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Strategy for Growth in International Tourism to South Africa Presentation to June 2003

Strategy for Growth in International Tourism to South Africa Presentation to June 2003. DEPARTMENT OF ENVIRONMENTAL AFFAIRS AND TOURISM. Presentation Structure. Strategic Context. The Growth Strategy - Summary. Major Constraints to Success. Recommendations.

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Strategy for Growth in International Tourism to South Africa Presentation to June 2003

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  1. Strategy for Growth in International Tourism to South AfricaPresentation to June 2003 DEPARTMENT OF ENVIRONMENTAL AFFAIRS AND TOURISM

  2. Presentation Structure Strategic Context The Growth Strategy - Summary Major Constraints to Success Recommendations

  3. South African Tourism is reconfiguring itself to drive tourism’s contribution to the nation’s transformation programme In the Tourism Act, SAT must contribute to … Sustainable GDP growth Sustainable job creation Redistribution and transformation Increases in tourist volume Increases in tourist spend Increased length of stay … through delivering sustained ... Improved geographic spread Improved seasonality patterns Promote transformation 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

  4. Domestic and International Short-Haul Tourism are the bedrock of the tourism industry, but SA Tourism’s core business is foreign tourism Split of SA’s International Tourists by Long-Haul and Short-Haul (2000) Split of SA’s International and Domestic Tourists (2000) 5.75 million 1.55 million Long-Haul (Overseas and North Africa) 27% Domestic 63% International 37% Short-Haul (SADC, Central & East Africa) 73% 4.20 million 9.8 million

  5. Current international arrivals are driven off a hand-full of core markets Long-Haul Tourist Arrivals to South Africa from Top 10 Source Markets (2000) Split of SA’s Inbound Tourists by Long-Haul and Short-Haul (2000) 1.55 million Long-Haul (Overseas and North Africa) 27% Short-Haul Tourist Arrivals to South Africa from Top 10 Source Markets (2000) Short-Haul (SADC, Central & East Africa) 73% 4.20 million

  6. The steady growth in tourism arrivals post 1994 has slowed to 0.3% between 1998 and 2001 The major declines in tourism arrivals from Lesotho have been a major issue, but even without Lesotho, overall growth has slowed to 3.2% CAGR between 1998 and 2001 Total Arrivals to South Africa over the 7 Year Period from 1994 CAGR (94-01) CAGR (98-01) 6.9% 0.3% Arrivals to South Africa 6 Month Moving Average of Total Arrivals Source: South African Tourism Table K

  7. Arrivals to South Africa have under performed the world tourism arrivals and most of the world regional arrivals over the period 1998 to 2001 The forecasts for many of the world regions are lower for the period to 2020 Compounded Annual Growth Rate of Arrivals Arrivals to South Asia Arrivals to Middle East Arrivals to Europe Arrivals to East Asia and the Pacific Arrivals to America CAGR WTO Forecast (95-20) Arrivals to Africa CAGR Arrivals (98-01) CAGR Arrivals to SA (98-01) World Arrivals Total Arrivals to South Africa Percentage (%) Note: Source: Tourism Market Trends, WTO 2001 Edition ; Tourism Highlights 2001, WTO

  8. South Africa’s current portfolio is driven off 21 countries which account for 90% of the arrivals 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 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

  9. When the contribution to revenue is assessed, it is seen that the high value countries contribute the least in terms of arrivals Graph Showing the Relationship Between Volume of Arrivals and Tourist Revenues 100 Malawi 90 France Other Zambia 80 Netherlands 70 USA Namibia 60 Germany 50 % Revenue 40 Mozambique UK Zimbabwe 30 Botswana 20 Swaziland 10 Lesotho 0 0 10 20 30 40 50 60 70 80 90 100 % Arrivals Thus, although Lesotho accounts for 22% of the arrivals, its contribution to revenue is only 7%, while the UK accounts 6% of arrivals, its contribution to revenue is 14% Source: Monitor analysis; Statistics South Africa, 2001; Foreign Visitor Departure Surveys, 2000 & 2001

  10. Seasonality presents a major constraint on capacity for growth Europe (98-01) Asia (98-01) North America (98-01) Africa (98-01) The deep seasonal pattern of arrivals into South Africa creates significant challenges for investing in capacity to serve increased demand. Arrivals to South Africa (1998-2001) Arrivals (000’s) Source: South African Tourism Strategic Research Unit

  11. 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 resources Re-balance the portfolio • Arrivals to South Africa are too dependent on a few large markets. The mix of arrivals needs to lessen dependence on volatile markets and at the same time increase our share in high-value markets • Generic “spray and pray” marketing averages messages and has low returns. SA’s marketing needs to focus on specific sets of customers, and speak directly to their specific holiday buying criteria. We need to move from pushing what we like about SA to selling customers what they want. Marketing to be based on a view of customers Create alignment within the tourism sector • Behind the strategy the tourism industry needs to redefine and upgrade products and services to deliver against the promise offered by the marketing message. Note: Source:

  12. Presentation Structure Strategic Context The Growth Strategy - Summary Major Constraints to Success Recommendations

  13. The strategy is about re-balancing the portfolio through four areas Seeking out the countries and markets that will address these various components is key to establishing the portfolio Growth in volume Growth in Revenue Defend the Current Position Reducing Seasonal Variations

  14. To obtain growth and defend the current shares, an integrated strategy needs to focus on five key drivers 2. Stimulate current uses with existing consumers 4. Attract new-to-you consumers 1. Retain uses by existing consumers 5. Attract new-to category consumers Competitor 3. Generate new uses by existing consumers • Increase Volume with Current Consumers • Acquire New Consumers 1. Maintain current purchasing pattern 2. Stimulate your current customers to come here more often 3. Get them to come back to SA to do different things 4. Convertcustomers from the competitor to South Africa 5. Convert short-haul travellers to long-haul travellers Clearly different countries and / or segments will drive growth in different ways Dairy Company

  15. Africa — The Main Driver of International Tourism to South Africa Europe • 1,252,710 arrivals • 19,5% of total North America • 216,275 arrivals • 3,36% of total Middle East • 33,401 arrivals • 0.5% of total Asia • 117,415 arrivals • 1,8% of total Central & South America • 38,311 arrivals • 0.6% of total Australasia • 85,775 arrivals • 1,3% of total AFRICA • 4,455,971 Arrivals • (4,435,218 mainland) • 69.3% of total • (69% mainland) Other • 3,64% of total Source: SA Tourism - Table A December 2002

  16. 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” 2. Stimulate current uses with existing consumers 5. Attract new-to category consumers 3. Generate new uses by existing consumers 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 4. Attract new-to-you consumers 1. Retain uses by existing consumers Competitor Dairy Company

  17. Africa and specifically neighboring SADC are important source markets for South Africa Africa accounts for 72% of the arrivals to South Africa, with neighboring SADC countries representing the majority of these arrivals Breakdown of Africa Arrivals to South Africa, 2000 Regional Share of Arrivals to South Africa, 2000 Rest of Africa (3%) Other SADC (5%) Neighboring SADC (92%) Source: Statistics South Africa

  18. Nearly two-thirds of arrivals come from just 5 countries with little growth and therefore we need to look at air travel in Africa for growth SA Market Share Arrivals CAGR (98-01) Top 5 Source Markets to SA (2001) 83.72% Other Mozambique 69.79% Zimbabwe 98.29% Share of Arrivals to SA (%) Botswana 98.74% Swaziland Lesotho 99.56% Source: Statistics South Africa, Foreign Visitor Departure Survey, Monitor Analysis

  19. Air Travel from Africa is Growing Overall, travel into SA from neighbouring SADC is stagnant, but air arrivals are growing fast, including out of neighbouring SADC states. Breakdown of Air Travellers to SA (98-00) CAGR (98-00) 1% 17% 18% 19% Arrivals 29% 29% 4% 31% 10% 51% 53% 54% Breakdown of Land Travellers to SA (98-00) Other Africa 4% Non-neighboring SADC Arrivals 0% 97% 97% 97% Neighboring SADC Note: The land travellers out of the rest of Africa are insignificant Source: Statistics South Africa

  20. Initially, we considered 27 countries in East and West Africa Why East Africa? Tunisia Western Sahara Morocco • 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 Cape Verde Eritrea Senegal The Gambia Guinea-Bissau Why not North Africa? Guinea Sierra Leone • Due to proximity to Europe, and language barriers, conversion deemed relatively more difficult Liberia Benin Burkina Faso Togo Uganda Rwanda Sao Tome and Principe Burundi Equatorial Guinea Why not Middle Africa? Seychelles • Low current outbound numbers imply very limited short and medium term potential Malawi Comoros Djibouti Mauritius Mozambique Reunion Swaziland Lesotho Algeria Mauritania Mali Niger Chad Sudan Nigeria Central African Republic Cote d'Ivoire Ethiopia Came-roon Somalia Congo Democratic Republic of Congo Kenya Ghana Gabon Tanzania Saint Helena Angola Why West Africa? Zambia • 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 Zimbabwe Namibia Madagascar Botswana South Africa

  21. Of these 27 countries, nine appeared worth pursuing Guinea Niger Burundi Sierra Leone Eritrea Screening Matrix 250,000 Nigeria(pop = 58,287,100; travel = 240,236) Kenya Senegal Total Outbound Air Travel (1999) Ghana Tanzania Mali Ethiopia Benin Uganda Liberia Cote d’lvoire Togo Rwanda Somalia The Gambia Burkina Faso Cape Verdi Madagascar Mauritania Comoros 60,000,000 Djbouti Note: Green shaded area is worth pursuing Source: World Bank Guinea-Bissau Total Urban Population (2001)

  22. Prioritisation of these markets tended to confirm the hypothesis of focus on Nigeria and Kenya Relative Attractiveness of Target Markets 100 Nigeria Cote D’Ivoire Top right hand box is most attractive area Senegal Kenya Tanzania Total Travel Potential Index 30 Uganda Ghana Mali Ethiopia 0 0 30 100 Total Current Travel Index Note: Size of bubble denotes size of urban population: = 5 million; indices evenly weight component parts; indices from previous calculations Source: World Bank, ITU, IATA, OAG, Monitor Analysis

  23. Challenges in Africa: There appear to be several country groupings with significant internal travel (like South Africa has with SADC) Capacity: Band 1 (25,000 – 50,000) Band 2 (50,000 – 100,000) Band 3 (100,000 – 200,000) Band 4 (200,000+) 11 3 10 12 4 14 5 13 2 8 West Africa 3 7 1 East Africa 6 15 5 4 16 9 • Benin • Burkina Faso • Cape Verde • Cote D’Ivoire • Gambia • Ghana • Guinea • Guinea-Bissau • Liberia • Mali • Mauritania • Niger • Nigeria • Senegal • Sierra Leone • Togo • Burundi • Comores • Djibouti • Eritrea • Ethiopia • Kenya • Madagascar • Reunion • Rwanda • Seychelles • Somalia • Tanzania • Uganda 11 13 6 9 • 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 1 12 10 2 7 8 Source: OAG, Monitor Analysis

  24. Additional Information:Inter-regional Capacity Flows Band 1 (25,000 – 50,000) 19 Band 2 (50,000 – 100,000) 1 Band 3 (100,000 – 200,000) 11 Band 4 (200,000+) 18 North / Central / West Africa 17 4 7 24 22 • Algeria • Benin • Burkina Faso • Cameroon • Cape Verde • Central Africa Republic • Chad • Congo • Congo, Dem. Rep of • Cote D’Ivoire • Egypt • Gambia • Ghana • Guinea • Guinea-Bissau • Liberia • Mali • Mauritania • Morocco • Nigeria • Saint Helena • Senegal • Sierra Leone • Sudan • Togo 20 3 East & South Africa 2 6 13 25 10 • Burundi • Comoros • Djibouti • Eritrea • Ethiopia • Kenya • Madagascar • Malawi • Mauritius • Mayotte • Reunion • Rwanda • Seychelles • Somalia • South Africa • Tanzania • Uganda • Zambia • Zimbabwe 5 4 14 6 17 8 12 9 1 • While Ethiopia appears to be a northward facing hub, Kenya appears to be southward facing • Nigeria appears to have moderate links to East Africa 16 2 8 18 10 19 7 9 11 15 Source: OAG, Monitor Analysis

  25. Additional Information:Inter-continental Capacity Flows Band 1 (25,000 – 50,000) Band 2 (50,000 – 100,000) Band 3 (100,000 – 200,000) Band 4 (200,000+) Europe North America Asia Middle East 11 South Asia 10 3 12 4 15 5 2 5 3 8 7 1 13 16 6 17 4 9 11 West Africa 13 6 9 • Benin • Burkina Faso • Cape Verde • Cote D’Ivoire • Gambia • Ghana • Guinea • Guinea-Bissau • Liberia • Mali • Mauritania • Niger • Nigeria • Saint Helena • Senegal • Sierra Leone • Togo East Africa 1 • Burundi • Comoros • Djibouti • Eritrea • Ethiopia • Kenya • Madagascar • Reunion • Rwanda • Seychelles • Somalia • Tanzania • Uganda 12 10 14 2 7 8 Source: OAG, Monitor Analysis

  26. Africa is a very focused market at travel costs are high and markets relatively small SA’s Market Share Outbound Departures by Region from Africa (1999) Long-haul Short-Haul — (67.2%) (2.5%) — (8.4%) — (10.4%) (17.1%) (2.1%) (0.6%) (20.9%) Outbound Departures Note: Data for Mozambique is missing from SADC analysis. The only data on Mozambique are outbound departures from South Africa to Mozambique (2000). Missing data points for 1999 were projected based on historical growth rates and triangulated where possible with other sources Source: World Tourism Organization 1999; Monitor Analysis

  27. An assessment was made of the expatriate markets in these countries, which boosts the overall attractiveness of many of these markets Although the markets are small relative to one UK segment, South Africa’s relative proximity and dominance in the air market makes these markets potentially easier to penetrate Sum of the National Leisure Travellers and Expatriate Markets Nationals Expatriates Potential Leisure Arrivals to SA * Segment includes all UK leisure travellers on group tours across all age groups Source: Telephonic interviews with High Commissions or Trade Missions in countries, Monitor Analysis

  28. The Rest of the world Europe • 1,252,710 arrivals • 19,5% of total North America • 216,275 arrivals • 3,36% of total Middle East • 33,401 arrivals • 0.5% of total Asia • 117,415 arrivals • 1,8% of total Central & South America • 38,311 arrivals • 0.6% of total Australasia • 85,775 arrivals • 1,3% of total AFRICA • 4,455,971 Arrivals • (4,435,218 mainland) • 69.3% of total • (69% mainland) Other • 3,64% of total Source: SA Tourism - Table A December 2002

  29. In looking for growth opportunities, the eleven largest long-haul leisure markets cannot be ignored These markets are forecast to continue growing and would be key in any portfolio

  30. Different strategies will be required against these different markets DEFEND OWN and GROW Germany Netherlands UK How much easier is it to get yield from this market? Italy France US Australia Sweden INVEST for GROWTH PICK-OFF VALUABLE SEGMENTS Canada China Japan How attractive is this market for SAT’s goals? Territories like Japan are highly attractive, but are very difficult as a result of product barriers, while a market like the Netherlands has much lower attractiveness, though is comparatively much easier to activate Graph showing Potential Marketing Effort against Potential Gain Source: Monitor Analysis and South African Tourism workshop.

  31. The portfolio of countries focuses on identified pockets of value balanced by actionability • Lesotho • Swaziland Niche Opportunities Additional markets where value has been identified • Botswana • Zimbabwe These countries account for 18% of arrivals, but 40% of revenue Kenya Nigeria Egypt Mauritius Tanzania MICE Markets • Mozambique • Namibia • Zambia • Angola • Malawi • Japan • Sweden • China • Australia • Canada • France • Germany • Italy • Netherlands • United Kingdom • United States • Belgium • Switzerland • India Top Eleven Outbound Markets of the World Top 20 Countries Accounting for 90% of Arrivals Watch List These are markets which SAT may investigate further to find value segments • Austria • Argentina • Brazil • Denmark • Finland • Greece • Hong Kong • Indonesia • Norway • New Zealand • Philippines • Poland • Ireland • Israel • Malaysia • Mexico • Portugal • Russia • Saudi Arabia • Singapore • South Korea • Spain • Taiwan • Thailand • UAE

  32. Effective defense (to hold current share) and 2% growth per annum over five years in growth segments changes the mix in the portfolio Comparison of Current SA Portfolio and Predicted Portfolio, 2001-2005 Other Netherlands, France, Zambia, Malawi, Australia, Belgium, Italy, Switzerland, Canada, Angola, India USA Namibia Germany UK Share of Arrivals to SA (%) Mozambique Zimbabwe Botswana Swaziland Lesotho Note: The 2005 portfolio was obtained using the assumptions outlined on the previous slide Source: Statistics South Africa, Foreign Visitor Departure Survey, Monitor Analysis

  33. And changes the results dramatically Tourism to SA is increased in 2002, however a clear targeted strategy needs to be followed to ensure that this is sustainable and not a temporary phenomena Results if we do nothing different (based on growth to the end of 2001) What the strategy can deliver Revenue Growth Revenue Growth Arrivals Growth Arrivals Growth 2002 Arrivals : 5,835,117 Projected 2005 Arrivals : 7,273,900 % Growth % Growth Source: Monitor analysis; Foreign Visitor Departure Surveys, 2000 & 2001

  34. Presentation Structure Strategic Context The Growth Strategy - Summary Major Constraints to Success Recommendations

  35. SA faces some key challenges if it is to realise the growth potential Sustainable strategy depends on four areas. SAT controls only a few of the necessary levers Focus • Choices about which segments to target and serve are required • SA needs to differentiate itself - not be all things to all people Channels • Channel strategies must be based on reaching target consumers and maximising the value captured in SA Access • Choices about which segments to serve must be backed by strategies to ensure adequate and easy access to South Africa Product • Choices about which segments to serve must be supported by appropriate products with sufficient capacity Note: Source:

  36. Marketing alone cannot deliver results - key constraints on delivery need to be removed Maintain our presence in non-core markets • SAT cannot afford representation in all markets which are important, but SA needs to maintain some marketing presence Align tourism product and services • 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 Make it easier to get access to South Africa • In certain key markets - particularly Africa - our immigration and visa procedures represent a major constraint • At certain times of the year, and in certain markets, the availability of airline seats is lower than would support growing demand. This combined with channel economic issues drives up the cost of holidays to SA compared to our competitors. Enable adequate and competitive airlift Note: Source:

  37. Growth from these focus markets depends on increasing airlift capacity Across the core markets, there are a number of challenges regarding airlift Access Vulnerability to Unpredictable Foreign Supply Capacity Constraints Price • Direct access is not available from some of the key markets in the SAT portfolio. • Certain air links to key markets are either fully under the control of, or dominated by, foreign carriers with no commitment to the SA market • Dramatic variations in arrival volumes through the year (high seasonality) has led to airlines restraining growth in capacity in order to manage profitability across the year • On certain key routes, limited demand has led to few or only one operator serving the market. This limited competition has resulted in uncompetitive prices versus our competitor destinations Government faces key choices about creating the conditions which will lead to alignment between tourism strategy and the airlines in meeting these challenges

  38. Access:Future success requires expansion in airlinks between SA and key markets Two of SA’s key source markets for the future currently have no direct airlink whatsoever and a quarter of our future key source markets are currently not served by an SA-flag carrier on a direct service. û û û û û û û û û Note: SAA and Cathay Pacific serve the Hong Kong-Johannesburg route. However, leisure tourism growth in China is coming largely from the mainland

  39. Dependency on Foreign CarriersAirlines serving SA have declined since 1997 Between 1997 and 2001, the number of airlines serving South Africa dropped from 75 to 54 Source: ACSA

  40. Capacity constraintsBi-laterals are an issue only in the minority of cases Breakdown of Weekly Frequencies Available Frequencies Frequencies Used SA Operated Other SA carriers Foreign Operated SAA Frequencies Not Used In overall terms, plenty of spare capacity exists within the bi-lateral air services framework, as well as on average on aircraft International Seat Utilisation into JIA (Aug.2000-Jul.2001) Bi-Lateral Air Services Agreements 98 45 Agreements Active Agreements 374 999 314 625 249 311 62 • Average Seats per Month: 388,000 • Average Passengers per Month: 197,000 • Average Load factor: 50.73%

  41. 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 Monthly German Arrivals (2000) 30,000 SAA Load Factors — European Services 2000/2001 20,000 20,000 Arrivals 10,000 0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Monthly UK Arrivals (2000) 45,000 40,000 35,000 25,500 30,000, Arrivals 25000 20,000 15,000 10,000 5,000 Over 70% load factors between October and March indicate customers are starting to be turned away 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

  42. PriceThe cost of the airfare is often uncompetitive where competition is limited Indexed Cost of Air ticket From Tokyo (Long-Haul Destinations) Indexed Cost of Air Tickets From London (Long-Haul Destinations) Indexed Cost of Air Tickets From New York (Long-Haul Destinations) Indexed Cost of Air Tickets from Frankfurt (Long-Haul Destinations)

  43. Flag Carriers are important to building destinations For the majority of destinations that have emerged in the last ten years, the airline has been a key feature of their success CAGR ‘95-’99 Total International Pax Carried 2000 Total Tourism Arrivals 1995-2000 5.52% Thailand +- 60% +- 35% South Africa 7.37% 26.48% Brazil +- 50% Total Tourism Arrivals (Millions) Australia 5.50% U.A.E. 28.00% Morocco 10.50% Kenya 17.81% Update Millions

  44. Airlines and the success of destinations There have been two routes by which emerging destinations have achieved alignment between their tourism strategies and the flag-bearing airlines Indirect Regulation and Facilitation Direct State Involvement Australia explicitly developed a competitive approach to air services, and privatised Qantas against these objectives through:- • Providing Qantas with a three-year pre-privatisation period where the regulatory environment was liberalised to allow it to “get fit” • Privatisation was used to enable major re-investment and fleet expansion by Qantas with private-sector capital • Created an environment in which Qantas was encouraged to work in close alignment with the tourism industry and the Australian Tourist Commission Thailand’s government built Thai with the explicit mandate:- • To develop and expand company business, as THAI* is a national flag carrier, to become one of the world best airlines • To promote Thailand as a gateway into the Asia-Pacific region • To support Thailand’s tourism industry • To maximise profit in order to raise funds for human resource development and equipment necessary to achieve the above objectives. 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

  45. 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… Qantas ASKs against Arrivals to Australia Thai ASKs against Arrivals to Australia Asks (Millions) Asks (Millions) Arrivals (Millions) Arrivals (Millions) Qantas provides capacity in line with growing demand Thai historically provided capacity ahead of demand growth

  46. 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

  47. South AfricaSAA has not kept pace with growing demand SAA on the other hand, has historically not kept capacity in line with tourism demand, and its most recent capex plans only deal with replacement of old aircraft. International Passenger Demand and Planned SAA Capacity Moving South Africa Findings in 1998 Waiting for updated SAA data - Expected Wednesday- Passengers International arrivals against SAA market share Source: SAA

  48. SAA and SA’s tourism strategyFocusing 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. “Dire straits of airline industry are partly due to an over-reliance on business travel” — Peter Martin, Business Day (January 9, 2002) BUT The focus on business travel is on the smallest section of the outbound travel market Purpose of Travel out of the UK

  49. South AfricaUncompetitive airfares and inadequate capacity — the cost to SA in the US The “Wonderluster” segment in the US is worth between $ 77 million and $ 387 million over the next three years if the cost of the airfare could be dropped from the average $ 1,500.00 to $ 1,000.00 Variation in Segment Value, Activation Rates of 2% (Conservative) and 10% (Optimistic) of Interested Travellers 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 $875 M (276,368) $663 M (186,651) $485 M (167,958) $435 M (157871) $387 M (168,172 visitors) $138 M (73, 843) $175 M (55,274) $133 M (37,330) $97 M (55,274) $77 M (33,634 visitors) $87 M (31,574) $46 M (12,247) $28 M (14,769) $9 M (2449) Source: Monitor Analysis, WTO Data

  50. Stacking SAA financial performance against the revenue earned by SA from passengers delivered by SAA Assuming a conservative 35% overall market-share, the revenue to SA attributable to tourists delivered by SAA is almost R 7.5 billion compared to SAA headline loss in 2001 of R 735 million SAA Financial Performance (‘97-’01) Spend Attributable to South Africa from Air Arrivals (98-00) 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

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