Strategy for Growth in International Tourism to South Africa Presentation to June 2003
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Strategy for Growth in
International Tourism to
South Africa
Presentation to June 2003
DEPARTMENT OF ENVIRONMENTAL AFFAIRS
AND TOURISM
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Presentation Structure
The Growth Strategy - Summary
Major Constraints to Success
Recommendations
Strategic 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 job creation
Redistribution and transformation
In the Tourism Act, SAT must
contribute to …
Understand the market
Choose the attractive segments
Market the Destination… by acting
in a focused way to … Facilitate the
removal of obstacles
Facilitate the product platform
Monitor and learn from tourist experience
Increases in tourist volume
Increases in tourist spend
Increased length of stay… through
delivering sustained ... Improved
geographic spread
Improved seasonality
patterns
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
German
y
United S
tates
Netherlan
ds
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-9
4
Jun-9
4
Nov-9
4
Apr-95
Sep-9
5
Feb-96
Jul-9
6
Dec-9
6
May-97
Oct-97
Mar-98
Aug-9
8
Jan-9
9
Jun-9
9
Nov-9
9
Apr-00
Sep-0
0
Feb-01
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
Botswan
a
Zimba
bwe
Mozam
bique
United
King
dom
German
y
Namibi
a
United
Stat
es of
Ameri
ca
Netherl
ands
Zambia
France
Malawi
Austra
lia Italy
Belgium
Switzerl
and
India
Canad
a
Angola
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
GermanyNamibia
USA
Netherlands
France
Zambia
Malawi
Other
Graph Showing the Relationship Between Volume of Arrivals and Tourist Revenues
% Arrivals
% R
even
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
May
-98
Sep
-98
Jan-
99
May
-99
Sep
-99
Jan-
00
May
-00
Sep
-00
Jan
-01
May
-01
Sep
-01
Dec
-01
Seasonality presents a major constraint on capacity for growth
Arrivals to South Africa (1998-2001)
Arr
ival
s (0
00’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
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
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
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
Note:Source:
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Presentation Structure
The Growth Strategy - Summary
Major Constraints to Success
Recommendations
Strategic Context
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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
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
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
1.1. Retain usesRetain uses by by existing consumersexisting consumers
1. 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
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
AFRICAAFRICA 4,455,971 Arrivals (4,435,218 mainland)
69.3% of total (69% mainland)
Central & South America 38,311 arrivals 0.6% of total
North AmericaNorth America 216,275 arrivals 3,36% of total
EuropeEurope 1,252,710 arrivals 19,5% of total
AsiaAsia 117,415 arrivals 1,8% of total
AustralasiaAustralasia 85,775 arrivals 1,3% of total
Middle East 33,401 arrivals 0.5% of total
Other 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 growth
Sha
re o
f Arr
ival
s to
SA
(%)
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%
Mozambique
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
0500,000
1,000,0001,500,0002,000,000
2,500,0003,000,0003,500,0004,000,0004,500,000
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?
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? 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? Low current outbound numbers
imply very limited short and medium term potential
Why not North Africa?
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)
Tota
l Out
boun
d A
ir Tr
avel
(199
9)
Madagascar
Benin
SomaliaNiger
Guinea
Burkina Faso
Sierra LeoneMauritania
Togo
Liberia
Eritrea
Burundi
Rwanda
Djbouti
The Gambia
Guinea-Bissau
Cape VerdiComoros
0
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
19
11
3
12
13
5
7
8
1) Burundi2) Comores3) Djibouti4) Eritrea5) Ethiopia6) Kenya7) Madagascar8) Reunion9) Rwanda10) Seychelles11) Somalia12) Tanzania13) Uganda
9
2
123
1
4
5
15 6
87
10
11
14
16
13
1) Benin2) Burkina Faso3) Cape Verde4) Cote D’Ivoire5) Gambia6) Ghana7) Guinea8) Guinea-Bissau9) Liberia10) Mali11) Mauritania12) Niger13) Nigeria14) Senegal15) Sierra Leone16) Togo
Band 1 (25,000 – 50,000)
Band 2 (50,000 – 100,000)
Band 3 (100,000 – 200,000)
Band 4 (200,000+)
East AfricaWest 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
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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
Additional Information:Inter-regional Capacity Flows
112
14
3
7
1) Burundi2) Comoros3) Djibouti4) Eritrea5) Ethiopia6) Kenya7) Madagascar8) Malawi9) Mauritius10) Mayotte11) Reunion12) Rwanda13) Seychelles14) Somalia15) South Africa16) Tanzania17) Uganda18) Zambia19) 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
1013
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
Source: OAG, Monitor Analysis
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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) Burundi2) Comoros3) Djibouti4) Eritrea5) Ethiopia6) Kenya7) Madagascar8) Reunion9) Rwanda10) Seychelles11) Somalia12) Tanzania13) Uganda
East Africa
West Africa
8
9
12
2
10
11
1
2
4
7
1011
1617
15
Europe
3
4
78
9
12
13
3
5
613
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+)
Source: OAG, Monitor Analysis
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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
NationalsExpatriates
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The Rest of the world
Source: SA Tourism - Table A December 2002
AFRICAAFRICA 4,455,971 Arrivals (4,435,218 mainland)
69.3% of total (69% mainland)
Central & South America 38,311 arrivals 0.6% of total
North AmericaNorth America 216,275 arrivals 3,36% of total
EuropeEurope 1,252,710 arrivals 19,5% of total
AsiaAsia 117,415 arrivals 1,8% of total
AustralasiaAustralasia 85,775 arrivals 1,3% of total
Middle East 33,401 arrivals 0.5% of total
Other 3,64% of total
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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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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
AustraliaSweden
ChinaCanada
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
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
The portfolio of countries focuses on identified pockets of value balanced by actionability
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Effective defense (to hold current share) and 2% growth per annum over five years in growth segments changes the mix in the portfolio
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
GermanyNamibia
Netherlands, France, Zambia, Malawi, Australia, Belgium, Italy, Switzerland, Canada, Angola, India
USA
Other
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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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Presentation Structure
The Growth Strategy - Summary
Major Constraints to Success
Recommendations
Strategic Context
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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
FocusFocus
Channel strategies must be based on reaching target consumers and maximising the value captured in SAChannelsChannels
Choices about which segments to serve must be backed by strategies to ensure adequate and easy access to South AfricaAccessAccess
Choices about which segments to serve must be supported by appropriate products with sufficient capacityProductProduct
Note:Source:
Sustainable strategy depends on four areas. SAT controls only a few of the necessary levers
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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
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
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
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
Note:Source:
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Growth from these focus markets depends on increasing airlift capacity
Across the core markets, there are a number of challenges regarding airlift
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
Direct access is not available from some of the key markets in the SAT portfolio.
AccessAccess
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
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
PricePrice
Government faces key choices about creating the conditions which will lead to alignment between tourism strategy and the airlines in meeting these challenges
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Access:Future success requires expansion in airlinks between SA and key markets
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 CarriersAirlines 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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Capacity constraintsBi-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
625314
311 249 62
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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0
200
400
600
800
1,000
Apr
May Ju
n
Jul
Aug
Sep Oct
Nov
Dec Ja
n
Feb
Mar
ASK/
RPK
(mill
ions
)0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
PLF
ASKs RPK PLF
Capacity ConstraintsSeasonal 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 l
s
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 l
s
20,000
Over 70% load factors between October and March indicate customers are starting to be turned away
0
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PriceThe cost of the airfare is often uncompetitive where competition is limited
100
79
68 66
54 54 54 51 50 50 5040
28
17
0
20
40
60
80
100
120
Joha
nnes
burg
Rey
kjav
ik
Cas
abla
nca
Rio
Vie
nna
Par
is
Cop
enha
gen
Can
cun
Syd
ney
Bris
bane
Mel
bour
ne
Net
herla
nds
Thai
land
Hon
g K
ong
Indexed Cost of Air ticket From Tokyo (Long-Haul Destinations)
154 154148
112100 96
8173
0
20
40
60
80
100
120
140
160
180
Bris
bane
Mel
bour
ne
Syd
ney
Rio
Joha
nnes
burg
Can
cun
Hon
g K
ong
Thai
land
Indexed Cost of Air Tickets From London (Long-Haul Destinations)
144 144138
100
59 5845 45
35 31 3022 20
0
20
40
60
80
100
120
140
160
Syd
ney
Mel
bour
ne
Bris
bane
Joha
nnes
burg
Thai
land
Cas
abla
nca
Hon
g K
ong
Rio
Rey
kjav
ik
Vie
nna
Cop
enha
gen
Par
is
Net
herla
nds
Indexed 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
ney
Bris
bane
Mel
bour
ne
Hon
g K
ong
Thai
land
Joha
nnes
burg
Rio
Can
cun
Cas
abla
nca
Indexed Cost of Air Tickets from Frankfurt (Long-Haul Destinations)
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0
2
4
6
8
10
1995 1996 1997 1998 1999 2000
Tota
l Tou
rism
Arr
ival
s (M
illio
ns)
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 destinationsFor 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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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 destinationsThe 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 20000
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 20000
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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Importance of Flag CarriersThai 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
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 AfricaSAA 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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SAA and SA’s tourism strategyFocusing on the business traveller pulls against tourism objectivesAs 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
Pas
seng
ers
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Passenger R
evenue (Rands m
illion)
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 AfricaUncompetitive 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
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Stacking SAA financial performance against the revenue earned by SA from passengers delivered by SAA
20.13 20.69 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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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
Public Enterprises
- Efficiency- Profitability
- Restructuring- Transformation
Transport- Safety
- Sustainability- Competitiveness
- Consumer Protection
Finance- Maximise value
- Privatisation revenues- Future dividends
- Contingent Liabilities- Tax base
- GDP ImpactForeign Affairs- Diplomatic Relations
Labour- Job Creation
- Labour protection
Tourism- Maximise access- Maximise airlift- Sustainability
- Safety- Service
Government Government ObjectivesObjectives
Prioritising Government’s Objectives
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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 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
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
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
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/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
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