in Appendix C, listing every airline in the world and whether these airlines are owned, partly owned or subsidised by their governments. Figure overleaf shows the total number of domestic and international airline passengers, by region. As can be seen from the figure, Africa has significantly smaller volumes of passenger seats being purchased, at 114 million seats in 2006, than the developed regions of North America, Europe and Asia - at 1529 million, 1367 million and 980 million passenger seats respectively. Latin America and the Caribbean is almost double the size of Africa, at 272 million passenger seats, with only the Middle East showing similar market size at 111 million seats in the year African ministers took significant steps forward in liberalisation of the African airspace when they signed the Yamoussoukro Decision (YD) in The intention was that YD would be achieved by gradual liberalization of scheduled and non-scheduled intra African air transport services, thus leading to the emergence of a viable and quality African air transport that meets the imperatives of the consumers of air services (African Union, 2005). The general aim of YD is to encourage co-operation among African states through air transportation policies that encourage deregulation of the aviation industry, promoting competition on routes and reduced airfares between African destinations. YD promotes fundamental changes in the nature and operation of airlines, in national economies, in tourism and in relationships between African states (SSamula B. & Venter C., 2005). YD gave the Economic Commission for Africa (ECA) and the ICAO the responsibility of implementing the agreement between the various African states.

36 Africa AsiaPacific Europe Middle East North America Latin America and Caribbean Figure Total number of domestic and international airline passengers, by region P a g e 11 Passengers (millions) Source: ICAO, 2007 YD advocates the following: That only African owned airlines would benefit from the implementation of YD The granting of 1st to 5th air freedom rights (as well as cabotage, the 8th air freedom rights); Encouraging the development of new routes; Removal of capacity restrictions on passenger seats, freight and flights on certain routes; The removal of expensive and complex tariff regulations; The elimination of all protective policies that protect national flag carriers; The termination of regulations on carriers alliance; Doing away with restriction on the conversion of revenues to hard currency and repatriation; Agree on code sharing; and Allow carriers to have own-ground-service abroad The ECA and ICAO are not the only institutions that are interested in the liberalisation of the African skies. Figure overleaf highlights the relationship of the various organisations and structures that are responsible for the implementation of YD

37 D e p a r t m e n t o f T r a n s p o r t P a g e 12 Figure Break down of the Yamoussoukro Decision implementation organs Source: SSamula B. & Venter C., 2005 Impact of the Yamoussoukro Decision: 6 th April 2010

38 D e p a r t m e n t o f T r a n s p o r t P a g e 13 Full aviation liberalisation proposed by YD was expected to be completed by 2002 with a total removal of restrictions on traffic rights (including 5 th air freedoms), as well as removal of capacity constraints between origins and destinations, non-regulation of tariffs by government, multiple designations, and complete liberalisation of cargo and non-scheduled air services (Economic Commission for Africa, 2001). Also by 2002 a monitoring body would have been formed to oversee and enforce the various YD agreements. All in all YD had a number of very good intentions for the African continent; however it has faced significant obstacles in realising the potential gains and implementation has largely failed. The reasons for this failure are highlighted in an African Union Report (2005): Confusion in the monitoring body of the Yamoussoukro Decision o The African Union (AU) is named as chair of the monitoring body, but has been given equal status to the other specialised African institutions such as the African Airlines Association (AFRAA), the African Civil Aviation Commission (AFCAC) and Regional Trade Organisations (RTOs). o The roles of these specialised African institutions are unclear and they are cited only as members, resulting in confusion as to responsibilities. o Furthermore the RTOs are mentioned as back-up to the AU, which is not practical as these bodies would primarily be responsible for ensuring the implementation of YD at a regional level. Conditions for eligibility of airlines in the Yamoussoukro Decision are inadequate. These conditions allow any airline which has its headquarters, central administration and principal place of business physically located in the state concerned to be eligible to benefit from the advantages set forth in the Yamoussoukro Decision. Such an airline may be totally or in most part controlled by foreign capital or interests. The European Union has put in place very restrictive conditions in terms of eligibility so as to protect the airlines of its community. YD makes no mention of economic control of eligible airlines - there should be a provision in YD requiring airlines to avail to audit boards all accounting and financial documents to ascertain their economic status. These audit boards do not exist. Competition rules as contained in the Yamoussoukro Decision are inadequate. Competition rules need to be defined further and the following prohibitions need to be made: o No direct or indirect state or parastatal subsidies. o No private financial aid that is not consistent with generally accepted rules and regulations governing private financing. o Equal access of all community airlines to state or parastatal markets (travels of state or parastatal officials, tenders and pilgrimages) o Ban on abuse of dominant positions. o Clear and equitable rules for the allocation of time slots through the establishment of a time slot co-ordination body comprising airport authorities, airlines and civil aviation authorities. Impact of the Yamoussoukro Decision: 6 th April 2010

39 P a g e 14 o o Establishment of an African Union level body to ensure implementation and compliance. Authorities responsible for the implementation of the Yamoussoukro Decision lack resources and co-ordination for the attainment of the objectives set in the short term - The monitoring body requires adequate financial resources and political support to enable it to fully play its role. For the most part of the last decade the implementation of YD has moved at slower pace than expected and is still far from being implemented in most regions of Africa and the continent itself. Progress has been made amongst many of the West African countries and domestically within South Africa. Furthermore, a number of countries have opened their skies to the United States; among these are Morocco, Nigeria, Ghana, Senegal, Tanzania, Namibia, Burkina Faso, Gambia and Benin (see Appendix B) Both Ethiopia and Kenya have entered into air transportation liberalisation negotiations with the United States African Aviation Competition Authority For a successful implementation of an air transport liberalisation agreement, a proper competition authority is required to monitor that no airline acts in an uncompetitive, monopolistic or oligopolistic manor. Without a monitoring body national flag carriers who have dominated the aviation market in Africa could uncompetitive restrict the access of new low cost carriers. Dominant airlines in the region (such as South African Airways) could also exert unnecessary pressure on smaller airlines. It is necessary that a competition authority be setup by the regional political body such as the South African Development Community. The competition authority should comprise of employees/members from the various members states of the agreement, if this is not possible each state must be in full agreement with the staff/member complement of the competition authority. It is absolutely essential that the competition authority be given full political support of each member state and the power to prosecute airlines that act in an uncompetitive manor. Without any of these commitments establishing an aviation competition authority is pointless. The completion rules have already been stated, but are worth repeating: o o o o o o Only airlines operating in SADC should benefit from the implementation of air transport liberalisation agreement in SADC The granting of 1st to 5th air freedom rights in each member state (as well as cabotage, the 8th air freedom rights); Encourage the development of new routes; Ensure the removal of capacity restrictions on passenger seats, freight and flights on certain routes; Ensure the removal of expensive and complex tariff regulations; Ensure the elimination of all protective policies that protect national flag carriers;

40 o o o o o o o o o Ensure the termination of regulations on carriers alliance; Remove restriction on the conversion of revenues to hard currency and repatriation; Agree on code sharing; Allow carriers to have own-ground-service abroad; Not allow any direct or indirect state or parastatal subsidies; Not allow private financial aid that is not consistent with generally accepted rules and regulations governing private financing; P a g e 15 Allow equal access of all community airlines to state or parastatal markets (travels of state or parastatal officials, tenders and pilgrimages); Ban on airlines who abuse a dominant positions; Clear and equitable rules for the allocation of time slots through the establishment of a time slot co-ordination body comprising airport authorities, airlines and civil aviation authorities. 1.4 Assessing and forecasting the impact of air transportation liberalisation agreements There are various methods that have been used to evaluate and forecast the impact of air transportation liberalisation agreements on aviation markets. Methods include: the case study approach; the trends model; gravity models; stimulation models and air transportation cost analysis (Swan, 2008). These methods predict or analyse the growth in aviation markets if regulations were liberalised, thereby making it possible to understand how growth is being restricted in regulated airline markets. Each method has its limitations and takes into account different aspects predicting the effects of air transportation liberalisation agreements. The various approaches that can be used are discussed in detail in this section. Graham incorporated various aspects of these methods when predicting the impact of air transportation liberalisation agreements in SADC region The case study approach The case study approach is relatively simple and looks at actual data. Of all the existing methods, it is the only method that does not forecast or predict future growth. The case study approach analyses passenger seats, freight by tonnage and air fares before and after air transportation liberalisation agreements have been implemented. This is a crude analysis of air transportation liberalisation agreements as it does not fully take into account the market size, distances between countries, level of airport infrastructure and the proportion of the urban population with access to airports. This analysis has a limited applicability to nations considering air transportation liberalisation agreements, as country conditions often differ drastically. This method tends to be the most common analysis used in the literature reviewed. Various case studies are discussed in Section 1.5 further on.

41 1.4.2 The trends model P a g e 16 The trends model uses statistical regression analysis to isolate the effects of travel against an economic activity such as GDP. This model uses historic travel, flight and GDP data to forecast future aviation industry growth. Therefore the model does not recognize changing conditions like air transportation liberalisation agreements that increase the amount of passenger seats and freight tonnage as shown in the case studies reviewed below. GDP is used to explain growth in air travel, there is no dependence on other causal activities, such as price, service, trade, distance, regulations or airport infrastructure. Thus results using this method are often unreliable and if a country is still operating under regulated aviation agreements the method will not account automatically for the growth brought about by deregulation. (Swan, 2008). This can always be catered for in a more complex model The gravity model While the trends model constrains the forecast by not being able to account for regulation changes, the gravity model is an unconstrained forecast that determines total demand in a deregulated air market. The gravity model uses the size of the origin (city or country) times the size of the destination as an indication of the demand for flights between them. This model assumes that the bigger the population size of the origin and the population size of the destination, the bigger the attraction and demand for flights. Sizes of the origin and destination are measured in population, GDP or number of passengers/freight traveling by air. The model does not account for distance and therefore ignores the impact expected when the origin and destination are further apart and the flights demanded diminish. Therefore in some instances the distance between the origin and destination can be used to further calculate the estimated demand of flights on a particular route (number of flights or airline operating on routes is not taken into account.) Equation (1) shows the most classical form of the gravity model calculation. Equation (1) Demand = (Pop Origin * Pop Destination )/Distance The problem with this model is that it tends to overstate or understate demand on certain routes. This model also assumes that bigger populations consume more air travel, which is only a valid assumption provided that the majority of the population is earning a salary that permits them to consume air travel. Figure overleaf shows the ratio between the gravity model s forecasted amount of air travel consumed and the actual amount of air travel consumed in the European region. For this to be an accurate method of forecasting the majority of the points should be located around the horizontal line at 1.0. Instead, for the majority of these routes there was far more air travel consumed than forecasted (Swan, 2008).

42 Figure Gravity forecast fails to fit actual data, European Region P a g e 17 Source: Swan, W The stimulation model The stimulation model estimates the increase in air traffic arising from changes in fares and service levels. This model requires good data on how the volume of air tickets purchased changes as the price of these tickets changes. The model could have problems in forecasting air traffic levels where the base data is taken from an airport or airline running at full capacity. Generally the type of data required for this analysis is not available or there is inadequate historical data on how price changes have affected air traffic (Swan, 2008) Air transport cost analysis There has only been one study to date that uses various sources of historic data to run regressions analysing the main contributors to air transportation costs. This is not a reflection of the merit of the approach, but is likely to be a result of the extensive data requirements of a fully comprehensive cost analysis. This approach is discussed in detail in Section further on. Cost analysis is able to take into account distance, total volume, value per unit weight of cargo, foreign airport infrastructure, regulatory quality, as well as whether or not an air transportation liberalisation agreements existed between the countries involved and to what extent air freedoms were allowed in this agreement.

43 1.5 Case Studies P a g e 18 This section examines three case studies with respect to the impact that air transportation liberalisation agreements have had on each country. These case studies look at the United States and the United Kingdom, the European Union, and finally India and the United Kingdom. It is important to note from the outset of this section that all the case studies discussed below instituted 1 st to 5 th air freedoms, as well as allowing cabotage the 8 th air freedom, when liberalising their aviation markets United States United Kingdom The United States (U.S.) and United Kingdom (U.K.) aviation agreement is complex and somewhat contentious. While this agreement is liberal in some aspects it is still restrictive by limiting access to Heathrow and Gatwick airport. In the years leading up to the 1990 s U.K. U.S. air traffic represented one third of all U.S. E.U. traffic. During the 1990 s, the U.S. and the U.K. liberalized the traditional agreement that had been in place since As part of that agreement, the U.S. - U.K. market was deregulated, with the exception of Heathrow and Gatwick airports. Otherwise, carriers could operate any city pairs, and at pricing that was commercially determined. Both the U.S. and the U.K. have globally dominant aviation markets and large economies, which tends to make aviation agreements involving these two counties fairly problematical. Both states attempted to sway the agreement in their favour and maintain or grow their market share. The liberalisation of the air market between the U.K. and the U.S. led to capacity growth on then trans- Atlantic route at a compound annual rate of 7.8%. The market share in passenger seats over the Atlantic shifted over a ten year period from 48% U.S. flag carriers in 1990 to 58% U.S. flag carrier in At the end of 2005, the U.S. had lost a slight portion of this gain with market share over the transatlantic falling back to 56%. Figure 1.5-1, overleaf, demonstrates graphically the number of passenger seats for both U.S. and U.K. carriers between the periods A decrease in passenger seats between 2001 and 2002 can be attributed to the 11 September 2001 attacks in the U.S. and the outbreak of the Severe Acute Respiratory Syndrome (SARS) virus in It is estimated that the air transportation liberalisation agreement between the U.S. and U.K. is responsible for stimulating 9,197 full-time equivalent jobs in the United States and over 16,700 full-time equivalent positions in the United Kingdom. It is also estimated that the gross domestic product of the United States also expanded by $747 million due to the agreement and the United Kingdom by roughly $970 million. InterVISTA-ga 2, 2006, estimated that a full air transportation liberalisation agreement between the U.S. and the E.U. would result in a 29% increase in traffic, due to increased passenger volumes between the U.S. and Heathrow and Gatwick airports. The economic benefits of a complete air transportation liberalisation agreement would also mean that 117,000 full-time equivalent positions would be created and the GDP of the two countries would grow by roughly $7.8 billion in 2006 (InterVISTA-ga 2, 2006.) Subsequent to the InterVISTA-ga 2, 2006 report, the U.S. negotiated an air transportation liberalisation agreement with the E.U. that has paved the way for the U.S. to enter into a complete air transportation liberalisation agreement with the U.K.

44 Number of Seats (000s) Figure Air market share between U.S. carriers and U.K. carriers P a g e US Flag Capacity Total US-UK Capacity Source: adapted, InterVISTA-ga 2, A limited air transportation liberalisation agreement with the U.S. The E.U. air transportation liberalisation agreement with the U.S. has been criticised due to E.U. companies being restricted such that they cannot obtain more than 25% of voting rights in US aviation companies. On the other hand U.S. companies can acquire more than 50% of any E.U. aviation company or airline ( 2009). E.U. airlines are allowed to fly from any European Airport to any U.S. Airport, but cabotage within the U.S. is completely restricted. On the other hand U.S. airlines are not only allowed to fly from any U.S. Airport to any E.U. Airport, but cabotage within the E.U. is permitted. British Airways has indicated that under an air transportation liberalisation agreement with the US it has the most to lose, as 40% of transatlantic flights from Europe depart from Heathrow Airport which has been deregulated. E.U. leaders (in particular the U.K. leaders) believe they can push the U.S. to review the limitations of the agreement in 2010 when the air transportation liberalisation agreement is revisited. These restrictions are destroying competition and already DHL (a European based freight company) cannot compete against U.S. freight companies. In this regard, DHL has closed down its U.S. branch,

45 P a g e 20 which means that some 8000 U.S. jobs have been lost. Furthermore it has now outsourced its aviation services to ABX Air & ASTAR (both of these are US based freight companies) (Brown, 2008) The European Union The European Union signed an internal air transportation liberalisation agreement in 1992, called the Single Aviation Market ; this was signed by the 12 member states at the time. The InterVISTA-ga 2, 2006 report looked at the impact of this deregulation on the European Community market as a whole and the impact of this deregulation on a number of selected air routes from Germany. The process of liberalising aviation regulations was spread between 1987 and 1992, as it was resisted by various member states and the entire aviation industry. The 1992 legislation was the third of three packages. The first two (1987 and 1990) retained the bilateral system. Table shows a summary of the Intra-EU transport packages, the three air legislation agreements (1987, 1990 and 1992) and the various aspects of this agreement. The three stages of liberalisation in the E.U. aviation market and the dates that these agreements came into force have been displayed in the three columns on Table 1.5-2, overleaf. The columns display how over a 4 year period: The regulations of airfares (fares) were relaxed, More route designations could be added regardless of smaller demand, Capacity share between states was eventually abolished, and Air freedoms were increased Table 1.5-3, overleaf, is a good indication of how a phased implementation of an air transportation liberalisation agreement could be structured, thereby giving states, airports and airlines time to adjust and improve aviation efficiencies. Table 1.5-1, overleaf, shows the capacity and traffic growth for all of Europe, between the periods of The results shown only take into account the change between the first and the last year in the four year period. This removes some of the explainable short term fluctuations such as the 11 September 2001 attacks in the U.S. As can be seen, the growth in passengers carried by all European airlines between more than doubles that between

46 Table Capacity and Traffic Growth for All Europe, P a g e 21 Increase in passengers carried Market Total Europe Source: InterVISTA-ga 2, % 37.80% 40.90% One of the significant findings of the liberalisation process in the E.U. has been the gain in market share by low cost carriers. Before liberalisation low cost carriers were restricted to certain Table Summary of Intra-EU transport packages Source: InterVISTA-ga 2, 2006

47 P a g e 22 routes and booking slots. They also competed against subsidised national flag carriers. Table below shows how the low cost carrier airlines have grown their market share in the aviation industry, from 1996 to These low cost carriers have moved from a 1.4% market share to more than a fifth of the share in the aviation market. Table : Capacity Shares of Low Cost Carriers Year Low-Cost Operators Share of Capacity % % % % % % % % Source: InterVISTA-ga2, 2006 Liberalisation of the E.U. aviation market between 1988 and 1993 has led to an additional 44 million passengers being carried annually, which equals a 33% increase in passenger seats. This traffic expansion has encouraged development of both the tourism sector and other industries. Some 1.4 million full-time jobs resulted from the liberalisation, and European GDP grew by $US 85 billion India United Kingdom The aviation regulations between India and the United Kingdom (UK) were liberalised in late 2004 to mid The United Kingdom Civil Aviation Authority put together a case study of pre- and post- lair transportation liberalisation agreements between India and the UK. The Civil Aviation Authority focuses primarily on the effects that this agreement has had to date on aviation in the UK. They laid out the report in four sections: impact on consumers; impact on the airlines; impact on the airports; and impact on the wider economy Impact on consumers Consumers were the biggest beneficiaries of the air transportation liberalisation agreement between India and the UK, due to the increased number and choice of services, destinations and airlines operating between these two countries. Between summer 2004 and summer 2006, the number of direct flights between India and the UK rose from 34 to 112 per week. This can be seen in Figure overleaf, which shows growth in U.K. India direct services between 2000 and 2006.

48 Figure Growth in UK-India direct services P a g e 23 Source: United Kingdom Civil Aviation Authority, 2006 The majority of the new flights are operating between the main airports of India and the UK London Heathrow (an increase of 77 services per week), Delhi (an increase of 23 services per week) and Mumbai (an increase of 38 services per week). However, new flight origins and destinations have been added in both the UK and in India Birmingham, Amritsar and Bangalore. This increase in services has been provided by a combination of airlines which were already serving the market (British Airways, Virgin and Air India) and new entrant airlines (JetAirways, bmi and Air Sahara.) Figure 1.5-3, overleaf, shows the added airports and airlines serving the market. Furthermore, the increase in capacity and more intense competition has resulted in a reduction in air fares, from 882 to 736 for one-way fare paid by passengers travelling for business class and 251 to 231 for one-way fare paid by passengers travelling economy class. Airlines have had to discount fares to compete for customers.

49 Figure Breakdown of direct services to India in summer 2004 and 2006 P a g e 24 Source: United Kingdom Civil Aviation Authority, Impact on Airlines The impact of air transportation liberalisation agreements on airlines is both positive and negative. The increased competition reduces profits, whilst the new commercial freedoms enabled previously excluded carriers to enter the market, offering services for the first time. The frequency market shares for the carriers before and after liberalisation can be seen in Table below. This shows that the liberalisation of the aviation market led to more competition and reduced the oligopolistic and uncompetitive nature of this previously regulated market. Civil Aviation Authorities modelling shows that while UK airlines benefited from an increase in revenue of 30 million between 2004 and 2005, reductions in fares reduced profits by 46 million. Table Frequency market shares at the beginning of IATA Summer 2004 and 2006 seasons Airline Summer 2004 Summer 2006 British Airways 56% 37% Virgin Atlantic 9% 12% bmi 0% 6% Air India 35% 22% Jet Airways 0% 20% Air Sahara 0% 3% Total 100% 100% Source: United Kingdom Civil Aviation Authority, 2006

50 Impact on Airports P a g e 25 The benefit to airports from air transportation liberalisation agreements is the added revenue brought about by the increase in services from the added number of flights. Civil Aviation Authorities modelling suggests a net benefit to UK airports of around 12 million of additional profits from increased revenues of 65 million. The paper did not quantify the impact on Indian Airports. Airports such as Amritsar and Bangalore, which were previously not served, now accommodate international flights to and from the UK. Figure below shows the growth of point-to-point markets from the UK to India. As can be seen, the air transportation liberalisation agreement benefited the existing airports as well as new airports accepting international flights. Figure Growth of direct point-to-point markets from the UK to India Source: United Kingdom Civil Aviation Authority, Impact on the wider economy The impact on the wider economy is mostly made up of circumstantial evidence in the report. Trade levels between the UK and India increased by approximately 25% from 2005 to Foreign direct investment by Indian companies into the UK grew by 110 % in the same period. While it is difficult to demonstrate that the air transportation liberalisation agreement was responsible for this, the results suggest that the agreement was certainly a contributor. The Civil Aviation Authority stated that this point is supported by survey data for the latest available years (2004 to 2005) which shows that direct

51 P a g e 26 business traffic has grown at a similar rate to leisure traffic in the year 2004 to 2005 (37 per cent compared to 48 per cent), suggesting that aviation liberalisation is facilitating greater business activity between the two countries. Added to this circumstantial evidence is the fact that India s strong economic growth is being partly driven by a move into higher-value, more export-orientated sectors such as IT and pharmaceuticals, which have a requirement for air transportation. The growth in the frequency and capacity of direct UK-India flights is likely to have a further effect on the development of these businesses. It is also important not to forget that there has been substantial growth in tourism between these two countries Impact of an international air transportation liberalisation agreement The InterVISTA-ga2 report attempts to measure the impact of a global liberalisation of aviation agreements. The impacts were measured in Passenger seats, Air freight traffic, Employment, Gross domestic product, Tourism and Catalytic investment impacts for any country-pair. Most of the base data used in the models came from various case studies that analysed the various changes in the measurements when aviation regulations were liberalised. Time series and cross sectional models were then used to assess the impact of air transportation liberalisation. The findings of the United Kingdom Civil Aviation Authority, 2006, report estimated that if 320 pair country markets, currently not in an air transportation liberalisation mode, liberalise their air service agreements air traffic would grow by 63%, significantly higher than recent world traffic growth of around 6-8% per annum. This growth could potentially create 24.1 million full-time jobs and generate an additional $490 billion in GDP, which is the equivalent of an economy the size of Brazil. 1.6 Forecasted effects of air transportation liberalisation agreements The case study approach in Section 1.5 paints air transportation liberalisation agreements in a very positive light and suggests that only benefits accrue to countries that open up their airspaces and airports. However, air transportation liberalisation agreements do not always have the impact hoped by countries entering negotiations, as shown in studies conducted by Micco and Serebrisky (2006) and Swan (2008).

52 P a g e 27 There are two essential issues discussed by Micco, et al, (2006) and Swan (2008) that should be considered before a country enters into an air transportation liberalisation agreement: Firstly, does the country have adequate infrastructure, a regulatory body, available skills and sufficient market size? And secondly, can a country afford to shift aviation activity away from a central hub airport as shown in Figure These two questions have particular relevance for Africa and more specifically for the Southern African Development Community. In this section we will discuss and highlight the outcomes and recommendations of Micco, et al, (2006) and Swan (2008) Infrastructure, regulatory body, skills and market size limitations The first study undertaken by Micco, et al, (2006), made use of regression analysis to estimate the effect that air transportation liberalisation agreements had on transport costs. They primarily used data on air transport costs from the US Imports of Merchandise Database. The data covered the period 1990 to 2003, where the US entered into a number of air transportation liberalisation agreements with various countries. This period provides ample time to analyse these agreements and assess their effects in totality. Further data used in the regression included: The distance between the freights origin and its destination in the US. This is an important consideration as distances between origins and destinations do not change when air transportation liberalisation agreements are concluded, and the price of jet fuel price is unaffected by these agreements. GDP and GDP per capita in US dollars for both the origin of the freight and its destination in the US. The percentage of the population which resides in urban areas, as it was assumed that the vast majority of air freight is generated from urban and peri-urban areas. Certain data on airports and cities; these geographic coordinates, population of major urban cities, number of paved runways, as well as runway lengths and widths. An infrastructure skills index. The econometric model used in Micco, et al, (2006), is shown in equation (2) overleaf. The coefficients are shown in Table overleaf. The results display the cross sectional analysis of regression on transport costs. It can be seen in Table that the product unit value (which is the value per unit weight of cargo at 4-digit SITC) and distance per port of entry (which is the distance between the origin of the air freight and the destination in the US) have the highest positive coefficients, meaning that total transport cost increases most significantly for each additional km travelled or value per unit weight of freight transported. Improved foreign airport infrastructure reduces transport costs by the greatest

53 P a g e 28 amount, whilst the benefit of an air transportation liberalisation agreement has a much smaller impact on transport costs than expected. The figures in brackets in Table show the standard error, and it can be seen that the standard error for certain coefficients is so slight that we can assume these to be close to correct. However, the standard error for Total Volume, Imbalance and Open Sky Agreement vary quite significantly. It is also reported on Table that Distance per port of entry, Product unit value, Foreign airport infrastructure index and the implied effect infrastructure index are all significant at 1%, this tells us that we are 99% confident that these variables have an effect on transportation costs. These results tell us that the distance of an airport, the value of the product being shipped and the infrastructure of the foreign airport have the largest significant effect on transportation costs. Table Section analysis of regression on transport costs Distance per port of entry (ln) S.E. (0.04) significant at 1% Total volume (ln) S.E. (0.02) Product unit value (ln) S.E. (0.011) significant at 1% Imbalance S.E. (0.072) Air transportation liberalisation agreement S.E. (0.046) Foreign airport infrastructure index II (FAII1) S.E. (0.119) significant at 1% Regulatory quality S.E. (0.04) Implied effect infrastructure index significant at 1% Sample All countries R-squared Source: Micco, et al, (2006) Equation (2): Transport cost origin-destination = dummy variable + distance origin-destination + total volume origin-destination + product unit value origin-destination + trade imbalance origin-destination + foreign airport infrastructure origin + regulatory quality origin + air transportation liberalisation agreements + error term Further analysis was conducted on the air transportation liberalisation agreement coefficient in this study but more noteworthy are the results shown in Figure overleaf. As seen in Figure 1.6-1, the coefficient on air transportation liberalisation agreements increases in size with each year, indicating that air transportation liberalisation agreements have more of an impact on reducing transport costs the longer the time period elapsed since implementation. This is to be expected as air markets need time to adjust to the new regulations when significant changes take place. Micco, et al, (2006) primarily focused

54 P a g e 29 on air freight transport. They eventually estimated that over a period of five or more years, an air transportation liberalisation agreement could potentially reduce air freight transport costs by roughly 9% and increase foreign trade by 12%.

55 P a g e 30 Figure The effect of air transportation liberalisation agreements on air transport costs over time Source: Micco, A. et al 2006 The most important finding in this paper is that air transportation liberalisation agreements do not have the same effects in all countries. For instance air transportation liberalisation agreements in developed and upper-middle- income developing countries reduce air transport costs, but for low-income developing countries air transportation liberalisation agreements are not associated with a fall in freight rates. This is understood as an indication that low-income developing countries cannot take full advantage of air transportation liberalisation agreements because of other barriers to competition or because of their limited market size. Micco, et al, (2006) also find that countries with better access to airports, well trained airport staff, adequate airport infrastructure and better regulatory quality, have lower air transport costs. Therefore, if air transportation liberalisation agreements are to be maximised to their full potential these issues need to be dealt with first: Sufficient airport infrastructure needs to be in place.i.e. Appropriate runway lengths and widths, modern air traffic control systems etc. Staff needs to be skilled in the various areas required to run an efficient air service. Regulatory structures need to be in place to monitor the air market. The market size of the country needs to be assessed and increased. Cargos and manufactured products (such as certain agricultural products, as well as electronic and highly technological goods) that are transported by air freight need to be assisted and initiated. Other barriers to competition could range from political unrest and corruption to restrictive government policies. All of these need to be addressed in order for air transportation liberalisation to be successful in a country.

56 1.6.2 Spread of development from hubs to outlying areas P a g e 31 The second study by Swan (2008) investigates how regulated markets have constrained travel within the region. Swan (2008) lists techniques for forecasting air transportation levels in deregulated air markets, highlighted in Section 1.5 above (the Aviation forecasting models ). The paper moves on to review forecasts by Boeing and Airbus for regional growth in air travel and air freight, by comparing these to recent trends in growth and forecasts conducted by the author. Table below shows the forecasted growth in air travel between North-East Asia and North America predicted by Airbus, Boeing and Swan. As can be seen these growth levels fluctuate between 5% - 6.5% over 10 and 20 year periods. Table Forecasts in North-East Asian travel to North America Swan 10yr Boeing 20yr Boeing Airbus 20yr China 5.1% 6.4% 6.4% Japan 5.3% 5.1% 5.0% 4.2% Korea 5.9% 5.1% 5.6% 5.9% Source: adapted Swan, W Figure Actual air travel between North-East Asia and North America Source: Swan, W The report reveals how accurate these growth levels are by comparing them to the actual trends in air travel growth to North America for the periods of 2007 and The actual air travel between these two regions can be seen in Figure above

57 P a g e 32. Air travel between Japan and North America decreased during this period, while air travel grew at a much higher rate than expected in China and Korea. Swan (2006) explains such differences between the actual figures and the forecasts by stating: the lesson here is that useful regional forecasts need to start with good regional data, and they need to recognize changes in routes, fares, and political constraints specific to the markets. The models used to forecast air travel growth are unable to account for changes in routes and route development, and this tended to be the main reason the forecasts differed so much from the actual data in air travel. Swan (2008) found that actual growth levels in air travel were similar to GDP growth levels for each of the countries concerned. One of Swan s (2008) major findings in this report was that air services dramatically increased travel to cities outside the existing list of major gateways, allowing them to participate to a much greater degree in international trade. This is an important point for the Southern African Development Community to take into account, as air travel and services may shift away from O.R. Tambo Airport in South Africa, to outer lying airports in the region. Hence it is these smaller airports which may stand to benefit the most from an air transportation liberalisation agreement and this may be at the expense of larger airports. Over time an air transportation liberalisation agreement could help small regional and airports develop by attracting more air traffic and economic activity into these regions, but at the same time O.R. Tambo may lose air traffic and potential revenue. 1.7 Concluding Comments From the literature reviewed we can conclude that air transportation liberalisation initiatives that have been pursued are mostly successful in regions where implemented, provided that there is adequate airport and tourism infrastructure. The literature would seem to suggest strongly that the deregulation of the air space over Africa and the Southern African Development Community would bring about significant changes to the structure and makeup of the current air market in Africa, and add value to the economies of Africa. The level of change would depend on the how many freedoms of the air would be permitted. A number of African national flag carrier airlines would be the most vulnerable to these changes, as it was reported in European region that low cost carrier airlines were the most likely to benefit from air transportation liberalisation legislation. National flag carrier airlines would need to cut costs and move towards efficient practices (similar to those of low cost carriers); they would also lose out on potential revenue and market share as low cost airlines compete for passengers around Africa and the Southern African Development Community. African tourism and business relationships would stand to gain the most from an air transportation liberalisation agreement. Crucial to the success of an air transport liberalisation agreement being implemented in the SADC region and ultimately the African continent as a whole is the establishment of a competition authority. The primary role of this authority would to discourage anti-competitive behaviour, allow easy access for new

58 P a g e 33 African airlines wishing to enter the market and ensure that no airline abuses a position of market dominance. Furthermore this regulator could ensure that African governments remove aviation regulations in the time frames agreed upon. It is therefore necessary that African member states to this agreement give this body ultimate authority and the power to enforce the terms of the agreement among reluctant states, airlines and airports. The literature reviewed also shows that air freedoms 1 5, along with air freedom 8 encompasses the standard package for an air transportation liberalisation agreement. Furthermore the literature forecasts that if there were a global liberalisation of aviation markets, then air traffic would grow significantly. This growth in air traffic would be create large amounts of additional full time employment, as well as contributing hundreds of billions of additional dollars to global GDP (this extra GDP was estimated to be equivalent to that of total Brazilian GDP.) The impact of air transport liberalisation agreement being implemented in SADC is discussed and forecasted in the sections to follow. An important consideration raised by the literature is that in order to take advantage of air transportation liberalisation agreements, appropriate aviation infrastructure and skills are required, namely airport infrastructure, airline and airport efficiencies, regulatory controls, market size, the population s ease of access to airports and aviation markets, and political and business stability. Without these conditions, countries will not be able to take advantage of these liberalised regulations. Furthermore, the literature recognised that air transportation liberalisation would divert flights away from hub airports, as passengers would demand more direct flights. It is necessary to assess whether the current hub airports in SADC could sustain themselves in the future as further use is made of alternative airports within the region. Whilst the following sections will only estimate the impact of an air transportation liberalisation agreement on the SADC region, it would be advisable for the Department of Transport to further investigate the functions and make up of a regulatory body that would be necessary to assist in implementing the air transportation liberalisation agreement for the entire region.

59 P a g e 34 2 Impact of air transport liberalisation agreement in Southern African development Community 2.1 Introduction This study sets out to determine the impact of implementing an air transport liberalisation agreement in SADC. The following measures of liberalisation have been taken into account throughout the remained of this section: Only airlines operating in SADC should benefit from the implementation of air transport liberalisation agreement in SADC; The granting of up to 5 th air freedom rights plus cabotage, the 8 th air freedom right; Encouraging the development of new routes; Removal of capacity restrictions on passenger seats, freight and flights on certain routes; The removal of expensive and complex tariff regulations; The elimination of all protective policies in favour of national flag carriers; The termination of regulations on carriers alliance; Doing away with restriction on the conversion of revenues to hard currency and repatriation; Agree on code sharing; and Allow carriers to have own-ground-service abroad After considering the above agenda and the general experience with air transportation liberalisation initiatives elsewhere in the world, the research team determined that if an air transport liberalisation agreement were to be implemented within the SADC region, two results can be expected: a) That there will be impacts within the aviation market; and b) There will be impacts felt within supporting industries to the aviation market. The impacts that will be felt within the aviation market are termed as direct impacts and the impacts experienced within the supporting industries are termed as indirect impacts. An assessment of both the direct and indirect impacts will be used to determine the costs and benefits of implementing the an air transport liberalisation agreement within the SADC region. This method is known as cost-benefit analysis (CBA).

60 The study identified the following direct and indirect impacts: P a g e 35 Direct impacts: On Airlines On Airports Passengers Freight Customs Indirect impacts: On Tourism On Airport services Aircraft manufacturers Environment Intermodal services Government Based on available data, direct and indirect impacts are calculated and utilised in the cost benefit analysis. Data used includes feedback from stakeholders via the questionnaire and other sources.. A diagram that illustrates the various components of the cost benefit analysis can be viewed in the Appendix D. It is observed that the quantifiable benefits of implementing an air transport liberalisation agreement in SADC far outweighs the quantifiable costs of such an implementation over the 50 year period.

61 D e p a r t m e n t o f T r a n s p o r t P a g e Overview of the Current Status of the SADC Aviation Industry SADC flight departure data indicates that certain airlines in SADC service mainly domestic routes and service very few international routes, while other airlines are largely reliant on international business. The following analysis focuses on the number of domestic and international departures for major airlines in the SADC region. The general trend for most airlines indicates that there has been a gradual increase in the total number of departures over the years; however a decrease in total departures is noted during the 2007 to 2009 periods for smaller airlines, in all likelihood as a result of the downturn in the global economy over this period. Although the September 11 attacks reduced worldwide air travel significantly, most SADC airlines were unaffected. Other major scares such as the SARS virus and Swine flu also had little impact on most SADC based airlines. SADC airlines more commonly encountered periodic problems due to internal issues such as financial losses, inefficiency and safety of aircraft or due to localised external problems such as political instability in countries where the airlines operate. It is noted that national carriers generally split departures between international and domestic while low cost carriers mainly undertake domestic flights. A country by country analysis follows Angola There are currently 9 airlines operating in Angola. Non-availability of data for these airlines prevents analysis of the current and past trend in departures and passenger numbers. Fleet sizes for the airlines were available and are illustrated in Figure overleaf. The largest fleet belongs to SonAir with 32 aircraft. SonAir is a privately owned airline that specialises in transporting passengers to and from offshore and onshore oil industry facilities. The airline also provides services to other businesses, single entities, charter services within Africa, and private and government businesses. It operates from 7 regional airports within Angola and internationally to Houston with the aid of World Airways. SonAir also provides helicopter services to businesses. The national operator TAAG Angola Airlines has 12 aircraft and flies to Cameroon, Cape Verde, Central African Republic, DRC, Congo, Mozambique, Namibia, Sao Tome and Principe, South Africa, Zambia, Zimbabwe, Cuba, Brazil, China, United Arab Emirates and Portugal internationally. It operates from 16 airports within Angola. TAAG has code share agreements with Air France, Brussels Airlines, British Airways and Lufthansa. Diexim Expresso operates regional flights, VIP flights and charter flights between Angola and Namibia. It operates from 5 destinations within Angola. Air 26 also provides domestic services within Angola and operates from 7 airports within Angola. Alada provides passenger and cargo charter services throughout Angola and to other parts of Africa. Air Gemini is a cargo airline mainly servicing the diamond mines and undertaking humanitarian missions. Aeronautica provides charter freight and passenger services.

62 D e p a r t m e n t o f T r a n s p o r t P a g e 36 Angola Air Charter is a charter airline specialising in charters within Africa and to Europe, particularly to Belgium and the Netherlands. Transafrik is a cargo airline. Figure Fleet size Airlines in Angola Botswana Air Botswana is the national airline of Botswana. The airline was faced with numerous financial problems since 1988 as can be seen on Figure overleaf. In 1994, the government had to write off losses of over 50 million Pula as the airline was unable to cope with the financial demands being made upon it. The airline began to pick up after the losses were written off and both domestic and international departures began to increase. The airline recorded a net profit for the years 1998 and 1999, but expenses exceeded revenues in 2000 resulting in a drop in net profit for that year. The airline was hard hit when a pilot on a suicide mission crashed into two other planes at the airport. The airline had to lease an aircraft after the incident in order to resume operations.

63 US $ (Million) D e p a r t m e n t o f T r a n s p o r t P a g e 37 Figure Air Botswana Financial data Operating Revenues Operating Expenses Net Profit Departures increased over the years as the government attempted to privatise the airline due to recurring losses. Negotiations to privatise failed and the airline resumed operating at a loss. Although the airline is faced with many challenges, international and domestic departures continued to increase over the years indicating that there is demand for travel into and out of Botswana regardless of the financial turmoil of the airline. Departures data can be seen on Figure overleaf. Air Botswana has a greater number of international departures than domestic departures; this would indicate that Gabarone Airport is the primary destination for businessman and tourist entering Botswana. It must also be considered that Botswana is considered one of the stronger economies of southern Africa with lucrative diamond exports due to the presence of the world s largest and richest diamond mine attracting thereby attracting flights and passengers.

64 D e p a r t m e n t o f T r a n s p o r t P a g e 38 Figure Air Botswana Domestic and International departures Domestic International While the airline has struggled financially over the years, statistics show that passenger numbers have not suffered. Air Botswana experienced an increase in both domestic and international passengers over the years. Air Botswana flies to 4 airports within Botswana and internationally to South Africa and Zimbabwe. Air Botswana has a greater number of international passengers than domestic passengers indicating that travel within Botswana is not as popular as international travel. Both International and domestic passenger volumes have been increasing over the years as can be seen on Figure below. Figure Air Botswana Domestic and International passengers AirBotswana Domestic AirBotswana International Air Botswana has 6 aircraft in its fleet. The airline has three ATR s, two ATR s and one Boeing aircraft. The fleet size is illustrated in Figure overleaf.

65 D e p a r t m e n t o f T r a n s p o r t P a g e 39 Figure Air Botswana Fleet ATR ATR Boeing Democratic Republic of the Congo (DRC) There are 7 airlines currently operating in the DRC. Hewa Bora Airways is the largest airline in DRC and operates regional and domestic routes. It operates from 8 airports within DRC and also flies to the Republic of the Congo and to South Africa. Filair operates within DRC and flies to 5 airports within the DRC. Air Tropiques provides domestic, regional and charter flight services. Air Kasai operates charter services within Africa. Business Aviation provides domestic and international air services. It flies within the DRC and internationally to Brazzaville and Pointe-Noire. Comapgnie Africaine d Aviation operates domestic routes within the DRC to 8 airports. Wimbi Dira is a charter, passenger and cargo airline flying to the main cities in the DRC. All the airlines based in the DRC are prohibited from entering European airspace due to sub-standard safety management practices. Fleet sizes of the above airlines can be seen on Figure overleaf.

66 D e p a r t m e n t o f T r a n s p o r t P a g e 40 Figure Fleet size DRC Airlines Air Kasai Air Tropiques Business Aviation Compagnie Africaine D Aviation Filair Hewa Bora Airways Wimbi Dira Airways Lesotho Air Lesotho was a government owned national airline and operated on both domestic and international routes. The airline ceased international operations in 1996 due to the inability to satisfy the minimum requirements specified by the Department of Civil Aviation. As can be seen on Figure below, domestic and international departures decreased drastically over the years until it stopped operations in At the end of 1996, the airline was financially insolvent and ceased to operate. Figure Air Lesotho Domestic and International Departures Domestic International

67 D e p a r t m e n t o f T r a n s p o r t P a g e Madagascar In Madagascar an average of 15,000 departures were recorded between 1990 and Most of these were domestic departures with a small portion of international departures. In the late 1990s the country was recovering from years of political instability. In the 1998 elections, President Ratsiraka was re-elected, restoring some confidence in the country. Both domestic and international departures increased. Domestic departures rose from 14,472 to 19,771 in 1999 while international departures increased from 1,885 to 2,260. The country enjoyed a few years of growth and stability but confidence was quickly lost when the country held new elections in December 2001 which led to sporadic violence due to ethnic clashes and the political crisis ensued until July Departures recovered from the sharp drop in 2002 and returned to average departures by Madagascar recorded its highest ever tourist numbers in This can be seen on Figure below where both domestic and international departures more than doubled from Domestic departures increased by 145% from 11,115 to 27,238 departures, while international departures increased by 220% from 3,168 to 10,168 departures in In 2008, departures dropped drastically from the previous record high of 2007 due to the onset of a global economic recession and renewed political instability in the country. The majority of tourists flying to Madagascar are from France and, as a result, the global recession had a significant impact on tourism to Madagascar. In 2009, a coup to overthrow the government led to political riots indicating that the country was politically unstable. The swine flu pandemic further fuelled fears for international travellers as many countries around the world proved vulnerable, mainly in South America and Africa, due to perceived limited resources for curbing a potential epidemic. Figure Air Madagascar Domestic and International departures Domestic International

68 D e p a r t m e n t o f T r a n s p o r t P a g e 42 Passenger numbers for Air Madagascar are reflected in the figure below. As is seen in the departures Figure on the previous page, Air Madagascar experienced a sharp decline in the number of domestic and international passengers in 2002 and again in 2009 due to political instability and a global recession visible on Figure below. The national government owned airline is directly affected by instability in the country. The political situation in Madagascar has damaged the economy. Figure Air Madagascar Domestic and International passenger numbers AirMadagascar Domestic AirMadagascar International Air Madagascar recorded the largest number of domestic and international passengers in 2001 and 2007 while the lowest number of passengers was experienced in 2002 and Although Madagascar has been plagued with years of political unrest, the airline has managed to break even over the years barely covering expenses with revenues as seen on Figure overleaf. The decline in the economy in 2001 and 2002 affected the airline s revenues resulting in losses in the years 2001 and The airline recovered in 2003 and managed to record a profit. By 2008 the airline once again recorded a loss as the country was once again impacted with fresh political turmoil.

69 US $ (Million) D e p a r t m e n t o f T r a n s p o r t P a g e 43 Figure Air Madagascar Financial Data Operating Revenue Operating Expenses Net Profit There are two Madagascar based airlines operating in Madagascar, Air Madagascar and Tiko Air. Tiko Air provides charter services within Madagascar. Figure below shows the fleet size of both airlines. Figure Fleet size Madagascar airlines 11 1 Air Madagascar Tiko Air Malawi Air Malawi is the national airline of Malawi. The airline mainly services domestic routes and has a few flights on international routes. It operates from 2 airports in Malawi and flies to South Africa, Tanzania, Zambia and Zimbabwe, internationally. Data is only available for the years 1990 to 1993 seen on Figure overleaf. Domestic departures make up a larger portion of total departures while international departures have remained constant at about 1,100 annually. The government has since attempted to

70 D e p a r t m e n t o f T r a n s p o r t P a g e 44 privatise the airline however all negotiations have been unsuccessful. The airline has generally operated at a loss over the years; however, the airline posted a profit for the year Figure Air Malawi domestic and international departures Air Malawi Domestic Air Malawi International As can be seen on Figure below, both domestic and international passengers patronising Air Malawi remained fairly constant for the years 1990 and 1991 but an increase of 11% and 8% for domestic and international passengers respectively was recorded in Figure Air Malawi Domestic and International Passengers Domestic International

71 D e p a r t m e n t o f T r a n s p o r t P a g e 45 Air Malawi has 4 aircraft in its fleet. The airline has 1 ATR and 3 Boeing s illustrated in Figure below. Figure Air Malawi Fleet 3 1 ATR Boeing Mauritius Air Mauritius mainly services the international market as Mauritius is regarded as one of the world s best holiday destinations. Over the years, Mauritius has become very popular for its sandy beaches and friendly hospitality as well as its 5 star resorts. Mauritius is also a very stable country, politically. It boasts a rich cultural heritage, superior diving and fishing spots, great food and tropical weather conditions. Departures to the only domestic destination, Rodrigues (Sir Gaetan Duval Airport) are very few in number as can be seen in the figure overleaf. Air Mauritius flies to over 30 destinations around the world. In Africa, Air Mauritius operates to South Africa, Kenya, Madagascar and Reunion. Departures for Air Mauritius were highest in 2004 and 2005 but have since dropped to lower levels. A drop in departures in 2008 and 2009 in Figure overleaf can be attributed to the global recession as many foreign travellers opted not to travel. The country depends heavily on tourism. A drop in departures is also attributed to a change and upgrade in the airline s fleet. Air Mauritius reduced the operation of two older aircraft in 2007 while awaiting delivery of new aircraft to permit an increase in operations to major destinations such as India, Malaysia, Singapore and Perth.

72 D e p a r t m e n t o f T r a n s p o r t P a g e 46 Figure Air Mauritius Domestic and International departures Air Mauritius Domestic Air Mauritius International The main focus of the airline is its international clientele. Over the years the number of international passengers has grown steadily reaching a peak in Although the global recession has resulted in a decrease in international travel, the number of international passengers serviced in 2009 was still quite high at over 100,000 as illustrated in Figure below. Figure Air Mauritius Domestic and International passengers Air Mauritius Domestic Air Mauritius International Air Mauritius has 12 aircraft in its fleet. The fleet comprises of 2 Airbus A s, 2 Airbus A s, 6 Airbus A and 2 ATR s as seen in Figure overleaf.

73 D e p a r t m e n t o f T r a n s p o r t P a g e 47 Figure Air Mauritius Fleet Airbus A Airbus A Airbus A ATR Mozambique Linhas Aereas de Moçambique (LAM) is the national airline of Mozambique. Between 1977 and 1992, Mozambique suffered an intense civil war. President Chissano worked hard to reform the country and the civil war ended in October Over 1.5 million Mozambicans fled the country to neighbouring states but began to return by mid The country suffered severely and this is visible in Figure overleaf where both international and domestic departures dropped significantly up to the 1992 to 1994 period. By 1996, the country began to recover stability, leading to an improvement in the local economy. Elections held in December 1999 were peaceful and thus had little impact on tourism. Both domestic and international departures began to increase gradually over the years and have peaked for the moment in Mozambique is popular for its beaches and diving resorts, attracting mostly tourists from neighbouring states. The global recession in 2008 has therefore had little impact on departures as tourists opt to choose destinations closer to their home countries to contain costs. Since Mozambique s main tourist market is within southern Africa, an increase in total departures indicates that the Mozambique tourism industry has not been impacted as adversely as many international holiday destinations.

74 D e p a r t m e n t o f T r a n s p o r t P a g e 48 Figure LAM Domestic and International Departures LAM Domestic LAM International Figure below shows that both domestic and international passengers on LAM have increased over the years indicating that the country has recovered from its previously adverse political situation. Domestic passengers are much higher as LAM flies to 10 domestic destinations within Mozambique while international routes operated include Angola, Kenya, Portugal, South Africa and Tanzania. Figure LAM Domestic and International Passengers LAM Domestic LAM International LAM has 6 aircraft in its fleet as seen on Figure overleaf. Its fleet consists of one Antonov An-26, three Boeing s and two Embraer E-190 LR/ARs.

75 D e p a r t m e n t o f T r a n s p o r t P a g e 49 Figure LAM Fleet Antonov An-26 Boeing Embraer E-190 LR/AR Namibia Air Namibia is the national airline of Namibia. In 1994, majority of Air Namibia s operations were domestic; however domestic departures have decreased over the years and had halved between 1994 and International departures have increased over the years to almost double the 1994 level in Departures figures for the years 1994, 1996 and 200 are illustrated in Figure below. Air Namibia has been upgrading aircraft over the years and has 2 Airbus A s which has enabled the airline to cut costs and increase efficiency. Air Namibia currently flies to Angola, Zimbabwe, Botswana, South Africa and Germany on its international routes and operates from 7 airports within Namibia. Figure Air Namibia Domestic and International Departures Air Namibia Domestic Air Namibia International

76 D e p a r t m e n t o f T r a n s p o r t P a g e 50 Air Namibia has a relatively large number of international passengers compared to domestic passengers as can be seen in Figure below. Both international and domestic passenger numbers have increased over the years 1994 to The airline suspended flights to Switzerland and UK in 2009 but still flies to Germany in Europe. Figure Air Namibia Domestic and International Passengers Domestic International The Air Namibia fleet comprises of two Airbus A s, one Boeing , two Boeing s, one Boeing and two Raytheon Aircraft Beechcraft 1900D Airliners seen in Figure below. Figure Air Namibia Fleet Airbus A Boeing Boeing Boeing Raytheon Aircraft

77 D e p a r t m e n t o f T r a n s p o r t P a g e Seychelles Air Seychelles is the national airline of Seychelles and is wholly owned by the Seychelles Government. Seychelles is a popular holiday destination offering a spectacular beach holiday. The airline has been operating successfully over the years with both domestic and international departures increasing over the years as seen in Figure below. The airline offers domestic flights as well as international flights. It operates from 3 airports within the Seychelles and also flies to Mauritius, South Africa, Singapore, France, Italy and the United Kingdom, internationally. Figure Air Seychelles Domestic and International Departures Domestic International Many passengers fly into the main airport in Mahe and take flights internally to the Praslin and Bird Island airports. As can be seen on Figure overleaf, domestic and international passengers have been increasing over the years. International passengers decreased in 1998 and 1999 as many routes previously serviced were discontinued. The airline stopped flying to Kenya, Israel, Spain and Manchester in 1998 and discontinued operations to India, the Maldives, Thailand, United Arab Emirates, Frankfurt and Munich in Germany, Russia and Switzerland between 2000 and 2010.

78 D e p a r t m e n t o f T r a n s p o r t P a g e 52 Figure Air Seychelles Domestic and International passengers Air Seychelles Domestic Air Seychelles International Air Seychelles has 9 aircraft in its fleet as seen in Figure below. Its fleet comprises of 1 Boeing , 1 Boeing ER, 3 Boeing ERs, 3 DHC-6 Twin Otter Series 300s and 1 Shorts Figure Air Seychelles Fleet Boeing Boeing ER Boeing ER DHC-6 Twin Shorts Otter Series South Africa South Africa is served by 18 locally based airlines providing services to both the domestic and the international markets. Some of the larger airlines are South African Airways (SAA), SA Airlink, Comair,

79 D e p a r t m e n t o f T r a n s p o r t P a g e 53 Mango Airlines and 1time Airlines. Smaller airlines provide charter and air cargo services and specialise in providing services to private businesses and VIP customers. South African Airways (SAA) is the national carrier for South Africa. It has been operating for more than seventy years and is a member of the Star Alliance global network. It has code share agreements with United Airlines, Air New Zealand, Lufthansa and other Star Alliance partners. SAA flies to 5 domestic destinations and 32 international destinations worldwide. SAA recorded very low international and domestic departures in 1990 and 1991 as the country was emerging from apartheid rule and the country faced international sanctions that prohibited travel into and out of South Africa. By 1993, the government began to prepare for democratic elections and sanctions against South Africa were dropped allowing for freer travel to and from South Africa. A surge in domestic and international departures followed in 1993 and 1994 as confidence in South Africa was slowly restored as seen in Figure below. Lack of data between 1995 and 2001 does not allow for analysis of air travel into and out of South Africa, however from 2002 to 2009, there has been a consistent increase in international departures while SAA domestic departures have decreased over these years due to the introduction of many low cost airlines into South Africa. SAA began to lose its majority share in the domestic market as more airlines began offering seats on competing routes at lower prices. The global recession appears to have had a very small impact, resulting in a small decrease in total departures in Figure South African Airways Domestic and International departures Domestic International Passengers travelling on both domestic and international routes on SAA have consistently increased over the past 7 years as illustrated on Figure overleaf. Domestic passengers have shown a slight decline since 2007 because many passengers opted to travel on other airlines within South Africa due to affordability and flexibility.

80 D e p a r t m e n t o f T r a n s p o r t P a g e 54 Figure South African Airways Domestic and International passengers SAA Domestic SAA International SA Airlink has been an alliance partner with South African Airways and South African Express since SA Airlink operates on domestic routes within South Africa and flies to Bulawayo, Harare, Tete, Beira, Antananarivo, Pemba, Livingstone, Lusaka, Maseru, Manzini and Ndola. Domestic departures for SA Airlink varied between 20,000 and 30,000 over the 6 year period as seen in Figure below. International departures have increased in 2007 and 2008 as SA Airlink changed its name and corporate identity and began to offer flights to smaller and regional centres throughout Southern Africa. Figure SA Airlink Domestic and International departures Domestic International A change in brand image led to an increase in both domestic and international passengers on SA Airlink in International passengers remained constant from 2002 to 2006 but an increase in the number of routes offered within southern Africa increased the number of international passengers departing on SA Airlink. Domestic routes are very popular and about 65,000 passengers fly on SA Airlink monthly. A

81 D e p a r t m e n t o f T r a n s p o r t P a g e 55 decrease in 2005 in domestic passengers due to increased competition within the South African domestic airline industry caused SA Airlink to modify its strategy which was implemented in early The airline has since, once again, achieved an increase in both domestic and international passengers as demonstrated in Figure below. Figure SA Airlink Domestic and International passengers SA Airlink Domestic SA Airlink International Comair Ltd started operating its low cost airline Kulula.com in Since then, South Africa has seen the growth of low cost airlines with the introduction of Mango, 1Time and Nationwide Airlines. Comair successfully launched its low cost airline in 2002 allowing many travellers the option to fly economically. Comair also operates British Airways domestic flights within South Africa and regionally within SADC. The airline market in South Africa was previously dominated by South African Airways which was costly, thus deterring many travellers from flying and causing potential customers to seek alternative cheaper options for travel. Comair introduced its low cost airline with flexibility and cheaper prices and became instantly popular. Departures have constantly increased over the 7 years Kulula.com has been in operation. Comair mainly services the domestic market but offers flights to the African cities of Windhoek, Harare, Lusaka, Ndola and Mauritius. Domestic departures have almost doubled since Comair started operation in 2002 and serviced about 31,000 domestic and 3,100 international departures in 2009 as seen in Figure overleaf. The global recession hit South Africa in early 2009; however it did not affect low cost airlines as adversely because, in unfavourable economic times, more customers choose to travel on low cost airlines.

82 D e p a r t m e n t o f T r a n s p o r t P a g e 56 Figure Comair Domestic and International departures Domestic International Passenger numbers for Comair have increased consistently over the 7 years from 100,000 passengers to 330,000 passengers as seen in Figure below. International passenger numbers have remained constant over the same period of time. Comair currently flies to Harare, Windhoek, Lusaka daily, flies to Ndola five times a week and once a week to Mauritius. As the international flights are not as frequent as domestic flights, the number of passengers carried on international flights is much lower. Figure Comair Domestic and International passenger numbers Comair Domestic Comair International The fleet size of the various airlines within South Africa is illustrated in Figure overleaf. SAA has the largest fleet in South Africa with 50 aircraft. SA Airlink and SA express both have over 20 aircraft

83 D e p a r t m e n t o f T r a n s p o r t P a g e 57 while low cost carriers Comair, Kulula.com and 1time Airlines have more than 10 aircraft each. National Airways Corporation (NAC) is a private charter company with a large fleet of 18 aircraft. While Mango Airlines is a large player in the low cost airline market, it only has 4 aircraft. Other South African airline companies have less than 10 aircraft each and mainly service domestic charter and cargo markets. Figure Fleet size South African Airlines Tanzania Air Tanzania temporarily suspended operations in December 2008 and has not resumed operations as yet. Air Tanzania was government owned until 2002 when it sold 49% stake to South African Airways. This partnership lasted till September 2006 when the government of Tanzania bought back SAA s stake in the business. The partnership between SAA and Air Tanzania was regarded as unsuccessful and the government stated that the airline was more successful before undertaking the abortive partnership. Air Tanzania was revamped in 2007 and began using electronic ticketing, a new trademark and cleared outstanding debt in order to start afresh. As can be seen on Figure overleaf, international and domestic departures were high in 1991 but began to fall in The airline maintained a fairly constant level of departures until 1998 but the airline began to experience a decline in business by 1999 and the number of departures fell. During the privatisation process, the airline experienced poor trading conditions with the lowest level of departures noted in 2001 and The airline failed to operate successfully after the revamp and suspended operations in 2008.

84 D e p a r t m e n t o f T r a n s p o r t P a g e 58 Figure Air Tanzania Domestic and International departures Domestic International While domestic passengers on Air Tanzania have been falling since 1990, international passengers have remained constant over the years. The lowest number of passengers was recorded in 2002 and this can be attributed to change in ownership and privatization. After SAA took over operations, domestic passengers increased between 2002 and 2005 as more flights were introduced. However, by 2006, the airline was struggling again and both domestic and international passengers numbers began to decrease as can be seen on Figure below. Figure Air Tanzania Domestic and International Passengers Air Tanzania Domestic Air Tanzania International Air Tanzania has not operated successfully over the years and maintained a net loss for the 3 years to The airline managed to operate profitably between 1993 and 1996; however by 1998 the airline was again suffering financially and began to make losses as seen on Figure overleaf. Expenses exceeded revenues and the airline struggled to break even. Due to its unfavourable financial position, the government decided to privatise the airline so as to cut its losses however this was also unsuccessful, finally leading to liquidation.

85 US $ (Million) D e p a r t m e n t o f T r a n s p o r t P a g e 59 Figure Air Tanzania Financial data Operating Revenues Operating Expenses Net Profit Besides Air Tanzania, there are 3 other airlines operating in Tanzania. Eagle Air and Regional Air Services are domestic airlines operating flights within Tanzania and charter flights in eastern and southern Africa. Regional Air Services is a subsidiary of Air Kenya. Precision Air is a low cost airline operating from 10 airports within Tanzania and also operated flights to Kenya and Uganda. The fleet size of the above airlines is illustrated in Figure overleaf. Precision Air has the largest fleet and is currently the largest airline in Tanzania since Air Tanzania ceased operations. Regional Air Services has 5 aircraft while Eagle Air only has 2 aircraft.

86 D e p a r t m e n t o f T r a n s p o r t P a g e 60 Figure Fleet size Tanzania airlines Eagle Air Precisionair Regional Air Services Zambia Zambia Airways was the national airline of Zambia. The airline was liquidated in 1995 as it was unable to cope with operations domestically and internationally. The government of Zambia could not assist the airline and indicated that it had to cover its own debts and expenses from revenues. The airline was not able to cover costs in a worsening economic climate and shut down operations in early Departures data for Zambia Airways last few years in operation are illustrated in Figure below. Figure Zambia Airways Domestic and International departures Domestic International

87 D e p a r t m e n t o f T r a n s p o r t P a g e 61 Zambezi Airlines is a privately owned airline operating in Zambia. It operates at 2 airports within Zambia and flies to South Africa and Tanzania internationally. It has 3 aircraft in its fleet, 2 Boeing s which were acquired in mid 2009 seen in Figure below. The airline is currently banned from entering European Airspace due to substandard safety standards. Figure Zambezi Airlines Fleet 2 1 Boeing Embraer EMB-120 Brasilia Zimbabwe Air Zimbabwe is the national airline of Zimbabwe. Negative publicity, politics and the economic situation in Zimbabwe has had an adverse effect on the national airline. The volatile political situation in Zimbabwe has led to the general decline of the tourism industry as well as an economic crisis. As seen in Figure overleaf, the highest number of departures was recorded in 1992 but the airline experienced a large decrease in both domestic and international departures in 1993 and 1994 attributed to clashes between the government and trade unions, resulting in general unrest in the country. The airline recovered in 1995 but land redistribution and the eviction of white farmers in 1999 led to a general decline of economic conditions in the country. Zimbabwe began to attract negative publicity and widespread international condemnation of the situation in the country followed. Departures began to fall in 1999 and the airline began to suffer financially due to the economic and political situation. In 2003 the airline announced that it was struggling financially and ceased operations temporarily and departures fell to less than 1,000 that year. Operations have since resumed.

88 D e p a r t m e n t o f T r a n s p o r t P a g e 62 Figure Air Zimbabwe Domestic and International Departures Domestic International Air Zimbabwe has had a somewhat tumultuous history as the number of domestic passengers began to drop between the years 1996 and International passengers also decreased over the same period. The drop in domestic passenger numbers was, however, far greater than that of international passenger numbers as seen in Figure below. Figure Air Zimbabwe Domestic and International passengers Air Zimbabwe Domestic Air Zimbabwe International Air Zimbabwe has been operating at a loss for most of the past two decades. In 1992, the airline was able to realise a profit however, by 1993 the airline was once again making losses. The decline in the political situation and the economy of Zimbabwe has had an adverse impact on the viability of the airline. The airline was losing customers and was unable to cover its operating costs with the revenue

89 US $ (Million) D e p a r t m e n t o f T r a n s p o r t P a g e 63 received from sales, excess baggage and freight. The financial situation of Air Zimbabwe is illustrated in Figure below. Figure Air Zimbabwe Financial Data Operating Revenues Operating Expenses Net Profit Airports in SADC The table overleaf reflects the total number of passengers recorded arriving or departing at airports in the SADC region. Airports that served more than 1,000,000 passengers in 2009 are defined as airports with high frequency, airports with mid to high frequency serve between 200,000 to 1,000,000 passengers and airports with low frequency serve less than 200,000 passengers in 2009.

90 D e p a r t m e n t o f T r a n s p o r t P a g e 64 Table Airports in SADC Total Passengers Airport Country Gaborone - Sir Seretse Khama International Botswana 188, , , , , , , , , ,313 Maun Botswana 137, , , , , , , , ,010 Kinshasa N'Djili DRC 267, , , , , , , , , ,354 Antananarivo - Ivato International Madagascar 581, , , , , , , , , , , , ,175 Majunga Madagascar 89,054 87,897 82,437 84,244 77,505 28,206 43,820 59,849 57,037 52,405 58,443 62,400 46,746 Lilongwe Malawi 208, , , , , , , , , , , , ,190 Mauritius - Sir Seewoosagur Ramgoolam International Mauritius 1,484,263 1,524,738 1,600,155 1,763,143 1,819,136 1,896,307 1,982,855 2,058,944 2,167,468 2,217,167 2,562,830 2,606,813 2,381,810 Maputo International Mozambique 308, , , , , , , , , , , , ,706 Windhoek International Namibia 429, , , , , , , , , , , , ,324 Bloemfontein South Africa 233, , , , , , , , , , , ,826 Cape Town International South Africa 3,998,316 4,306,716 4,614,931 4,654,107 4,210,792 5,019,283 5,329,534 6,018,044 6,738,020 7,224,587 8,400,569 8,150,611 7,725,223 Durban Louis Botha International South Africa 2,386,247 2,488,370 2,523,899 2,501,999 2,405,726 2,580,323 2,773,133 3,105,269 3,592,501 4,029,074 4,799,702 4,458,223 4,310,095 East London South Africa 369, , , , , , , , , , , ,680 George South Africa 111, , , , , , , , , , , ,026 Johannesburg O.R. Tambo International South Africa 9,722,758 10,870,104 11,339,920 11,680,598 11,789,814 12,743,545 13,506,495 15,340,670 15,769,094 17,344,669 19,439,083 18,636,251 17,607,255 Kimberley South Africa 84,444 83,903 82,703 91,100 93,193 89,676 97, , , , , ,644 Port Elizabeth South Africa 812, , , , , , ,622 1,050,552 1,163,218 1,409,609 1,491,800 1,468,176 1,357,696 Upington South Africa 28,225 29,242 25,730 29,553 32,842 33,681 30,546 32,856 37,009 47,666 50,378 42,519 Kruger Mpumalanga 177, , , , ,751 Dar-es-Salaam Tanzania 572, , , , , ,263 1,011,392 1,124,235 1,249,419 1,450,138 1,542,778 1,422,846 Kilimanjaro International Tanzania 310, , , , , , , , , , , ,600 Mwanza Tanzania 93, , , , , , , , , ,207 Zanzibar Tanzania 196, , , , , , , , , , , ,504 Lusaka International Zambia 328, , , , , , , , , , , , ,223 Victoria Falls Zambia 178, , , , , , ,552 Harare International Zimbabwe 629, , , , , , , ,208

91 D e p a r t m e n t o f T r a n s p o r t P a g e 65 Airports in SADC Total Passengers Figure Airports with highest frequency: 25,000,000 20,000,000 15,000,000 10,000,000 5,000, Johannesburg O.R. Tambo International Durban International Dar-es-Salaam Cape Town International Mauritius - Sir Seewoosagur Ramgoolam International Harare International Airports with highest frequency are O R Tambo Airport Johannesburg, Cape Town International, Durban International, Dar-es-Salaam Airport, Harare Airport and Sir Seewoosagur Ramgoolam International in Mauritius. O.R Tambo Airport in South Africa has had a total of over 10 million passengers a year. Total passengers at these airports have been increasing over the years and peaked in 2007 after which passenger numbers began to decline. The global recession has had some effect on air travel and total passengers declined in 2008 and All the above airports are international airports and serve both domestic and international flights and passengers. Dar es Salaam, Harare and Mauritius airports have recorded over 1.5 million passengers annually. These 6 airports illustrated in Figure above are the most frequented airports in the SADC region Airports with mid- to high frequency: Airports with mid- to high frequency include airports in Madagascar, the DRC, Mozambique, Zanzibar, Zambia and Namibia illustrated in Figure overleaf. These airports recorded between 200,000 and 900,000 passengers annually. Most of the airports noted show an upward trend in the total number of passengers embarking over the years. A dip in total passengers in 2002 and 2009 for Madagascar occurred due to the political unrest experienced in the country during those years. All the airports that recorded mid to high number of passengers are international airports except for East London airport

92 D e p a r t m e n t o f T r a n s p o r t P a g e 66 which only serves domestic flights. Air travel numbers were generally low in 2002 due to the aftermath of the September 11 attacks, fuelling fears of terrorist attacks amongst passengers and deterring air travel. The attacks did not have a large impact on African destinations; however there was global decline in air travel during the period following the attacks in the US. Figure Airports with mid to high frequency: Kinshasa N'Djili Maputo International Zanzibar Antananarivo - Ivato International Windhoek International Lusaka International Airports with low frequency: Airports with low frequency are the airports serving the lowest number of total passengers annually defined as airports with fewer than 700,000 passengers annually. In general, passenger numbers at low frequency airports gradually increase and peak in A decline is experienced in 2002 due to the September 11 attacks and again in 2008 and 2009, which can be attributed to the global downturn in the economy. International airports illustrated in Figure overleaf that recorded low numbers of passengers include Gaborone airport, Maun, Majunga, Lilongwe, Kilimanjaro International, Mwanza and Victoria Falls. Kilimanjaro International and Gaborone recorded the largest increase in total passengers, while Majunga, Lilongwe, Victoria Falls, Mwanza and Maun had constant number of passengers over the years. Kilimanjaro international recorded the largest increase in total passengers over the years.

93 D e p a r t m e n t o f T r a n s p o r t P a g e 67 Figure International Airports with low frequency: 600, , , , , , Gaborone - Sir Seretse Khama International Maun Majunga Lilongwe Kilimanjaro International Mwanza Victoria Falls Domestic airports illustrated in Figure below with low numbers of passengers include Port Elizabeth, East London, Bloemfontein, George, Kimberley, Upington and Kruger Mpumalanga. Upington and Kimberley airports reflect a fairly constant level of total passengers over the years, while the rest of the domestic airports demonstrated an increase in total passengers. Figure Domestic Airports with low frequency: Bloemfontein East London George Kimberley Port Elizabeth Upington Kruger Mpumalanga

94 D e p a r t m e n t o f T r a n s p o r t P a g e Fleet size of all SADC airlines An overview of the fleet size of all airlines within SADC in 2007 is provided in Figure overleaf. Fleet size between airlines fluctuates enormously. The fleet size between airlines operating internationally and domestically varies greatly compared to low cost airlines that only operate to domestic destinations. National carrier South African Airways has the largest fleet within SADC, while other national airlines such as TAAG Angla, Hewa Bora Airways, Air Madagascar, Air Mauritius, Air Seychelles, Air Botswana, LAM, Air Malawi and Air Namibia have smaller fleet varying between 4 and 12 aircraft each.. Privately owned airlines in Angola, DRC, South Africa, Tanzania and Zambia own smaller fleets mainly serving the domestic market. SonAir has the largest fleet of 32 aircraft while popular operators such as Diexim Expresso, Transafrik, 1time, Mango, Comair and Precision Air have less than 10 aircraft each. Specialized charter companies in South Africa, Angola and DRC have a variety of small aircraft. National Airways Corporation of South Africa has a large fleet of 18 small aircraft. The figure overleaf shows the fleet size of the larger SADC based airlines. Each country has been differentiated by means of a colour coded system and the key appears below the figure.

95 Aeronautica Air 26 Air Gemini Alada Angola Air Charter Diexim Expresso SonAir TAAG Angola Airlines Transafrik Air Botswana Air Kasai Air Tropiques Business Aviation Compagnie Africaine D Aviation Filair Hewa Bora Airways Wimbi Dira Airways Air Madagascar Tiko Air Air Malawi Air Mauritius Linhas Aereas de Moçambique LAM Air Namibia Air Seychelles 1Time Airlines Airlink AirQuarius Aviation Comair Federal Air Imperial Air Cargo Interair kulula.com Mango National Airways Corporation (NAC) Naturelink Charters Norse Air SA Express SAA Cargo Safair South African Airways Star Air Cargo Tramon Air Eagle Air Precisionair Regional Air Services Zambezi Airlines Air Zimbabwe D e p a r t m e n t o f T r a n s p o r t P a g e 69 Figure Fleet Size (2007) Angola Malawi South Africa Botswana Mauritius Tanzania DRC Mozambique Zambia Madagascar Namibia Zimbabwe Seychelles

96 D e p a r t m e n t o f T r a n s p o r t P a g e Analysis of Questionnaire Results Between August 2009 and January 2010, 106 airlines, 3 airport authorities and 14 SADC transport ministries were contacted and sent questionnaires regarding progress with the implementation of an air transport liberalisation agreement in SADC related to the adoption of air transportation liberalisation policies in Africa (the questionnaires can be found in Appendix E.) Of the 68 questionnaires sent out, only 16 were returned completed. Analysis of the answers to the returned and completed questionnaires follows Airlines Feedback was received from five airlines within the SADC namely Federal Airlines, Owenair Pty Ltd, South African Airways and Comair Limited of South Africa and Air Malawi of Malawi. Each airline is unique servicing a different market or market segment. However the five airlines share similar views on the impact of implementing an air transportation liberalisation agreement in the SADC region. The profiles of the responding airlines are summarised in Table below: Table Airlines Data Company / Country of Type of Airline Annual Organisation Operation Turnover Federal Airlines South Africa High end domestic and Did not international disclose Air Malawi Malawi National flag carrier Did not disclose Comair limited South Africa Domestic low cost carrier, high R 3 billion end domestic and international, charter carrier, British Airways franchise, code sharing and alliance Owenair (Pty) Ltd South African Airways Ownership Private company Government owned Privately owned company South Africa Chartered carrier R 6 million Private company South Africa National flag carrier Did not Government disclose owned Owners 100% domestic private ownership 100% domestic government ownership 88% domestic private ownership, 12% foreign private ownership 100% domestic private ownership 100% domestic government ownership The responding airlines stated in general, that the air transportation liberalisation aviation agreement reached between African states, namely the Yamoussoukro Decision (YD,) was a poor and a weak agreement as there has been no evidence of any multilateral implementation. This is due to lack of arbitration procedures being agreed to progress deadlocked negotiations and lack of regulation by means of competition laws. A phased in approach whereby each airline could have been engaged with individually taking into account the differing passenger route densities on the routes that each airline operates was recommended. There was no deadline set and the agreement was reached without prior consultation with airlines. African states have not implemented YD due to lack of political commitment, anti-transformation, resistance from weak state owned airlines, based on fear of the consequences of more open commercial competition, lack of infrastructure development, limited fleet size in less

97 D e p a r t m e n t o f T r a n s p o r t P a g e 71 developed countries and lack of consensus on a clear way forward. YD does not consider the strengths and weaknesses of countries airlines, nor of the state of airport and aviation infrastructure in the various regions of the African continent. The likely impact of implementing such an agreement on specific countries has also not been determined. Airlines cited the following as reasons why full implementation of the YD has been hindered: Lack of individual government commitment to YD; Lack of SADC member commitment to YD; National flag carriers disapproval of YD due to perceived threats to existing privileged positions of aviation industry dominance; Lack of effective competition law in individual countries and regionally; Corruption; Poor or non-existent legislation; Political instability in certain African countries; Poor / substandard airport infrastructure in many countries; Airport security concerns; Risks regarding the handling of higher flight frequencies at some airports; and Resistance from stakeholders trying to protect monopoly or privileged positions of market dominance. Airlines recommend that in order to successfully implement YD, governments will be required to play an active role in ensuring that airlines are informed about intended progress (to a declared timetable) towards implementation of YD in Africa. Bottlenecks need to be addressed; national airlines need to be supplied with avionics so as to compete effectively; regulations need to be standardised and amended to cover aspects such as competition law and arbitration procedures to speedily resolve disputes; and stakeholders should be afforded the opportunity to buy into the implementation plan and be party to discussions and planning of implementation. Lastly, African governments should focus on African carriers which must be developed to compete globally rather than focusing on non-african airlines. The airlines have differing views on the likely impact on countries that would implement YD. While some airlines are sceptical and feel that most African airlines will not survive, others feel that a number of small airlines will be sacrificed initially but the long term overall consequences will be positive. Implementation will see an increase in tourism and business travel leading to increased traffic on dense and lucrative routes resulting in lower fares, more competition and therefore more participants in the airline industry. Airlines will benefit from offering reliable and efficient services at pricing levels that will stimulate demand and therefore profitability - which will have widespread benefits for SADC economies. Many national flag carriers and smaller, less efficient airlines will be unable to compete if they are not recapitalised with competitive equipment and many may not survive.

98 D e p a r t m e n t o f T r a n s p o r t P a g e 72 Impact of the YD on airlines will result in the following changes in the current status quo: Frequency of flights increase Capacity (number of seats on offer) may increase or remain static Pricing decrease due to increased competition Volume of freight business increase Number of competitors on each route increase on higher traffic routes but will decrease on more marginal routes Market share of airline on each route will reduce but as part of a rapidly growing industry With the implementation of YD, airlines will be able to fly to destinations previously inaccessible. Airlines will tend to increase the frequency of flights on the more lucrative routes so as to reap maximum benefits. Depending on the demand for seats of the more popular routes, airlines will have to either reduce flights on less popular routes and divert flights to the more popular routes or increase their fleet to accommodate the demand. This will result in either an increase in overall capacity if more aircraft are introduced or the overall capacity will remain static with airlines diverting aircraft to more popular routes. An increase in competition in the form of an increase in number of flights on routes within the SADC will lead to a decrease in the average price of air tickets as airlines compete to maximise their market share. This decrease in price will likely benefit passengers directly and may boost the number of passengers travelling within the region, thereby greatly extending access by the general public to air travel. Not only will this boost tourism and business travel around SADC and Africa, but will also benefit airlines, airports, hotels, car hire companies, restaurants and other direct and indirect stakeholders in the aviation industry. Similarly, freight business will be stimulated through cheaper tariffs leading to an increase in the volumes of freight being imported and exported throughout SADC and the African continent. As airlines strive to maximize market share, an increase in the number of competitors will lead to a decrease in the market share of individual airlines. Airlines will need to emphasise aspects of service such as reliability, safety and the level of service provided in order to mitigate against market share losses. Although airlines will experience a fall in market share due to an increase in the number of players in the market, the overall size of the market is expected to grow rapidly, which will result in individual airlines, in the main continuing to grow despite falling market share. Airlines that will benefit the most from implementing the YD are typically strong network and alliance carriers, while small charters and weak state owned carriers may not survive. Strong network alliance carriers will survive the intense competition which may result in a decrease in fares as these carriers have financial muscle and easy access to capital for rapid expansion. Large airlines will feel intimidated as new airline start serving the same routes and will feel threatened by the increase of operators, but airlines with a large market share will be better off than small airlines which may not be able to compete

99 D e p a r t m e n t o f T r a n s p o r t P a g e 73 as efficiently. Weak state owned airlines are characterised by old out-dated aircraft fleets that, together with reluctance to embrace change, will limit expansion possibilities. The state of airport infrastructure will have a significant influence in determining the effect of implementing an air transportation liberalisation agreement. If YD is implemented, infrastructure constraints will restrict transformation of the aviation industry as current infrastructure will not be sufficient to cope with the resulting growth of air traffic volumes. Implementation of YD will result in an increase in flight frequencies around Africa and infrastructure investment will need to be facilitated to ensure that capacity is enhanced to cater for these demands. Currently, air traffic control, airport runway capacity, airport runway length, baggage handling, security and even freight logistics capacity is in the hands of government departments that will be incapable of responding to the increased demand. There is insufficient capacity to accommodate increased number of flights in terms of limited airport runway slots, restricted manpower and expertise in air traffic control, airport runway lengths at some airports, not enough capacity to handle large numbers of passengers and baggage and a strained and inadequate security at most airports. These constraints will have to be addressed before YD is implemented and failure to do so will result in dire consequences such as flight delays, loss of baggage, security threats and safety concerns. Airports will have to ensure that facilities comply with minimum standard requirements. Customs facilities, information technology infrastructure and effective airport security are some of the issues that will need to be revised and addressed in order to successfully benefit from the YD agreement. Privatisation of many of these services is probably a necessary reform for successful implementation of YD. If SADC undertakes a comprehensive implementation of an air transportation liberalisation agreement, airlines feel that it would open up the opportunity to review the mix of aircraft types, assessing the need for both bigger and smaller types of aircraft on certain routes, existing and new. Implementing YD will create additional job opportunities on both existing and new routes, creating the opportunity to expand network reach and frequency leading to additional and increasing competition, lowering of prices for air tickets and ultimately to an increase in market size, revenue and profits. Airlines will be willing to operate on new routes as well change some of the current routes so as to avoid stopovers and hub transfers by introducing direct flights to more destinations. In relative terms YD will disadvantage small local airlines because they are less likely to have access to investment funding for expansion which larger, mainly international airlines will be able to access more readily. All airlines will, nevertheless, have the potential to benefit from YD if management embraces the business opportunities that will be on offer.

100 D e p a r t m e n t o f T r a n s p o r t P a g e Airports If YD is implemented in the SADC region, then an increase in the number of flights to both current and new airport destinations can be expected. Therefore, airports that are currently being utilised (as hubs or as international gateways) will experience an increase in inbound and outbound flights, while some airports (with adequate infrastructure, not receiving international flights) that are underutilised will also experience an increase in inbound and outbound flights. Receiving only two responses from major airport companies may not clearly indicate the impact on airports of implementing the YD but feedback does provide a basic idea about the implications that the YD will have on airports. Feedback was received from two airport companies profiled in Table below: Table Airports Data Company / Organisation Airports Company of South Africa (ACSA) Country of Operation Annual Turnover South Africa R 3.17 billion Main sources of income Ownership Owners Aeronautical revenue, landing fees, passenger service charges, aircraft parking, commercial revenue, advertising, retail, parking, car hire, property rental, premiums received Partly owned by government 74.6% domestic government ownership, 25.4% domestic private ownership National Airports Corporation Limited Zambia US $ 26.7 Million Aviation - landing, passenger service charge, parking, ground handling, air navigation charges and Non-aviation - rentals, car parks, concessions, advertisements Fully owned by government 100% domestic government ownership The main sources of income reported by airports include aviation business - landing, passenger service charge, parking, ground handling, air navigation charges and non-aviation business - rentals, car parks, concessions and advertisements. Major airports within the SADC are either fully or partly owned by the government thus any commercial benefit to the airport will have an impact on the country s economic conditions, directly and indirectly. While airports authorities agree with airline operators that the YD agreement is good in principle, they also feel that implementation has been poor. The YD agreement will improve revenue generation as more airlines will operate from various airports, in turn, positively impacting the profitability of airports. Thus, an introduction of the fifth freedom will lead to a removal of restrictions, allowing more airlines to operate freely on numerous routes previously forbidden. YD will also stimulate traffic growth and make travel more affordable by introducing more intense market competition. Lack of progress with implementation has resulted in constrained aviation industry conditions prevailing in the past and while much consideration needs to be given as to how to pave the way forward, airports authorities state that

101 D e p a r t m e n t o f T r a n s p o r t P a g e 75 a huge transformation in airport operation will need to occur and this will have to be done with many parties involved, including private sector investment and management. Bottlenecks identified by airport authorities are identical to those mentioned above and include: Lack of government commitment to YD Lack of SADC commitment to YD National flag carriers resistance to YD In order to successfully implement YD, governments will need to remove bottlenecks that hinder the free flow of private sector investment and participation in the air transport industry. This can be done by granting the fifth freedom and at the same time helping local air transport businesses to partner with international or local large participants in the industry to form alliances to ensure that they will survive under the intense competition that is characteristic of a successful implementation of an air transportation liberalisation agreement. This will result not only in rapid growth as lower prices stimulate economic activity, but will also encourage quality in the aviation industry through providing consumers with choice and providing local airlines the opportunity to participate in this growth through the introduction of innovative approaches to service provision. The impact of YD on airports will be: Frequency of flights increase on certain routes Capacity increase Pricing decrease Volume of freight business likely to increase, dependent on demand and pricing structure (affordability) Airports expect an increase in frequency of flights on certain more popular routes which would lead to an overall increase in frequency of flights at many airports. Increase in flight frequencies will lead to an increase in capacity as more flights to more varied destinations will become available. Ticket prices will decrease due to increased competition. Although no indication of the trend of airport charges has been mentioned, increased choice and economies of scale should drive airport charges down as well. Volume of freight business will be dependent on demand and pricing and if pricing decreases, there will be an increase in the volume of freight into and out of airports thus relieving other modes of transport especially road. Increased aviation activities will certainly have a positive effect on the commercial standing of all airports within SADC, however airports enjoying the highest demand will benefit at a larger scale than those enjoying less demand. Implementation of YD will create a climate characterised by an increase in demand for aviation services in general, however the decision itself will not convert into automatic demand for more flights at any individual airport. Airports will be afforded the opportunity to grow their business if there is a pro-active move on the part of individual airport management teams to

102 D e p a r t m e n t o f T r a n s p o r t P a g e 76 attract business in the more open and flexible environment that will accompany implementation of YD. As more flights are introduced, revenues will rise, encouraging airports to further expand capacity in order to facilitate continually increasing levels of aviation activities. Potential infrastructure constraints such as airport runway capacity, airport runway length and baggage handling facilities will need to be addressed as these will cause bottlenecks and may lead to delays and inefficiencies in service support, which will discourage rather than encourage new business. Infrastructure constraints are likely to significantly restrict the potential benefits associated with implementation of YD if airspace and airport capacity is limited by inadequate infrastructure investment. Not all airports have the facilities and infrastructure to accommodate all sizes of aircraft and large increases in air traffic volumes. Airport planners will need to ensure that facilities are of adequate capacity to meet increased levels of demand and are compliant with minimum standards in order to fully benefit from the implementation of YD. Airlines will be free to develop routes more easily and open up new markets for travellers, the overall the impact of air transportation liberalisation on airports will be to increase potential revenues which will, in turn, justify investments in upgraded airport infrastructure and facilities Other Stakeholders in the aviation industry Other stakeholders in the aviation industry include small charter operators, aircraft leasing companies, aircraft sales and maintenance businesses, cargo and freight service operators and mail services. Currently these are typically small operations that service a niche market and offer specialised services such as package tours, domestic charter or scheduled flights. Stakeholders in this category that provided feedback are listed in the schedule overleaf. Most of the above named stakeholders are small charter operators with the exception of Mistral Aviation, which specialises in landing gear overhauls and aircraft brake maintenance, Airline Association of South Africa (AASA), which is a non-profit organisation providing guidance to SADC airlines and Swissport Tanzania, which is a ground handling and cargo services company. More than half the stakeholders stated that the agreement reached at YD was positive for the industry because it provided greater opportunity for start up airlines to compete with established airlines and level the playing field by allowing competitive operators freer access to potentially lucrative markets. Implementation of YD will also allow established airlines to serve a broader market without encountering rigid barriers that have previously restricted their operations. Some stakeholders feel that the YD agreement has been poorly received because it was adopted out of the recognition that the restrictive and protectionist intra-african regulatory regime based primarily on bilateral air services agreements (BASAs) has historically hampered expansion and improvement of air transportation on the African continent. As such, existing vested interests, which often rely on old, poorly maintained aircraft operating out of poorly managed airports, feel threatened and have consequently successfully resisted multi-lateral implementation of YD.

103 D e p a r t m e n t o f T r a n s p o r t P a g e 77 Other Stakeholders that responded are profiled in Table below: Table Stakeholders Data Company / Organisation AirQuarius Aviation Country of Annual Operation Turnover South Africa R 101 million Main sources of income Ownership Owners Aircraft leasing and charter NAC South Africa R1,9 billion Aircraft sales, aircraft maintenance, aircraft leasing, aircraft (rotor and fixed wing) charter, aircraft management Airline Association of Southern Africa (AASA) Mistral Aviation Services Namibia Commercial Aviation Phoebus Apollo Aviation Precision Air services Ltd Proflight commuter services Swissport Tanzania South Africa n/a Membership subscriptions and management fees South Africa Namibia South Africa Tanzania Zambia Tanzania R10 - R12 million $ 7 million Namibian $65 million US $ 8 million US T Shs million Aircraft brakes and landing gear overhauls Tourism and incentive charters Passenger/ cargo scheduled/ charter flights and wet-leasing of aircraft Provision of scheduled passenger, freight and mail services Charter operations Ground handling, cargo services Private company Privately owned company Non-profit privately owned company Private company Private company Sole proprietorship Private Partnership Private Partnership Private Partnership Private ownership 100% domestic private ownership Private ownership Private ownership Private ownership Private ownership 51% domestic private, 49% foreign private 75% domestic private, 25% foreign private 49% domestic private, 51% foreign private One of the vital principles of YD is market liberalisation, which is viewed as a means to stimulate the development of air services in Africa and attract the flow of private capital into the industry. In essence the agreement reached is solid and the theory makes sense for Africa and for airline industry stakeholders. In practice, however, YD made assumptions regarding compliance by individual countries that have not been realised. The heads of state came to an agreement, but at grassroots level many of the stakeholders (and individual managers in stakeholder entities) have not been committed to YD and may have actively resisted implementation of the agreement. Implementation of YD has thus been very limited and stakeholders believe that national governments have resisted implementation with the result that no meaningful progress has been made since the agreement was reached. The Yamoussoukro Decision, which came into force in 2000, evolved from the Yamoussoukro Declaration of However, throughout the intervening years, the full potential of YD to unlock commercial opportunities for African airlines has not been realised and implementation has been virtually non-existent. A sub-committee on air transport established by this decision and monitored by a

104 D e p a r t m e n t o f T r a n s p o r t P a g e 78 body comprised of representatives from Economic Commission for Africa (ECA), African Union (AU), African Civil Aviation Commission (AFCAC) and African Airlines Association (AFRAA) then overseen by an executing agency has not carried out the duties set out in the declaration even though a large fund was set aside for implementation. The explicit roles of these organisations were unclear thus no action was taken due to the confusion. Only a few countries practise true air transportation liberalisation. These are mainly countries which have implemented bilateral agreements instead of letting airline companies get on with freely operating the routes and frequencies that they want to as envisaged by YD. The following factors have been identified by stakeholders as hindering the full implementation of YD: Lack of individual national government commitment to YD Lack of SADC commitment to YD National flag carriers resistance to implementation of YD A lack of laws promoting free competition regionally A lack of laws promoting free competition within individual countries Corruption Poor legislation Political instability in some African countries Poor/substandard airport infrastructure in Africa Airport security concerns Lack of start up capital for would be operators European Union blacklisting of African airlines Lack of clarity regarding the roles of the various sub-committees and monitoring bodies Lack of commitment and action by ministry officials Lack of incorporation of the principles of YD, as appropriate and necessary, into national legislation Lack of infrastructure (no effective executing agency and other monitoring structures) Government protection of airlines from competition (preserving of state monopolies) The above have been identified as factors which hinder the successful implementation of the YD and will need to be addressed before any progress can be made. Governments need to amend aviation policies and legislation accordingly. Before implementation, a plan needs to be formulated to include all stakeholders in a participative process to evaluate options and develop a well rounded policy that will benefit all stakeholders including the governments involved. It is important that the appropriate officials are mandated to implement the YD within a specified time frame. Existing bilateral government agreements should be amended to remove limits on frequency and capacity.

105 D e p a r t m e n t o f T r a n s p o r t P a g e 79 A possible approach would be to involve a larger authority in decision making. The African Union (AU) is Africa s premier institution and is the principal organization for the promotion of socio-economic integration on the continent. The AU is also the monitoring body established to oversee implementation of the Yamoussoukro Decision. Given the AU s objective to promote sustainable development and to integrate African economies, the African Union (AU) is best positioned to provide the necessary oversight platform for steering implementation of the Yamoussoukro Decision and liberalization of the air transport industry in Africa. Its recent moves to actively support the African Civil Aviation Commission (AFCAC) and the various regional economic communities (RECs) demonstrated the willingness of the organization to accept leadership. Individual national governments need therefore to support the AU and provide the necessary funds and resources to assist the AU in this regard. If implemented successfully, the impact of the YD would be immensely positive for countries partaking in the decision. It would create an environment for the development of intra-african and international air services, liberalized intra-african aviation markets and highly stimulatory developments concerning, traffic rights, capacity, frequency and pricing. YD will lead to the rapid development of inter-african air transport activities and improved quality of service to consumers. Sub-regional services will be encouraged to merge and grow as well as permit air transport services to privatise. With the implementation of YD, countries will establish safe, reliable and affordable air transport services that are attractive to customers and that will stimulate a freer and much higher level of movement of persons, goods and services in Africa. Implementation of YD may also protect African airlines from European and other non-african competitors and eliminate barriers that hamper the sustainable development of air transport services. African airlines will be able to create a strong regional base from which they can expand and compete with international airlines by forming international alliances and strong business partnerships that will assist in future growth and development. Although the impact is largely expected to be positive, stakeholders do recognise that some countries may struggle to adapt mainly due to a misguided commitment to outdated aviation practices and equipment. Countries that are reluctant to embrace transformation and face competition will eventually suffer dire consequences in respect of their own national airlines and other aviation industry stakeholders as continent-wide competition overtakes those who refuse to adapt. Stake holders agree that companies throughout Africa that embrace the changes implied by full implementation of YD will be able to build strong partnerships with other operators around Africa and further afield and will enjoy the chance to exploit the many opportunities available to them. Airlines will benefit as it will be easier to obtain quicker flight clearances and all fees surrounding flights which include landing and parking fees should be more competitive as opposed to companies not based in Africa. Increased scheduled flight services will act as a catalyst for economic growth within the continent. The financial benefit gained from implementing the YD will be significant for almost all participants as there will be greater freedom, more capacity to accommodate new routes, increased revenue for all stakeholders. Implementation of YD will create the opportunities to increase aircraft fleets for both new and established operators as they build their capacity to serve the higher levels of demand created from the implementation. Thus, not only will airlines benefit, but also companies that service, lease and maintain aircraft will reap benefits.

106 D e p a r t m e n t o f T r a n s p o r t P a g e 80 The view of stakeholders is that the companies most likely to benefit from the YD will be start up and low cost operators, regional airlines, established airlines and airlines that can sustain the more intense levels of competition. With the freedom to operate on any routes airlines will prioritise the most lucrative ones. Small carriers will have the opportunity to expand and diversify their current flight operations. Companies involved in maintenance and aircraft leasing will benefit from the opening of new potential markets enabling stakeholders to widen their business horizons. Some stakeholders feel that emerging airlines will be faced with limited growth while established airlines that already have a strong base in the market will find it easier to attract new business. Companies least likely to benefit from the YD are underperforming domestic carriers, inefficient national carriers and companies that are unable to compete effectively. Infrastructure constraints that stakeholders indentified as possibly restricting implementation of YD are: Air traffic control Airport runway capacity (no. of slots) Airport runway length Baggage handling Security Freight logistics capacity The above constraints are the same as those mentioned by both the airlines and airports groups of stakeholders. Stakeholders are mainly concerned that those factors that will affect the smooth operation of companies due to the increased demand that will result once the YD has been implemented. In some countries, where services have not been upgraded to meet international standards, infrastructure may not be able to cope with the increased air traffic. In many cases airports are not geared to accommodate large aircraft and thus they do not have sufficient capacity or the appropriate runway length for modern aircraft. In terms of freight logistics, airports and freight companies would have to ensure that they can handle an increase in freight and cargo volumes by creating efficient cargo hubs. Air freight usually consists of perishable goods that have a short life span and must be handled with speed and without delay. One of the biggest passenger concerns when travelling around Africa is baggage handling and security. This would have to be addressed effectively and measures need to be taken to ensure that no compromises are made. A comprehensive air transportation liberalisation agreement would be a great benefit to all stakeholders in the aviation industry as it gives companies the opportunity to investigate new markets and routes and source new and modern equipment in partnership with other operators. This will inevitably lead to structural changes to some of the companies to allow for ongoing expansion. Expansion will benefit not only the company but the economy as whole through creating employment and generating higher levels of revenue. The implications for ground handling companies are also positive as the increased demand will require larger operations allowing these companies to expand; however, these trends may also attract an increase in competition. Stakeholders are generally realistic in recognising that before any of

107 D e p a r t m e n t o f T r a n s p o r t P a g e 81 the benefits are enjoyed, infrastructure investment will be required to accommodate the increase in flights, passenger numbers and cargo volumes. Some stakeholders are concerned that they may not be able to survive as they will get swallowed by the competition of an open market and thus are not entirely enthusiastic about the implementation of YD. Overall, however, airlines, airports and other stakeholders are positive about the implementation of YD but are sceptical about the progress made to date and likely to be made into the future. Stakeholders support the idea behind YD and are willing to open their markets to Africa but are not certain that the current infrastructure, legislation and policies support the rapid implementation of such a decision.

108 D e p a r t m e n t o f T r a n s p o r t P a g e Cost-Benefit Analysis Methodology Model Introduction The demand forecast model predicts the potential routes that airlines could operate in the South African Development Community (SADC) under an air transportation liberalisation regime. It is principally based on the gravity method described in the literature review. The gravity model traditionally uses the size of the origin (city or country) times the size of the destination as an indication of the demand for flights between them. This model assumes that the bigger the population size or GDP of the origin and the population size or GDP of the destination, the bigger the attraction and demand for flights. Equation (1) shows the typical mathematical equation that would be used to determine the potential demand between an origin and destination. Equation (1) Demand = (GDP Origin * GDP Destination)/Distance For the purpose of this study the demand forecast model has been based on the principles of the gravity model, by using data from origin and destination location in a similar fashion as Equation 1 above (this will be explained in the sections that follow.) In the sections to follow it will be shown how a demand forecast has been predicted for each potential route in the SADC region and this forecast has been weighted between 0 and 1 (0 being very low demand and 1 being extremely high demand). The model excludes all airports with a runway length shorter than 6500 feet (1.98 km), as airlines and aircraft manufacturers cited this length as a minimum for commercial aircrafts and aircrafts designed to carry freight, and runways that are unpaved. Routes that are less than 200 km were excluded, due to ineffectiveness of flying distances this short Data Utilised To Calculate Demand Forecast Indicator The demand forecast indicator takes into account various indices for each airport that fit the description discussed above. The indices accounted for include: Country s gross domestic product per capita; Population of origin and destination cities; Country s urban population for 2005; The business, politics and development index indicators; Tourism infrastructure index; Whether the origins and destinations fall internally within one country; Airport infrastructure; and Distance between the various origins and destinations.

109 D e p a r t m e n t o f T r a n s p o r t P a g e 83 A brief description of these various data sets and indices follows in the remainder of this section Gross domestic product per capita The gross domestic product per capita has been sourced from the International Monetary Fund website. The GDP per capita figures used are stated in US$ 2007 at current prices and are displayed in Table below. GDP per capita was used as countries with a higher GDP per capita are more likely to demand more flights as flying is still largely a luxury form of transport in Africa. Table Gross Domestic Product Per Capita, Current 2007 Prices Country GDP per capita US$ Angola 5, Botswana 8, Democratic Republic of Congo Lesotho Madagascar Malawi Mauritius 5, Mozambique Namibia 3, Seychelles 8, South Africa 6, Swaziland 2, Tanzania Zambia Zimbabwe Population by city Where a city has an airport with the appropriate runway length and surface, the rough population of that city has been taken into account. It has been assumed that the larger the city, the higher the demand for flights to and from that city. A full list of cities in the SADC region and the population levels for each of these cities was obtained from This data was used to create relative proportions for each of the cities, thereby determining the ranking of cities expected to have a higher demand for flights under an air transportation liberalisation regime. A table listing the populations used by city can be found in Appendix F.

110 D e p a r t m e n t o f T r a n s p o r t P a g e Urban population In addition to the city population data, each country s urban population levels were gathered from a United Nations database ( Urban population data for 2005 for the SADC countries in question was utilised. This data is shown in Table 2.4-2, below. These figures have been taken into account to determine a ranking of origin and destination cities that could be expected to have a higher demand for flights under an air transportation liberalisation regime based on the overall urban population of the countries where these sites are located. Table Urban Population by Country Country Urban population Angola 5,930,052 Botswana 926,625 Democratic Republic of Congo 18,818,523 Lesotho 326,690 Madagascar 5,023,620 Malawi 2,216,048 Mauritius 545,310 Mozambique 7,520,960 Namibia 680,385 Seychelles 46,980 South Africa 27,463,128 Swaziland 246,648 Tanzania 14,373,375 Zambia 4,258,820 Zimbabwe 4,670, Business, politics and development index indicators The business, politics and development indicators have been drawn from various sources and have been combined to create one weight in the demand forecast model. The business information which included the Country Risk Rating (September 2008) and Global Competitiveness Index ( ), is sourced from the World Economic Forum (gcr.weforum.org). The political information is sourced from the Press Freedom Index (2008) and can be found in the Reporters Without Borders website ( The development information utilised is the Human Development Index (2006) from the United Nations Development Program ( These indicators are summarised in Table 2.4-3, overleaf. Each of these indicators has been modified to be rated between 100 and 0 (with 100 being an excellent rating and 0 being an extremely poor rating). The various indicators have been averaged in the last column of the table and these averages have been used in determining the demand weighting for each qualifying airport.

111 D e p a r t m e n t o f T r a n s p o r t P a g e 85 Table Business, Political and Development Indicators for SADC Country Country Country Risk Rating (Sept 2008) Global Competitiveness Index ( ) HDI 2006 Press Freedom Index (2008) Average Angola Botswana Democratic Republic of Congo Lesotho Madagascar Malawi Mauritius Mozambique Namibia Seychelles South Africa Swaziland Tanzania Zambia Zimbabwe Source: World Economic Forum (gcr.weforum.org), Reporters Without Borders website ( and United Nations Development Program ( Tourism infrastructure index The level of tourism infrastructure is likely to influence the number of flights demanded in each country under an air transportation liberalisation regime. Countries with modern and developing tourism infrastructure tend to attract far more tourists; therefore the Tourism Infrastructure index was sourced from the World Economic Forum website ( This index takes into account the following: Air transport infrastructure in each country, Ground transport infrastructure, Tourism infrastructure, Information and Communication Technologies (ICT) infrastructure and, Price competitiveness in the transport and tourism industry. The tourism infrastructure index is measured between 7 and 0 (with 7 representing excellent tourism infrastructure and 0 representing extremely poor tourism infrastructure.) The tourism infrastructure index for each SADC country is summarised in Table

112 D e p a r t m e n t o f T r a n s p o r t P a g e 86 Table Tourism Infrastructure Index by Country Country Tourism Infrastructure Index Angola 3.05 Botswana Democratic Republic of Congo 3.1 Lesotho 3.05 Madagascar Malawi Mauritius 5.05 Mozambique 3.05 Namibia Seychelles 5.05 South Africa Swaziland 3.05 Tanzania 3.2 Zambia Zimbabwe Airport infrastructure Airport infrastructure influences the demand forecast for routes. Where infrastructure is lacking, so is the supply of flights. A detailed list of airport infrastructure has been obtained from the International Civil Aviation Organisation. This data indicates the airports with an instrument procedure list (a landing procedure manual for pilots), airports with runways, airports with customs facilities, and whether the airports run privately, publicly or by the military. An example of the information utilised can be seen in Table below, where an airport which has a given infrastructure is given a value of 1. Table Airport Infrastructure Airport Country Usage Customs Runway Paved Instrument Approach Procedure Previously Served Airport Luanda Angola Civil Gaborone Botswana Civil Maseru Lesotho Civil Antanànarìvo Madagascar Civil Lilongwe Malawi Civil Port Louis Mauritius Civil Maputo Mozambique Civil Windhoek Namibia Civil Johannesburg South Africa Private Johannesburg South Africa Civil Dar-Es-Salaam Tanzania Civil Lusaka Zambia Civil Source: International Civil Aviation Organisation

113 D e p a r t m e n t o f T r a n s p o r t P a g e Domestic flights Domestic routes within one country exhibit higher flight supply than international routes. Therefore where air routes are entirely domestic a positive weighting of one has been assigned Determining the Demand for Each Potential Route in SADC Method of calculating the indices for each factor As already mentioned, each of the aforementioned data sets for each of the potential pairs of airports in the SADC region has been converted into an index between 0 and 1. The calculation of these indices varies according to the data available; the 1 and 0 index only considers two airports. The varied data results in a varied effect on the ultimate anticipated demand for flights to and from various destinations. The indices have been calculated by one of two methods, the dimension index method or as a proportion The dimension index method For each indicator a minimum and maximum goalpost must be defined and then the indicator must be normalized between 0 and 1, based on the country or the airports relative position. This concept is displayed in Box below. Box Actual value of indicator Minimum of indicator x Maximum of indicator Index =(Actual value of indicator) (Minimum of indicator) (Maximum of indicator) (Minimum of indicator) Where this method was utilised in determining the various indices it was observed that those indices would tend to supply more flights if they started from a low level of operation. This was evident when considering GDP per capita (discussed in detail below). Therefore each indicator was logged, as seen in Box Box Index = log (Actual value of indicator) log (Minimum of indicator) log (Maximum of indicator) log (Minimum of indicator)

114 GDP per capita Index D e p a r t m e n t o f T r a n s p o r t P a g e 88 In the case of GDP per capita this effectively means that increases in income at a lower level has a greater impact on the GDP per capita index, as shown in Figure below. Figure GDP per Capita Index GDP per capita, US$ (2007) Proportion method The proportion method was used where data had already been taken from an existing index. This was effectively converted into an index between 0 and 1, where proportions were maintained Gross domestic product per capita index The GDP per capita index used the dimension index method to determine the weight of the index. The calculation of the GDP per capita index assumes that an air transport liberalisation agreement in SADC will make flying more affordable and that those individuals with lower income levels. These individual will switch to air transportation when cost and amount of time travelling between various cities within the SADC region decreases. Therefore the higher an individual s income and countries GDP per capita the higher the amount of people utilising air transport as method of transportation. Thereby as incomes increase within a country the transition from road and rail transport to air transport will increase at an increasing rate due to new low cost carriers entering the market Urban population of countries Urbanization has increased significantly around Africa; we would expect this over the next 50 years. Governments increasingly will be required to respond to this phenomenon with appropriate social,

115 D e p a r t m e n t o f T r a n s p o r t P a g e 89 political and economic interventions that would lead to increased job creation and economic activity around urban centres. As shown in the literature review one of the basic assumptions of the gravity model is that increased urban populations will lead to an increase in demand for flights. Once again the dimension index method is utilised, since countries moving off a low base of urbanization would, under an air transportation liberalisation regime, demand flights from low income carriers more rapidly as the population urbanises. The bias towards countries with lower urban populations follows the argument presented by Swan (2008) in the literature review where under an air transportation liberalisation agreement between countries flights and aviation development shift away from the traditional airport hubs to the more decentralised airports and cities. This has been observed in South Africa over the last decade where low income carrier airlines have increasingly expanded their destinations to urban centres with lower populations such as the Durban to George, Durban to Port Elizabeth and Johannesburg to Windhoek or Gaborone flights ( & This is a trend that has also been displayed in the European Union and India where routes have began to expand to traditionally less well serviced airports and cities with lower populations Population by city Similar to the argument above it is anticipated that cities with higher populations tend to demand more flights, and with the implementation of air transport liberalisation agreement in SADC it is expected that there will be a gradual shift away from the traditional airport hubs and major urban centres. Once again the dimension index method was employed to determine an index level for each airport Business, politics and development index indicators The countries business, politics and development index indicators were already in index form. They were converted into proportions between 0 and 100 as shown in Table above. These were then averaged and then converted to an index between 0 and 1, maintaining the established proportions Tourism infrastructure index Likewise the tourism infrastructure index has already been established by the World Economic Forum as shown in Table These indices fall between 0 and 7 for each country, thus we divided each of these indices by 7 to establish proportion between 0 and Airport infrastructure As seen in Table 2.4-5, above, airport infrastructure for the various airports in SADC has been rated between 0 1, depending on whether an airport has the infrastructure in place for the four factors listed. To calculate this into an index we added the factors together and divided by 4 to yield an airport infrastructure index.

116 D e p a r t m e n t o f T r a n s p o r t P a g e Example of calculated Indices Table 2.4-6, below, gives an example of the various indices discussed for the main airports of each SADC country. Table Example of Calculated Indices by Airport Airport Country Airport GDP per City Urban Business, Politics & Tourism Infra. capita Pop. Pop. Development Infra. Luanda Angola Gaborone Botswana Kinshasa DRC Maseru Lesotho Antanànarìvo Madagascar Lilongwe Malawi Port Louis Mauritius Maputo Mozambique Windhoek Namibia Seychelles Seychelles Johannesburg South Africa Manzini Swaziland Dar-Es-Salaam Tanzania Lusaka Zambia Harare Zimbabwe Utilising the Gravity Model to Establish the Route Demand Determining the demand for each factor above between airports in SADC requires use of the gravity model, where similar factors are averaged to determine a combined index per route. The methods employed in the model are shown in Box overleaf. Box Equation (2) Factor Demand = (Factor Index airpory A ) + (Factor Index airport B ) Example: GDP demand airport A&B = (GDP per capita index airport A ) + (GDP per capita index airport B ) 2 2 To determine the estimate route demand, each of the factor demands needs to be combined. The model in question has done this by assigning weights to each factor depending on the importance that this factor has on overall demand. See equation (3) in Box below. The model allows these weights

117 D e p a r t m e n t o f T r a n s p o r t P a g e 91 to be changed for the various demand factors on the tab Weights & Proportions. Table below gives an example of how the demand estimates for each potential route in SADC has been calculated using the weights. The higher the demand estimate the higher the number of flights will be demanded. Box Equation (3) Route demand = (GDP demand airport A&B x A)+(City pop demand airport A&B x B)+(Urban pop demand airport A&B x C)+(Airport infra demand airport A&B x D)+(Bus, Pol & Dev demand airport A&B x E)+(Tourism infra demand airport A&B x F) where: A + B + C + D + E + F = 100% Table Determining the Demand Estimate for Routes Airports Same Country Airport Infrastructure GDP per capita City Populatn Urban Populatn Business, Politics & Development Tourism Infrastructure DEMAND ESTIMATE Weight 15% 5% 20% 25% 5% 20% 10% 100% Windhoek Johannesburg Cape Town Johannesburg Durban Johannesburg Johannesburg Lusaka Time Frames There are 3916 potential routes in the SADC region. These routes are comprised of 89 airports with paved runways that are longer than 6400 feet. Not all of these routes will be feasible or cost effective in the short run, particularly if the current aviation market in SADC is taken into account. However, in the long term there is no reason for these routes not to become feasible, provided infrastructure, business and income levels continue to improve in each country. Therefore the model is structured such that it determines demand, potential turnover and seat numbers over a 50 year period. In the first 5 years post implementation of an air transport liberalisation agreement in SADC, it can be expected that all the routes that are currently being operated by national flag carriers and low cost carriers would expand and attract new airlines and lower prices. New routes are unlikely as airlines and airports adjust to the new market regulations and demands. The first five years post the air transport liberalisation agreement in SADC only takes into account current routes being used. After 10 years the model predicts that routes with a demand estimate of greater than 0.75 would see new flights being operated. After a 15 year period the model predicts that routes with a demand estimate of greater than 0.70 would see new flights being operated. The model continues in this fashion of decreasing the demand estimate by 0.05 over 5 year intervals all the way to a 50 year time period where all routes have been included in the model.

118 D e p a r t m e n t o f T r a n s p o r t P a g e Direct Impacts Determining Potential Turnover and Seat Numbers per Route This section deals only with the direct impact experienced by airlines if an air transport liberalisation agreement was implemented in the SADC region. The red blocks highlighted in Figure below display the primary focus of this model, namely; introduction and expansion of new flights to both new and existing destinations. Sections that follow will detail methodology used to estimate the direct and indirect impacts. Figure Flow chart showing methodology for the section Airlines Benefits Costs New Flights New destinations Current Destinations Airports Open Skies Direct Impacts Passengers Freight Customs The demand estimate for each route has been used to determine the potential turnover as well as the seats demanded per week. The following section explains the methodology on how the figures for each individual route have been determined. The questionnaire sent to airlines revealed both current seat capacities and pricing per flight. We received information on these from South African Airways (SAA), Comair (British Airways & Kulula.com) and Airports Company South Africa (ACSA). This information combined with the now calculated demand estimates between 0 and 1 reveals potential turnover and seat requirements on each route per week. The model only takes into account data from South African domestic flights on very competitive routes (namely: Durban to Johannesburg, Cape Town to Johannesburg and Cape Town to Durban.) This is because of the vigorous competition of the established low cost carriers that operate on these routes. An air transportation liberalisation agreement in the SADC region will encourage aviation competition along all routes, which favours mostly low cost carriers.

119 D e p a r t m e n t o f T r a n s p o r t P a g e 93 Table shows how the supply of seats and potential turnover per route were determined. The average seats per route, along with the minimum price per seat were obtained from Kulula, British Airways and SAA questionnaires and online information. Multiplying these columns gives us the estimated turnover per flight; this has then been adjusted for a 75% take up of capacity. (SAA stated in their questionnaire that roughly 75% of capacity is taken up on flights). The distance in kilometres was then used to determine the turnover per kilometre on the three routes, which as can be seen in Table ranged from R to R The turnover per kilometre was then divided by the demand estimate (these ranged between R to R ) From these figures we determined if the demand estimate was 1 then an average of R per kilometre would be the potential turnover per kilometre. The R43.71 per kilometre was then multiplied by: Each routes distance in kilometres; Each routes demand estimate; and (the average number of flights per week to and from Johannesburg to each South African domestic destination, as obtained from ACSA), and this was used to estimate the potential turnover per week for each particular route. To estimate seat numbers per week, the average seats per flight (130) was multiplied by the (average number of flights to and from Johannesburg to each South African domestic destination) and then multiplied by each routes demand estimate. This calculated the estimated number of seats that would be demanded on each particular route. From the estimated turnover and seat numbers per week, an average ticket price per seat per flight was estimated.

120 D e p a r t m e n t o f T r a n s p o r t P a g e 94 Table Potential Turnover and Seat Numbers Airport Demand Estimate Average Seats / flight Minimum Price Estimated Turnover / flight Capacity take up of 75% Distance (km) Turnover per km Turnover per Km / Demand estimate Potential Turnover week per Seat Numbers per week Average Ticket Price per flight Cape Durban R R 59, R 44, , R R R 6,336, ,361 R Town Cape Johannesburg R R 65, R 49, , R R R 6,364, ,425 R Town Durban Johannesburg R R 25, R 19, R R R 2,400, ,439 R Average: 130 R , Passenger Time Saving This section focuses on the benefit to passenger if an air transport liberalisation agreement is implemented in SADC. Passengers firstly benefit from the decrease in airfares (due to increased competition among airlines), secondly from time saving now that airlines can bypass hub airports and land in destinations of their choice. Due to the lack of the current aviation information collected from the survey questionnaires provided by airlines it is impossible to determine the benefit that would accrue to passengers from a decrease in aviation prices. This price decrease would also happen over a period of time and only as competition increases; competition currently is marginal in SADC and therefore it would be guess work or complete speculation to predict how the competition would increase over time. Figure displays how the passengers benefits fit into the overall impact.

121 D e p a r t m e n t o f T r a n s p o r t P a g e 95 Figure Showing how passengers benefits fit into the overall methodology Airlines Airports Open Skies Direct Impacts Passengers Benefit Time Saving Freight Customs The time benefit to passengers has been calculated by assuming that in order for a person to currently travel between various locations in SADC they are required to travel through the major airports in each country. This therefore means that a person wanting to travel from Durban, South Africa to Beira, Mozambique would need firstly to travel OR Tambo, Johannesburg and then to Maputo, Mozambique before connecting to Beira. This assumption has been followed for each potential origin and destination in SADC. Due to the sheer volume of potential routes that are available under the regulation allowed by an air transport liberalisation agreement, and the complexities of air travel in SADC this simplified assumption has been adopted. Under an air transport liberalisation agreement in SADC flying from origin to destination would be shortened because airline are allowed to fly directly from Durban, South Africa to Beira, Mozambique, thus there is massive time saving due to the direct flight offered. Figure overleaf illustrates the assumption of current air travel around SADC. It can be seen that all air traffic filters through a central hub within each country (yellow/gold lines to and from red points) and then through the central airport hub in SADC, namely OR Tambo in Johannesburg (red lines to the largest red point.) From this figure it can be seen that travelling around SADC can be costly in terms of tickets, airport taxes and time. An air transport liberalisation agreement in SADC would eventually do away with the large number of connecting flights and passengers could connect directly to their ultimate destination. With the distances travelled by passengers prior to an air transport liberalisation agreement in SADC and the distances travelled post an air transport liberalisation agreement in SADC, there is saving in the distance travelled by passenger (this distance saved can be translated into the amount of kilometres saved in travel.) This distance can be converted into time when we take into account the average cruising speed of a commercial aircraft. The current average cruising speed of a commercial Airbus, Boeing or McDonald Douglas Aircraft is 900 kilometres per hour. With the amount of time saved in

122 D e p a r t m e n t o f T r a n s p o r t P a g e 96 terms of air travel known and now converted into time savings per hour it is easy to calculate the time saving benefit if you know the value of a passengers time in hours. Assuming the value of an hour for a passenger is a tricky undertaking due to the cross section of passengers that make use of air travel (these is an infinite number of reasons passenger fly and each of these would vary the value of time.) For the purposes of this study it has assumed that a person utilising air transportation would values an hour at R 200 (this is a completely arbitrary amount and a further study is required to understand a passengers value time saved.) Figure Assumed flight patterns between origins and destinations pre air transport liberalisation in SADC Source: adapted, Google Earth 2010