strategy for growth in international tourism to south africa presentation to june 2003 department of...

Strategy for Growth

in

International Tourism

to

South Africa

Presentation to

June 2003

DEPARTMENT OF ENVIRONMENTAL AFFAIRS

AND TOURISM

Copyright © 2001 Monitor Company Group LP — Confidential — XXXCAS-COD-Prez-Date-CTL

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Presentation Structure

The Growth Strategy - SummaryThe Growth Strategy - Summary

Major Constraints to SuccessMajor Constraints to Success

RecommendationsRecommendations

Strategic ContextStrategic Context


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South African Tourism is reconfiguring itself to drive tourism’s

contribution to the nation’s transformation programme

Sustainable GDP growth

Sustainable GDP growth

Sustainable job creation

Sustainable job creation

Redistribution and transformation

Redistribution and transformation

In the Tourism Act, SAT must

contribute to …

Understand the market

Understand the market

Choose the attractive segments

Choose the attractive segments

Market the DestinationMarket the Destination… by acting

in a focused way to … Facilitate the

removal of obstacles

Facilitate the removal of obstacles

Facilitate the product platform

Facilitate the product platform

Monitor and learn from tourist experience

Monitor and learn from tourist experience

Increases in tourist volumeIncreases in

tourist volumeIncreases in tourist spendIncreases in tourist spend

Increased length of stay

Increased length of stay… through

delivering sustained ... Improved

geographic spread

Improved geographic

spread

Improved seasonality

patterns

Improved seasonality

patterns

Promote transformation

Promote transformation


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Domestic and International Short-Haul Tourism are the bedrock of the

tourism industry, but SA Tourism’s core business is foreign tourism

Split of SA’s International Tourists by Long-Haul and

Short-Haul (2000)

1.55 million

4.20 million

Short-Haul(SADC, Central & East Africa)

73%

Long-Haul (Overseas and North Africa)

27%

Split of SA’s International and Domestic Tourists (2000)

5.75 million

9.8 million

Domestic

63%

International

37%


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Current international arrivals are driven off a hand-full of core markets

Split of SA’s Inbound Tourists by Long-Haul and Short-Haul

(2000)

1.55 million

4.20 million

Short-Haul(SADC, Central & East Africa)

73%

Long-Haul (Overseas and North Africa)

27%

0

100,000

200,000

300,000

400,000

United K

ingdom

Germ

any

United S

tate

s

Nether

lands

Franc

e

Austra

lia

Belgium Ita

ly

Switzer

land

Canada

0

400,000

800,000

1,200,000

1,600,000

Long-Haul Tourist Arrivals to South Africa from Top 10 Source Markets (2000)

Short-Haul Tourist Arrivals to South Africa from Top 10 Source Markets (2000)


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0

100000

200000

300000

400000

500000

600000

700000

Jan-

94

Jun-

94

Nov-9

4

Apr-9

5

Sep-9

5

Feb-9

6

Jul-9

6

Dec-9

6

May

-97

Oct-9

7

Mar

-98

Aug-9

8

Jan-

99

Jun-

99

Nov-9

9

Apr-0

0

Sep-0

0

Feb-0

1

Jul-0

1

Dec-0

1

The steady growth in tourism arrivals post 1994 has slowed to 0.3%

between 1998 and 2001

Total Arrivals to South Africa over the 7 Year Period from 1994

Arrivals to South Africa

The major declines in tourism arrivals from Lesotho have been a major issue, but even without Lesotho, overall growth has slowed to 3.2% CAGR between 1998 and 2001

Source: South African Tourism Table K

6 Month Moving Average of Total Arrivals

CAGR (94-01)

6.9%

CAGR (98-01)

0.3%


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0.3

3.4

4.2

0.4

9.4

2.3

14.2

3.1

4.1

5.5

3.9

6.5

3

7.1

6.2

0 10 20

Arrivals to South Africa have under performed the world tourism arrivals

and most of the world regional arrivals over the period 1998 to 2001

Compounded Annual Growth Rate of Arrivals

Percentage (%)

The forecasts for many of the world regions are lower for the period to 2020

Note:Source: Tourism Market Trends, WTO 2001 Edition ; Tourism Highlights 2001, WTO

Total Arrivals to South Africa

Arrivals to America

World Arrivals

Arrivals to Africa

Arrivals to East Asia and the Pacific

Arrivals to Europe

Arrivals to Middle East

Arrivals to South Asia

CAGR WTO Forecast (95-20)

CAGR Arrivals (98-01)

CAGR Arrivals to SA (98-01)


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0%

20%

40%

60%

80%

100%

Leso

tho

Swazila

nd

Botsw

ana

Zimba

bwe

Moz

ambi

que

United

Kin

gdom

Germ

any

Namibi

a

United

Sta

tes o

f Am

erica

Nethe

rland

s

Zambia

Franc

e

Mal

awi

Austra

lia Italy

Belgium

Switzer

land

Indi

a

Canad

a

Angol

a

Japa

n

South Africa’s current portfolio is driven off 21 countries which account for

90% of the arrivals

Graph Showing Share of Arrivals to South Africa by Country (2001)

% Share of Arrivals

Source: Monitor analysis; Statistics South Africa, 2001; Foreign Visitor Departure Surveys, 2000 & 2001

Arrivals projected to decline

Arrivals projected to increase

Many of the markets were (until 2001) in decline which suggests a need to defend current share, while at the same time rebalancing the portfolio of source markets


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When the contribution to revenue is assessed, it is seen that the high value

countries contribute the least in terms of arrivals

0

10

20

30

40

50

60

70

80

90

100

0 10 20 30 40 50 60 70 80 90 100

Lesotho

Swaziland

Botswana

Zimbabwe

Mozambique UK

Germany

Namibia

USA

Netherlands

France

Zambia

Malawi

Other

Graph Showing the Relationship Between Volume of Arrivals and Tourist Revenues

% Arrivals

% R

ev

en

ue

Thus, although Lesotho accounts for 22% of the arrivals, its contribution to revenue is only 7%, while the UK accounts 6% of arrivals, its contribution to revenue is 14%

Source: Monitor analysis; Statistics South Africa, 2001; Foreign Visitor Departure Surveys, 2000 & 2001


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0

100

200

300

400

500

600

700

Jan

-98

Ma

y-9

8

Se

p-9

8

Jan

-99

Ma

y-9

9

Se

p-9

9

Jan

-00

Ma

y-0

0

Se

p-0

0

Ja

n-0

1

Ma

y-0

1

Se

p-0

1

De

c-0

1

Seasonality presents a major constraint on capacity for growth

Arrivals to South Africa (1998-2001)

Arr

iva

ls (

00

0’s

)

The deep seasonal pattern of arrivals into South Africa creates significant challenges for investing in capacity to serve increased demand.

Source: South African Tourism Strategic Research Unit

0

25

50

75

100

125

150

Jan-

98

May

-98

Sep

-98

Jan-

99

May

-99

Sep

-99

Jan-

00

May

-00

Sep

-00

Jan

-01

May

-01

Sep

-01

Europe (98-01)

0

5

10

15

20

25

Jan-

98

May

-98

Sep-

98

Jan-

99

May

-99

Sep-

99

Jan-

00

May

-00

Sep-

00

Jan

-01

May

-01

Sep

-01

North America (98-01)

0

5

10

15

20

Jan-

98

May

-98

Sep-

98

Jan-

99

May

-99

Sep-

99

Jan-

00

May

-00

Sep-

00

Jan

-01

May

-01

Sep

-01

Asia (98-01)

0

100

200

300

400

500

Jan-

98

May

-98

Sep

-98

Jan-

99

May

-99

Sep

-99

Jan-

00

May

-00

Sep

-00

Jan

-01

May

-

Sep

-

Africa (98-01)


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SA Tourism recognised that tourism growth faces some key challenges

Despite increases in overall funding of the marketing campaign, the total budget is small in global terms, and as the currency weakens, is getting smaller. SA Tourism needs to focus its efforts and resources on those countries and customer segments which are most valuable to South Africa

Focus effort and Focus effort and resourcesresources

Focus effort and Focus effort and resourcesresources

Arrivals to South Africa are too dependent on a few large markets. The mix of arrivals needs to lessen dependence on volatile markets and at the same time increase our share in high-value markets

Re-balance the Re-balance the portfolioportfolio

Re-balance the Re-balance the portfolioportfolio

Generic “spray and pray” marketing averages messages and has low returns. SA’s marketing needs to focus on specific sets of customers, and speak directly to their specific holiday buying criteria. We need to move from pushing what we like about SA to selling customers what they want.

Marketing to be Marketing to be based on a view based on a view

of customersof customers

Marketing to be Marketing to be based on a view based on a view

of customersof customers

Behind the strategy the tourism industry needs to redefine and upgrade products and services to deliver against the promise offered by the marketing message.

Create alignment Create alignment within the within the

tourism sectortourism sector

Create alignment Create alignment within the within the

tourism sectortourism sector

Note:Source:


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The strategy is about re-balancing the portfolio through four areas

Reducing Seasonal Variations

Growth in

volume

Growth in

Revenue

Seeking out the countries and markets that will address these various components is key to establishing the portfolio

Defend the Current Position


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Clearly different countries and / or segments will drive growth in different ways

Dairy Company

5. 5. Attract Attract

new-to new-to categorycategory consumersconsumers

5. Convert short-haul 5. Convert short-haul travellers to long-travellers to long-

haul travellershaul travellers

5. Convert short-haul 5. Convert short-haul travellers to long-travellers to long-

haul travellershaul travellers

3.3. Generate Generate new usesnew uses by by existing consumersexisting consumers

3. Get them to come 3. Get them to come back to SA to do back to SA to do different thingsdifferent things

3. Get them to come 3. Get them to come back to SA to do back to SA to do different thingsdifferent things

2.2. Stimulate current Stimulate current usesuses with existing with existing consumersconsumers

2. Stimulate your 2. Stimulate your current customers to current customers to

come here more come here more oftenoften

2. Stimulate your 2. Stimulate your current customers to current customers to

come here more come here more oftenoften

1.1. Retain usesRetain uses by by existing consumersexisting consumers

1. Maintain current 1. Maintain current purchasing patternpurchasing pattern1. Maintain current 1. Maintain current purchasing patternpurchasing pattern

Increase Volume with Current Consumers

To obtain growth and defend the current shares, an integrated strategy

needs to focus on five key drivers

4.4. Attract Attract

new-to-new-to-youyou consumersconsumers

4. Convert4. Convertcustomers from the customers from the competitor to South competitor to South

AfricaAfrica

4. Convert4. Convertcustomers from the customers from the competitor to South competitor to South

AfricaAfrica

Acquire New Consumers

Competitor


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Africa — The Main Driver of International Tourism to South Africa

Source: SA Tourism - Table A December 2002

AFRICAAFRICAAFRICAAFRICA

4,455,971 Arrivals (4,435,218 mainland)

69.3% of total (69% mainland)



Central & South AmericaCentral & South America

38,311 arrivals 0.6% of total


North AmericaNorth AmericaNorth AmericaNorth America

216,275 arrivals 3,36% of total


EuropeEuropeEuropeEurope

1,252,710 arrivals 19,5% of total


AsiaAsiaAsiaAsia



AustralasiaAustralasiaAustralasiaAustralasia



Middle EastMiddle East



OtherOther

3,64% of total 3,64% of total


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Given the high market share already in SADC and the absence of any true competition the focus for SADC shifts to one of retention and the extraction of additional value. Outside of neighbouring SADC however, there is scope to attract smaller high-end leisure volumes which long term may provide growth

Dairy Company

5. 5. Attract Attract

new-to new-to categorycategory consumersconsumers

3.3. Generate new Generate new usesuses by existing by existing consumersconsumers

2.2. Stimulate current Stimulate current usesuses with existing with existing consumersconsumers

1.1. Retain usesRetain uses by by existing consumersexisting consumers

Given that 60% of South Africa’s arrivals are accounted for by 5 of the

neighbouring states, the strategy for SADC is largely one of “defend”

4.4. Attract Attract

new-to-new-to-youyou consumersconsumers

Competitor


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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Africa72%

Middle East1%

Australasia1%

North America

4%

Central and South

America1%

Asia3%

Europe18%

Africa and specifically neighboring SADC are important source markets for

South Africa

Regional Share of Arrivals to South Africa, 2000

Breakdown of Africa Arrivals to South Africa, 2000

Source: Statistics South Africa

Neighboring SADC(92%)

Other SADC (5%)Rest of Africa (3%)

Africa accounts for 72% of the arrivals to South Africa, with neighboring SADC countries representing the majority of these arrivals


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22.2%

12.9%

11.1%

8.6%

7.8%

37.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001

Other

Nearly two-thirds of arrivals come from just 5 countries with little growth

and therefore we need to look at air travel in Africa for growthS

hare

of A

rriv

als

to S

A (

%)

Top 5 Source Markets to SA (2001)

Source: Statistics South Africa, Foreign Visitor Departure Survey, Monitor Analysis

99.56%

98.74%

98.29%

69.79%

83.72%

Mozam

bique

Zimbabwe

Botswana

Swaziland

Lesotho

SA Market Share Arrivals CAGR (98-01)


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Air Travel from Africa is Growing

Note: The land travellers out of the rest of Africa are insignificantSource: Statistics South Africa

Overall, travel into SA from neighbouring SADC is stagnant, but air arrivals are growing fast, including out of neighbouring SADC states.

0

50,000

100,000

150,000

200,000

250,000

300,000

1998 1999 2000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

1998 1999 2000

Breakdown of Air Travellers to SA (98-00)

Breakdown of Land Travellers to SA (98-00)

51% 53% 54%

31%29%

29%

19%18%

17%

97% 97% 97%

Arrivals

Arrivals

CAGR (98-00)

10%

4%

1%

4%

0%

Other Africa

Non-neighboring SADC

Neighboring SADC


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Initially, we considered 27 countries in East and West Africa

Algeria

Sudan

MoroccoTunisia

Cote d'Ivoire

The Gambia

Ghana

BeninBurkina Faso

Guinea

Guinea-Bissau

Liberia

Mali Mauritania Niger

Nigeria

Saint Helena

Senegal

Sierra Leone

Togo

Eritrea

Ethiopia

Kenya

Madagascar

Rwanda Burundi

Somalia

Reunion

Tanzania

Uganda

Angola

Botswana

Democratic Republic of

Congo

Lesotho

Malawi

MauritiusMozambiqueNamibia

Seychelles

South Africa

Swaziland

Zambia

Zimbabwe

Came-roon

Central African

Republic

Chad

Congo

Equatorial Guinea

GabonSao Tome and Principe

Cape Verde

Comoros Djibouti Why West Africa?Why West Africa?

Limited current knowledge on region, but

Sizeable populations, wealth, and relatively high outbound tourist numbers imply significant potential

Seeing this potential, some airlines have recently been moving into this market

Limited current knowledge on region, but

Sizeable populations, wealth, and relatively high outbound tourist numbers imply significant potential

Seeing this potential, some airlines have recently been moving into this market

Why East Africa?Why East Africa?

Good flight connections and outbound tourist potential

Appears to be easiest region to generate significant increase in demand

Initial findings indicate that additional consumer research could generate significant leverage

Good flight connections and outbound tourist potential

Appears to be easiest region to generate significant increase in demand

Initial findings indicate that additional consumer research could generate significant leverage

Why not Middle Africa?Why not Middle Africa?

Low current outbound numbers imply very limited short and medium term potential

Low current outbound numbers imply very limited short and medium term potential

Why not North Africa?Why not North Africa?

Due to proximity to Europe, and language barriers, conversion deemed relatively more difficult

Due to proximity to Europe, and language barriers, conversion deemed relatively more difficult

Western Sahara


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Of these 27 countries, nine appeared worth pursuing

Screening Matrix

Note: Green shaded area is worth pursuingSource: World Bank

Total Urban Population (2001)

To

tal O

utb

ou

nd

Air

Tra

vel (

19

99

)

Madagascar

Benin

Somalia

Niger

Guinea

Burkina Faso

Sierra LeoneMauritania

Togo

Liberia

Eritrea

Burundi

Rwanda

Djbouti

The Gambia

Guinea-Bissau

Cape Verdi

Comoros0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000

Tanzania

Kenya

Ethiopia

Cote d’lvoire

Ghana

Senegal

Mali

Uganda

Nigeria(pop = 58,287,100; travel = 240,236)

60,000,000

250,000


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Prioritisation of these markets tended to confirm the hypothesis of

focus on Nigeria and Kenya

Total Travel

Potential Index

Total Current Travel Index

Relative Attractiveness of Target Markets

1000

0

100

Ethiopia

Kenya

Tanzania

Uganda

Cote D’Ivoire

Ghana

Nigeria

Senegal

Note: Size of bubble denotes size of urban population: = 5 million; indices evenly weight component parts; indices from previous calculationsSource: World Bank, ITU, IATA, OAG, Monitor Analysis

Mali

30

30

Top right hand box is most attractive area


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Challenges in Africa: There appear to be several country groupings with

significant internal travel (like South Africa has with SADC)

2

4

1

9

11

3

12

13

5

7

8

1) Burundi

2) Comores

3) Djibouti

4) Eritrea

5) Ethiopia

6) Kenya

7) Madagascar

8) Reunion

9) Rwanda

10) Seychelles

11) Somalia

12) Tanzania

13) Uganda

1) Burundi

2) Comores

3) Djibouti

4) Eritrea

5) Ethiopia

6) Kenya

7) Madagascar

8) Reunion

9) Rwanda

10) Seychelles

11) Somalia

12) Tanzania

13) Uganda

9

2

123

1

4

5

15 6

87

10

11

14

16

13

1) Benin

2) Burkina Faso

3) Cape Verde

4) Cote D’Ivoire

5) Gambia

6) Ghana

7) Guinea

8) Guinea-Bissau

9) Liberia

10) Mali

11) Mauritania

12) Niger

13) Nigeria

14) Senegal

15) Sierra Leone

16) Togo

1) Benin

2) Burkina Faso

3) Cape Verde

4) Cote D’Ivoire

5) Gambia

6) Ghana

7) Guinea

8) Guinea-Bissau

9) Liberia

10) Mali

11) Mauritania

12) Niger

13) Nigeria

14) Senegal

15) Sierra Leone

16) Togo

Band 1 (25,000 – 50,000)

Band 2 (50,000 – 100,000)

Band 3 (100,000 – 200,000)

Band 4 (200,000+)

East Africa

West Africa

10

6

Source: OAG, Monitor Analysis

Capacity:

Kenya, Tanzania and Uganda appear to be tightly linked

Two country groupings appear to exist in West Africa

– Nigeria and Ghana– Cote d’Ivoire, Senegal and Mali

Cote d’Ivoire might act as the bridge between Anglophone and Francophone West Africa

Kenya, Tanzania and Uganda appear to be tightly linked

Two country groupings appear to exist in West Africa

– Nigeria and Ghana– Cote d’Ivoire, Senegal and Mali

Cote d’Ivoire might act as the bridge between Anglophone and Francophone West Africa


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1) Algeria2) Benin3) Burkina Faso4) Cameroon5) Cape Verde6) Central Africa Republic7) Chad8) Congo9) Congo, Dem. Rep of10) Cote D’Ivoire11) Egypt12) Gambia13) Ghana14) Guinea15) Guinea-Bissau16) Liberia17) Mali18) Mauritania19) Morocco20) Nigeria21) Saint Helena22) Senegal23) Sierra Leone24) Sudan25) Togo

1) Algeria2) Benin3) Burkina Faso4) Cameroon5) Cape Verde6) Central Africa Republic7) Chad8) Congo9) Congo, Dem. Rep of10) Cote D’Ivoire11) Egypt12) Gambia13) Ghana14) Guinea15) Guinea-Bissau16) Liberia17) Mali18) Mauritania19) Morocco20) Nigeria21) Saint Helena22) Senegal23) Sierra Leone24) Sudan25) Togo

Additional Information:Inter-regional Capacity Flows

1

12

14

3

7

1) Burundi

2) Comoros

3) Djibouti

4) Eritrea

5) Ethiopia

6) Kenya

7) Madagascar

8) Malawi

9) Mauritius

10) Mayotte

11) Reunion

12) Rwanda

13) Seychelles

14) Somalia

15) South Africa

16) Tanzania

17) Uganda

18) Zambia

19) Zimbabwe

1) Burundi

2) Comoros

3) Djibouti

4) Eritrea

5) Ethiopia

6) Kenya

7) Madagascar

8) Malawi

9) Mauritius

10) Mayotte

11) Reunion

12) Rwanda

13) Seychelles

14) Somalia

15) South Africa

16) Tanzania

17) Uganda

18) Zambia

19) Zimbabwe

2

Band 1 (25,000 – 50,000)

Band 2 (50,000 – 100,000)

Band 3 (100,000 – 200,000)

Band 4 (200,000+)

East & South Africa25

North / Central / West Africa

7

6

2

4

9

8

11

10

10

13

17

1

18

20

22

19

4

5

24

11

818

19

6

9

16

17

15

While Ethiopia While Ethiopia appears to be a appears to be a northward facing northward facing hub, Kenya appears hub, Kenya appears to be southward to be southward facingfacing

Nigeria appears to Nigeria appears to have moderate links have moderate links to East Africato East Africa

While Ethiopia While Ethiopia appears to be a appears to be a northward facing northward facing hub, Kenya appears hub, Kenya appears to be southward to be southward facingfacing

Nigeria appears to Nigeria appears to have moderate links have moderate links to East Africato East Africa



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Additional Information:Inter-continental Capacity Flows

1

AsiaNorth America

Middle East

1) Benin2) Burkina Faso3) Cape Verde4) Cote D’Ivoire5) Gambia6) Ghana7) Guinea8) Guinea-Bissau9) Liberia10) Mali11) Mauritania12) Niger13) Nigeria14) Saint Helena15) Senegal16) Sierra Leone17) Togo

1) Benin2) Burkina Faso3) Cape Verde4) Cote D’Ivoire5) Gambia6) Ghana7) Guinea8) Guinea-Bissau9) Liberia10) Mali11) Mauritania12) Niger13) Nigeria14) Saint Helena15) Senegal16) Sierra Leone17) Togo

1) Burundi

2) Comoros

3) Djibouti

4) Eritrea

5) Ethiopia

6) Kenya

7) Madagascar

8) Reunion

9) Rwanda

10) Seychelles

11) Somalia

12) Tanzania

13) Uganda

1) Burundi

2) Comoros

3) Djibouti

4) Eritrea

5) Ethiopia

6) Kenya

7) Madagascar

8) Reunion

9) Rwanda

10) Seychelles

11) Somalia

12) Tanzania

13) Uganda

East Africa

West Africa

8

9

12

2

10

11

1

2

4

7

10

11

1617

15

Europe

3

4

78

9

12

13

3

5

6

13

14

South Asia

5

6

Band 1 (25,000 – 50,000)

Band 2 (50,000 – 100,000)

Band 3 (100,000 – 200,000)

Band 4 (200,000+)



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17,455

9,837

108,881

308,544

231,650

192,172

23,055

128,169

274,300

391,554

3,563,803

6,294,442

0 2,000,000 4,000,000 6,000,000 8,000,000

Middle Africa

Indian Ocean Islands

Eastern Africa

Western Africa

North Africa

SADC (Excluding SA)

Long Haul Short Haul

Outbound Departures by Region from Africa (1999)

Outbound Departures

SA’s Market Share

—

—

—

(0.6%)

(17.1%)

Africa is a very focused market at travel costs are high and markets

relatively small

(67.2%)

(10.4%)

(8.4%)

(20.9%)

(2.1%)

Long-haul

Short-Haul

Note: Data for Mozambique is missing from SADC analysis. The only data on Mozambique are outbound departures from South Africa to Mozambique (2000).

Missing data points for 1999 were projected based on historical growth rates and triangulated where possible with other sourcesSource: World Tourism Organization 1999; Monitor Analysis

(2.5%)


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An assessment was made of the expatriate markets in these countries,

which boosts the overall attractiveness of many of these markets

* Segment includes all UK leisure travellers on group tours across all age groupsSource: Telephonic interviews with High Commissions or Trade Missions in countries, Monitor Analysis

0 200,000 400,000 600,000 800,000 1,000,000 1,200,000

UK Group Tour Segment*

Malawi

Zambia

Ghana

Angola

Tanzania

Ethiopia

Kenya

Mauritius

Nigeria

Egypt

Sum of the National Leisure Travellers and Expatriate Markets

Potential Leisure Arrivals to SA

Although the markets are small relative to one UK segment, South Africa’s relative proximity and dominance in the air market makes these markets potentially easier to penetrate

Nationals

Expatriates


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28

The Rest of the world

Source: SA Tourism - Table A December 2002

AFRICAAFRICAAFRICAAFRICA





Central & South AmericaCentral & South America



North AmericaNorth AmericaNorth AmericaNorth America



EuropeEuropeEuropeEurope



AsiaAsiaAsiaAsia



AustralasiaAustralasiaAustralasiaAustralasia



Middle EastMiddle East



OtherOther

3,64% of total 3,64% of total


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29

In looking for growth opportunities, the eleven largest long-haul leisure

markets cannot be ignored

Country Size of LH Leisure Travel (Holiday + VFR)

Estimate of the LH Holiday Travel

Ranking on Leisure

Arrivals to SA, 2000 Arrivals Ranking, 2000

1 US 20,932,893 12,237,691 2 174728 3

2 Japan 14,076,641 14,076,641 1 22662 13

3 UK 8,604,193 7,127,271 3 349652 1

4 Germany 5,828,967 5,239,521 4 210227 2

5 France 4,847,124 3,540,034 5 89573 5

6 Canada 3,696,141 2,850,552 6 27531 10

7 Australia 3,500,183 2,245,261 7 56040 6

8 Italy 1,703,360 1,510,763 8 38195 8

9 Netherlands 1,548,637 1,259,025 10 91154 4

10 China 1,498,134 1,270,157 9 18306 17

11 Sweden 1,348,714 1,027,194 11 20213 15

12 Argentina 1,159,014 701,938 16 15383 20

13 Switzerland 1,124,213 985,611 12 33181 9

14 Spain 1,070,516 923,318 14 17941 18

15 Korea 1,056,369 802,983 15 8574 28

These markets are forecast to continue growing and would be key in any portfolio


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30

Different strategies will be required against these different markets

Graph showing Potential Marketing Effort against Potential Gain

How much easier is it to get yield from this market?

How attractive is this market for SAT’s goals?

OWN and GROWDEFEND

INVEST for GROWTHPICK-OFF VALUABLE SEGMENTS

Netherlands

Italy

Australia

Sweden

China

Canada

France

Japan

US

UK

Germany

0

5

10

15

20

25

30

0 5 10 15 20 25 30

Source: Monitor Analysis and South African Tourism workshop.

Territories like Japan are highly attractive, but are very difficult as a result of product barriers, while a market like the Netherlands has much lower attractiveness, though is comparatively much easier to activate


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•Australia

•Canada

•France

•Germany

•Italy

•Netherlands

•United Kingdom

•United States

•Japan

•Sweden

•China

•Belgium•Switzerland•India

•Mozambique

•Namibia

•Zambia

•Angola

•Malawi

•Botswana

•Zimbabwe

Niche OpportunitiesAdditional markets where value has been identified

Niche OpportunitiesAdditional markets where value has been identified

Kenya

Nigeria

Egypt

Mauritius

Tanzania

MICE Markets

Kenya

Nigeria

Egypt

Mauritius

Tanzania

MICE Markets

Top 20 Countries Accounting for 90% of

Arrivals

Top Eleven Outbound Markets

of the World

•Lesotho

•Swaziland

These countries account for 18% of arrivals, but

40% of revenue

• Austria• Argentina• Brazil• Denmark

• Finland• Greece• Hong Kong• Indonesia

• Norway• New Zealand• Philippines• Poland

• Portugal• Russia • Saudi Arabia• Singapore

• South Korea• Spain• Taiwan• Thailand • UAE

• Ireland• Israel• Malaysia• Mexico

Watch ListThese are markets which

SAT may investigate further to find value segments

Watch ListThese are markets which

SAT may investigate further to find value segments

The portfolio of countries focuses on identified pockets of value balanced

by actionability


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32

Effective defense (to hold current share) and 2% growth per annum over

five years in growth segments changes the mix in the portfolio

22.2%17.6%

12.9%

10.2%

11.1%

10.7%

8.6%

6.9%

7.8%

6.5%

6.2%

9.1%

3.5%

4.3%

3.5%

2.8%

2.9%

9.3%

10.3% 10.4%

11.00% 12.30%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2005

Sha

re o

f Arr

ival

s to

SA

(%

)

Comparison of Current SA Portfolio and Predicted Portfolio, 2001-2005

Note: The 2005 portfolio was obtained using the assumptions outlined on the previous slideSource: Statistics South Africa, Foreign Visitor Departure Survey, Monitor Analysis

Lesotho

Swaziland

Botswana

Zimbabwe

Mozambique

UK

Germany

Namibia

Netherlands, France, Zambia, Malawi, Australia, Belgium, Italy, Switzerland, Canada, Angola, India

USA

Other


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33

5.9%

13.2%

0.0% 4.0% 8.0% 12.0%

And changes the results dramatically

% Growth

Arrivals Growth

Revenue Growth

Source: Monitor analysis; Foreign Visitor Departure Surveys, 2000 & 2001

Projected 2005 Arrivals : 7,273,900

0.8%

1.2%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

% Growth

Arrivals Growth

Revenue Growth

2002 Arrivals : 5,835,117

Results if we do nothing different (based on growth to the end of 2001)

What the strategy can deliver

Tourism to SA is increased in 2002, however a clear targeted strategy needs to be followed to ensure that this is sustainable and not a temporary phenomena


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35

SA faces some key challenges if it is to realise the growth potential

Choices about which segments to target and serve are required SA needs to differentiate itself - not be all things to all people

FocusFocusFocusFocus

Channel strategies must be based on reaching target consumers and maximising the value captured in SAChannelsChannelsChannelsChannels

Choices about which segments to serve must be backed by strategies to ensure adequate and easy access to South AfricaAccessAccessAccessAccess

Choices about which segments to serve must be supported by appropriate products with sufficient capacityProductProductProductProduct

Note:Source:

Sustainable strategy depends on four areas. SAT controls only a few of the necessary levers


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36

Marketing alone cannot deliver results - key constraints on delivery need to

be removed

SAT cannot afford representation in all markets which are important, but SA needs to maintain some marketing presence

Maintain our Maintain our presence in non-presence in non-

core marketscore markets

Maintain our Maintain our presence in non-presence in non-

core marketscore markets

The new strategy requires that in our product and services we begin to do things differently from the past - and keep ahead of the competition

Provide for a focuses tourism safety strategy

Align tourism Align tourism product and product and

servicesservices

Align tourism Align tourism product and product and

servicesservices

In certain key markets - particularly Africa - our immigration and visa procedures represent a major constraint

Make it easier to Make it easier to get access to get access to South AfricaSouth Africa

Make it easier to Make it easier to get access to get access to South AfricaSouth Africa

At certain times of the year, and in certain markets, the availability of airline seats is lower than would support growing demand. This combined with channel economic issues drives up the cost of holidays to SA compared to our competitors.

Enable adequate Enable adequate and competitive and competitive

airliftairlift

Enable adequate Enable adequate and competitive and competitive

airliftairlift

Note:Source:


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37

Growth from these focus markets depends on increasing airlift capacity

Across the core markets, there are a number of challenges regarding airlift

Dramatic variations in arrival volumes through the year (high seasonality) has led to airlines restraining growth in capacity in order to manage profitability across the year

Capacity Capacity ConstraintsConstraints

Capacity Capacity ConstraintsConstraints

Direct access is not available from some of the key markets in the SAT portfolio.

AccessAccessAccessAccess

Certain air links to key markets are either fully under the control of, or dominated by, foreign carriers with no commitment to the SA market

Vulnerability to Vulnerability to Unpredictable Unpredictable

Foreign SupplyForeign Supply

Vulnerability to Vulnerability to Unpredictable Unpredictable

Foreign SupplyForeign Supply

On certain key routes, limited demand has led to few or only one operator serving the market. This limited competition has resulted in uncompetitive prices versus our competitor destinations

PricePricePricePrice

Government faces key choices about creating the conditions which will lead to alignment between tourism strategy and the airlines in meeting these challenges


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38

Access:

Future success requires expansion in airlinks between SA and key markets

Direct Services SA Carrier Foreign Carrier

US

UK

Germany

France

China (Excl Hong Kong)

Japan

Zimbabwe

Mauritius

Zambia

Tanzania

Nigeria

Egypt

Two of SA’s key source markets for the future currently have no direct airlink whatsoever and a quarter of our future key source markets are currently not served by an SA-flag carrier on a direct service.

Note: SAA and Cathay Pacific serve the Hong Kong-Johannesburg route. However, leisure tourism growth in China is coming largely from the mainland


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Dependency on Foreign Carriers

Airlines serving SA have declined since 1997

0

20

40

60

80

1991 1996 1997 1998 1999 2000 2001

Source: ACSA

Between 1997 and 2001, the number of airlines serving South Africa dropped from 75 to 54


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40

Capacity constraints

Bi-laterals are an issue only in the minority of cases

In overall terms, plenty of spare capacity exists within the bi-lateral air services framework, as well as on average on aircraft

98

45

Agreements Active Agreements

Bi-Lateral Air Services Agreements

Breakdown of Weekly Frequencies

AvailableFrequencies

Frequencies Not Used

Frequencies Used

ForeignOperated

SAOperated

SAA

Other SA carriers

999

374

625

314

311 24962

International Seat Utilisation into JIA (Aug.2000-Jul.2001)

Average Seats per Month: 388,000

Average Passengers per Month: 197,000

Average Load factor: 50.73%

0

100000

200000

300000

400000

500000

0%

20%

40%

60%

80%

Seats Pax Average Load-Factor


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41

0

200

400

600

800

1,000

Apr

May Ju

n

Jul

Aug

Sep Oct

Nov

Dec Ja

n

Feb

Mar

AS

K/R

PK

(m

illi

on

s)0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

PL

F

ASKs RPK PLF

Capacity Constraints

Seasonal patterns on key routes create pressures at key times of the year

High fluctuations in demand on key routes put airlines under pressure not to put capacity which is then under-utilised most of the year — putting pressure in peak months

0

10,000

20,000

30,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Arr

iva

ls

0

5,000

10,000

15,000

20,000

25000

30,000,

35,000

40,000

45,000

SAA Load Factors — European Services2000/2001

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

25,500

Monthly German Arrivals (2000)

Monthly UK Arrivals (2000)

Arr

iva

ls

20,000

Over 70% load factors between October and March indicate customers are starting to be turned away

0


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42

Price

The cost of the airfare is often uncompetitive where competition is limited

100

79

68 66

54 54 54 51 50 50 50

40

28

17

0

20

40

60

80

100

120

Joh

an

ne

sbu

rg

Re

ykja

vik

Ca

sab

lan

ca Rio

Vie

nn

a

Pa

ris

Co

pe

nh

ag

en

Ca

ncu

n

Syd

ne

y

Bri

sba

ne

Me

lbo

urn

e

Ne

the

rla

nd

s

Th

aila

nd

Ho

ng

Ko

ng

Indexed Cost of Air ticket From Tokyo (Long-Haul Destinations)

154 154148

112

100 96

8173

0

20

40

60

80

100

120

140

160

180

Bri

sba

ne

Me

lbo

urn

e

Syd

ne

y

Rio

Joh

an

ne

sbur

g

Ca

ncu

n

Ho

ng

Ko

ng

Th

aila

nd

Indexed Cost of Air Tickets From London (Long-Haul Destinations)

144 144138

100

59 58

45 4535 31 30

22 20

0

20

40

60

80

100

120

140

160

Syd

ne

y

Me

lbo

urn

e

Bri

sba

ne

Joh

an

ne

sbu

rg

Th

aila

nd

Ca

sab

lan

ca

Ho

ng

Ko

ng

Rio

Re

ykja

vik

Vie

nn

a

Co

pe

nh

ag

en

Pa

ris

Ne

the

rla

nd

sIndexed Cost of Air Tickets From New York

(Long-Haul Destinations)

146 146 146

110103 100 99 97

51

0

20

40

60

80

100

120

140

160

Syd

ne

y

Bri

sba

ne

Me

lbou

rne

Ho

ng

Ko

ng

Th

aila

nd

Joh

ann

esb

urg

Rio

Ca

ncu

n

Ca

sabl

an

ca

Indexed Cost of Air Tickets from Frankfurt (Long-Haul Destinations)


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43

0

2

4

6

8

10

1995 1996 1997 1998 1999 2000

Tot

al T

ouris

m A

rriv

als

(Mill

ions

)

Total Tourism Arrivals 1995-2000

Thailand 5.52%

South Africa 7.37%

Brazil 26.48%

Australia 5.50%

U.A.E. 28.00%

Kenya 17.81%

Morocco 10.50%

CAGR ‘95-’99

Flag Carriers are important to building destinations

For the majority of destinations that have emerged in the last ten years, the airline has been a key feature of their success

Update

0 2 4 6 8 10 12

KenyaAirways

Royal AirMaroc

Emirates

Qantas

Varig

SAA

Thai Airways

Total International Pax Carried 2000

Millions

+- 60%

+- 50%

+- 35%


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44

There have been two routes by which emerging destinations have achieved alignment between their tourism strategies and the flag-bearing airlines

Thailand’s government built Thai with the explicit mandate:-

1. To develop and expand company business, as THAI* is a national flag carrier, to become one of the world best airlines

2. To promote Thailand as a gateway into the Asia-Pacific region

3. To support Thailand’s tourism industry

4. To maximise profit in order to raise funds for human resource development and equipment necessary to achieve the above objectives.

Airlines and the success of destinations

Australia explicitly developed a competitive approach to air services, and privatised Qantas against these objectives through:-

1. Providing Qantas with a three-year pre-privatisation period where the regulatory environment was liberalised to allow it to “get fit”

2. Privatisation was used to enable major re-investment and fleet expansion by Qantas with private-sector capital

3. Created an environment in which Qantas was encouraged to work in close alignment with the tourism industry and the Australian Tourist Commission

Flag carriers’ financial interests are largely based on traffic into and out of a destination. This means a strong alignment of the airline financial interest and the national tourism

interest, thus creating the basic conditions for strong common interest and alignment in strategy

Indirect Regulation and Facilitation Direct State Involvement


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Importance of Flag Carriers to tourism destinations

The examples of Thai and Qantas investing with demand growth

Part of Australia and Thailand’s success has been in how their airlines have invested in capacity to meet increasing demand…

0

1

2

3

4

5

6

1995 1996 1997 1998 1999 2000

0

20

40

60

80

100

Arrivals ASKs

QantasASKs against Arrivals to Australia

Qantas provides capacity in line with growing demand

Arr

ival

s (M

illio

ns) A

sks (Millions)

0

2

4

6

8

10

12

1995 1996 1997 1998 1999 2000

0

20

40

60

Arrivals ASKs

ThaiASKs against Arrivals to Australia

Arr

ival

s (M

illio

ns) A

sks (Millions)

Thai historically provided capacity ahead of demand growth


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46

Importance of Flag Carriers

Thai and Qantas have been major investors in the success of tourism

Flag carrier airline alignment to national objectives, and their direct investment in tourism, have been key to both Thailand and Australia’s success stories.

Qantas has been a key role-player in achieving this success through:

Building a strong brand consistent with Australia’s brand intent

Investing in destination marketing that more than doubles Australia’s leverage

Building a loyalty programme that promotes service improvements

Development of holiday programme which is now the largest operator in the country

Consciously building alignment with government strategy, product and the trade

Qantas has been a key role-player in achieving this success through:

Building a strong brand consistent with Australia’s brand intent

Investing in destination marketing that more than doubles Australia’s leverage

Building a loyalty programme that promotes service improvements

Development of holiday programme which is now the largest operator in the country

Consciously building alignment with government strategy, product and the trade

Thai airways has been a key investor in Thailands success through:

Promotion of Thailand as a destination, and as hub into the South-East Asian Region

Selling seats and holidays in ways consistent with Thailand’s value proposition

Direct investment in national tourism marketing campaigns

Strong promotion of regional destinations in line with government strategy

Thai airways has been a key investor in Thailands success through:

Promotion of Thailand as a destination, and as hub into the South-East Asian Region

Selling seats and holidays in ways consistent with Thailand’s value proposition

Direct investment in national tourism marketing campaigns

Strong promotion of regional destinations in line with government strategy

Tourism to Australia has more than

doubled from 2 million visitors in 1990 to 4.9

million in 2000

Tourism to Thailand has almost doubled

from 5 million in 1990 to 9.6 million in 2000


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South Africa

SAA has not kept pace with growing demand

1996 2000 2004 2008 2012 2016 2020

SAA International Capacity w/ 1995 Proposed Fleet Expansion

SAA International Capacity w/ Currently Approved Fleet expansion

Passenger Demand

International Passenger Demand and Planned SAA CapacityMoving South Africa Findings in 1998

Passengers

Source: SAA

SAA on the other hand, has historically not kept capacity in line with tourism demand, and its most recent capex plans only deal with replacement of old aircraft.

Waiting for updated SAA data

- Expected Wednesday-

International arrivals against SAA market

share


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48

SAA and SA’s tourism strategy

Focusing on the business traveller pulls against tourism objectives

As SAA has consolidated its routes and focuses on retaining share in the lucrative business market, the structure of seat pricing and product works against South Africa’s ability to drive growth out of the leisure market.

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

1996 1997 1998 1999 2001

Pa

sse

ng

ers

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Pa

ssen

ge

r Re

ven

ue

(Ra

nd

s millio

n)

Pax Revenue

“Dire straits of airline industry are partly due to an over-reliance on business travel”

— Peter Martin, Business Day (January 9, 2002)

BUTThe focus on business travel is on the smallest

section of the outbound travel market

Business16%

Leisure84%

Purpose of Travel out of the UK


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South Africa

Uncompetitive airfares and inadequate capacity — the cost to SA in the US

Variation in Segment Value, Activation Rates of 2% (Conservative) and 10% (Optimistic) of Interested Travellers

$138 M(73, 843)

$28 M(14,769)

$77 M(33,634 visitors)

$387 M(168,172 visitors)

$485 M(167,958)

$875 M(276,368)

$435 M(157871)

$663 M(186,651)

$46 M(12,247)

$9 M(2449)

$97 M(55,274)

$175 M(55,274)

$87 M(31,574)

$133 M(37,330)

The “Wonderluster” segment in the US is worth between $ 77 million and $ 387 million over the next three years if the cost of the airfare could be dropped from the average $ 1,500.00 to $ 1,000.00

Source: Monitor Analysis, WTO Data

Currently the “Wonderlusters” don’t travel to SA despite them

being the most positive and interested segment in the US

market

By bringing the cost of a 10-day holiday to the price of US$

2000.00 (including airfare of US$ 1000.00), SA could immediately begin to activate this segment worth between US$ 77 million

and US$ 387 million if only between 2% and 10% of this

segment actually do travel to SA

Currently the “Wonderlusters” don’t travel to SA despite them

being the most positive and interested segment in the US

market

By bringing the cost of a 10-day holiday to the price of US$

2000.00 (including airfare of US$ 1000.00), SA could immediately begin to activate this segment worth between US$ 77 million

and US$ 387 million if only between 2% and 10% of this

segment actually do travel to SA


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Stacking SAA financial performance against the revenue earned by SA

from passengers delivered by SAA

20.1320.69

21.31

7.467.247.05

0

5

10

15

20

25

1998 1999 2000

Spend Attributable to South Africa from Air Arrivals (98-00)

Tourist Spend

(R billions)

1 The figures are brought to 2001 by using the inflation rate of 6%2 The spend attributable to South Africa was calculated as [ 0.6* (Prepaid Accommodation)+ Spend in SA]Source: Statistics South Africa, Foreign Visitor Survey

SAA Financial Performance (‘97-’01)

Assuming a conservative 35% overall market-share, the revenue to SA attributable to tourists delivered by SAA is almost R 7.5 billion compared to SAA headline loss in 2001 of R 735 million


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51

Government’s objectives for tourism, aviation and SAA are many and at times competing - and need to be prioritised.

Trade and

Industry- Commercial access

- Freight capacity

Trade and

Industry- Commercial access

- Freight capacity

Public Enterprises

- Efficiency- Profitability

- Restructuring- Transformation

Public Enterprises

- Efficiency- Profitability

- Restructuring- Transformation

Transport- Safety

- Sustainability- Competitiveness

- Consumer Protection

Transport- Safety

- Sustainability- Competitiveness

- Consumer Protection

Finance- Maximise value

- Privatisation revenues- Future dividends

- Contingent Liabilities- Tax base

- GDP Impact

Finance- Maximise value

- Privatisation revenues- Future dividends

- Contingent Liabilities- Tax base

- GDP ImpactForeign Affairs- Diplomatic RelationsForeign Affairs- Diplomatic Relations

Labour- Job Creation

- Labour protection

Labour- Job Creation

- Labour protection

Tourism- Maximise access- Maximise airlift- Sustainability

- Safety- Service

Tourism- Maximise access- Maximise airlift- Sustainability

- Safety- Service

Government Government ObjectivesObjectives

Government Government ObjectivesObjectives

Prioritising Government’s Objectives


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52

Recommendations for aligning tourism, airlines and the national interest

Review the competitive / regulatory environment on key routes to:-– Stimulate increased competition on low competition routes– Create more flexible conditions for airlines to manage capacity

around seasonal fluctuations

Competitive EnvironmentCompetitive EnvironmentCompetitive EnvironmentCompetitive Environment

Implement corporate governance processes and performance measures in the SAA shareholding relationship which are aligned to tourism objectives and prioritised against against other government objectives, such as profitability

Strategically aligned corporate Strategically aligned corporate governance of SAAgovernance of SAA

Strategically aligned corporate Strategically aligned corporate governance of SAAgovernance of SAA

Establish mechanisms, through the restructuring process or other funding instruments, to enable SAA to embark on a more comprehensive growth-oriented strategy underpinned by significant investment in additional international capacity

SAA capex strategy aligned to SAA capex strategy aligned to serve demand growthserve demand growth

SAA capex strategy aligned to SAA capex strategy aligned to serve demand growthserve demand growth

Ensure that the restructuring process, including the privatisation process is aligned with the needs of tourism to achieve sustainable air service capacity, at competitive prices and service from the key markets to SA Tourism growth

Restructuring process of SAA Restructuring process of SAA to be guided by tourism goals to be guided by tourism goals

in addition to existing in addition to existing priorities priorities

Restructuring process of SAA Restructuring process of SAA to be guided by tourism goals to be guided by tourism goals

in addition to existing in addition to existing priorities priorities

As tourism strategy starts to stimulate increased volumes through focused marketing and product investment, airlift will become a key barrier. It is recommended that Government takes the following steps to address these critical questions:

Implement sector-level strategy to create conditions for the sustainable emergence of strong, SA-based international carriersStrong, sustainable flag Strong, sustainable flag

carrier/scarrier/sStrong, sustainable flag Strong, sustainable flag

carrier/scarrier/s


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Focused on growth from tourism, and backed by:-

Strong Brand Consistent with Brand

SA Invested in the

destination Marketing aligned to

SAT Strategy aligned with

Brand SA, products and channels

Strong promotion of holidays, not just flights

Conclusion

Focused on growth from high volume, high yield tourism markets, backed by:

Focus on customers Informed by consumer

insight Strong Brand Consistent with Brand

SA Marketing aligned to

products, channels and airlines

Strategic alignment,

Mutually reinforcing

action

strategy for growth in international tourism to south africa presentation to june 2003 department of...

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