South Africa - Civil Aerospace: Increasing passenger numbers driving growth (Strategy, Performance and Risk Analysis)
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South Africa’s nominal GDP decreased from US$396.7 billion in 2012 to US$289.2 billion in 2016. This was due to a decline in private investments and consumption, a fall in public investment, and a reduction in exports. However, it will reach US$328.7 billion in 2021. According to the Budget 2017, over the next three years, the government will spend US$37.5 billion on social grants, US$8.8 billion on subsidized public housing, US$10.8 billion to support affordable public transport and US$7.2 billion on water resources and bulk infrastructure. South Africa has modern and well-developed transport infrastructure, the country is home to the continent’s largest air network. The country’s 10 airports handle 98% of its commercial traffic, through 200,000 aircraft arrivals and 10 million passenger departures annually.
Increase in the number of air passengers has led to increases in capital expenditure
As a result of the increasing demand on international routes, the number of air passengers grew at 5.5% from 18.5 million in 2015 to 19.5 million in 2016, and is expected to increase at 2.0% CAGR from 19.5 million in 2017 to 20.6 million in 2021. This increase in the number of air passengers is driving the aircraft capital expenditure as airline operators look to procure more aircraft in order to satisfy increasing passenger demand, and start new services to attract more customers. Aircraft capital expenditure stood at US$440 million in 2016 and is expected to increase at 5.9% CAGR from US$545 million in 2017 to US$685 million in 2021.
Procurement of used aircraft will lead to increases in the active fleet size
In South Africa, the active fleet size increased at 11.1% from 198 in 2015 to 220 in 2016 and it is expected that it will increase at 7.8% CAGR from 237 in 2017 to 320 in 2021. The expected increase in the active fleet size is primarily attributed to the increased procurement and leasing of used aircraft under fleet expansion and modernization initiatives by operators, in order to increase flight frequency on profitable routes and start new services on long haul routes
Operational expenditure will decline while MRO expenses are expected to increase
In South Africa, operational expenditure declined at 19.3% from US$2,772.9 million in 2015 to US$2,237.5 million in 2016 and is expected to continue declining at -6.1% CAGR from US$2,418.1 million in 2017 to US$1,879.6 million in 2021. The decline in the operational expenditure is primarily due to the pay cuts imposed by South African Airlines, the country’s largest airline on its employees. Due to the increase in the number of aircraft in the advanced age groups (more than 20 years), MRO expenditure increased at 6.5% from US$352 million in 2015 to US$375 million in 2016, and this is expected to continue increasing at 0.5% CAGR from US$352.6 million in 2017 to US$360.1 million in 2021.