DELTA AND SAA INCREASE SERVICE BETWEEN U.S. AND AFRICA TO

UNCLAS SECTION 01 OF 03 PRETORIA 001134 SENSITIVE BUT UNCLASSIFIED SIPDIS DAKAR FOR FAA REP FAA FOR NANCY ANGELO DEPT FOR EEB/TRA E.O. 12958: N/A TAGS: EAIR ECON EINV ETRD SF SUBJECT: DELTA AND SAA INCREASE SERVICE BETWEEN U.S. AND AFRICA TO TAP GROWING MARKET REF: A. 09 PRETORIA 990 ¶B. 09 PRETORIA 329 ¶C. 09 PRETORIA 473 ¶D. 08 PRETORIA 2754 This cable contains company proprietary information. ¶1. (SBU) Summary. Charge La Lime hosted a lunch for Delta officials on May 14. Delta Southern Africa General Sales Manager Margaret Copeland and outsourced Cargo Manager Anne Sanders discussed Delta's expansion strategy in Africa and provided an update on the impact of the global economic crisis on Delta's passenger volume in South Africa. Increased air service between South Africa and the U.S. has improved bilateral tourism and trade growth. Delta is well-positioned to take advantage of this growing market considering the fact that state-owned carrier South African Airways (SAA),its main competitor, is experiencing severe management and financial difficulties. It will take time and a substantial financial commitment from the incoming leadership at the Department of Public Enterprise (DPE) to deal with past mismanagement and financial constraints at SAA. (See Septel for discussion of cargo volumes and security issues). End Summary. ¶2. (U) Charge La Lime hosted a lunch on May 14 for Delta Southern Africa General Sales Manager Margaret Copeland and outsourced Delta Cargo Manager Ann Sanders. Representatives of the Commercial, Consular, Economic, and Management sections of the mission attended the luncheon. Post provided an update on USG policy and consular administrative changes that would impact Delta's operations in South Africa. -------------- COMPETITION HEATS UP AS CONFIDENCE IN AFRICAN AVIATION MARKET GROWS -------------- ¶3. (SBU) Copeland said Delta's main competitor in the African market is South African Airways (SAA). Copeland explained that Delta first entered the African market when SAA was part of the Sky Team alliance and both airlines shared a code. SAA later ended its relationship with Sky Team and joined the Star Alliance. (Note: SAA had its first U.S. code share with American Airlines when it operated a service from Miami to Cape Town). Delta decided to use the experience it had gained under this code-share agreement to launch its own independent service to South Africa when SAA joined the Star Alliance. Both companies have announced expansion of service between the U.S. and Africa and will continue to develop Dakar, Senegal as a hub for Western Africa. Delta is the only U.S. carrier that operates its own direct flights to Sub-Saharan Africa. ¶4. (U) Tourism growth has declined in Africa as a result of the global economic crisis, but it has not contracted as a number of other major international markets had. For example, the growth in foreign arrivals to South Africa slowed to 5.5 percent in 2008 - down from the double-digit growth of the past few years - but South Africa still welcomed a record 9.6 million tourists. Copeland stated that business class seats on Delta's South Africa routes were currently running at full-capacity. The latest UN statistics project that Africa will experience the highest air traffic growth rate of any region by 2010, with a projected 8.5 percent increase in passenger kilometers travelled. A Delta press release further states that traffic between the U.S. and Africa is projected to grow by more than five percent annually through 2027. Qby more than five percent annually through 2027. ¶5. (U) Copeland said Delta was proceeding with its planned route expansion in Africa. Delta announced Africa-wide expansion plans in November 2008, to take advantage of projected demand growth. It launched non-stop service between New York's JFK International Airport and Lagos, Nigeria in December 2007. Delta planned to launch new flights between Atlanta and Nairobi, Kenya; Monrovia, Liberia; Abuja, Nigeria; Luanda, Angola; and Malabo, Equatorial Guinea (via Cape Verde) in June. However, the Delta flight to Nairobi has been postponed indefinitely to delays in acquiring U.S. Transportation Security Administration approvals, required to operate flights to the U.S. ¶6. (U) Delta also introduced its first daily, non-stop service to South Africa with flights between Atlanta and Johannesburg on June ¶3. Delta has upgraded the aircraft to a Boeing 777 for the new service. Johannesburg passengers flying non-stop to Delta's U.S. hub in Atlanta will save around three hours in travel time in each direction when compared to the previous service, which stopped to refuel in Dakar. Delta has also rerouted its New York-Cape Town PRETORIA 00001134 002 OF 003 flight to become an Atlanta-Cape Town flight. Copeland noted that Atlanta works as a better destination for the U.S. since 80 percent of the inbound passengers required connections further west and the onward connections in Atlanta avoided the lengthy delays experienced at JFK International Airport. -------------- CHANGES EXPECTED AT SAA -------------- ¶7. (SBU) SAA also announced expansion plans last December despite major leadership and financial crises at the state-owned carrier. SAA has one of the highest debt-to-turnover ratios in the world (110 percent) and CEO Khaya Ngqula's contract was terminated in March following charges of mismanagement and corruption (see Reftel B and D for additional information). SAA pursued and managed to acquire fifth-freedom rights in West Africa in an effort to remain competitive in the African market. These rights allowed SAA to launch new services in May. SAA Head of Network Development Jason Krause said SAA was in a strong position to fly passengers originating in North America to West African destinations as a result of these rights. ¶8. (U) SAA also began operating a non-stop service from Washington to Dakar and from New York to Johannesburg on May 1. North American passengers can now fly from Washington to West Africa via Dakar or from New York to West Africa via Johannesburg. SAA also launched a new twice-weekly service to Buenos Aires, Argentina in April to complement its existing daily South American service to Sco Paulo, Brazil. ¶9. (SBU) Post asked Delta officials whether the changes in leadership at the Department of Public Enterprises (DPE) would resolve the leadership and financial problems at SAA. Copeland thought incoming DPE Minister Barbara Hogan was a good choice for the position and expected "Hogan to clean-up SAA's act." Copeland cited the improvements Hogan brought to the Department of Health during her brief stint as its Minister during the interim Mothlante administration. -------------- INCREASED SERVICE LEADS TO TOURISM GROWTH -------------- ¶10. (U) The growth of international service and the entry of new foreign carriers has contributed to an increase in international passenger arrivals in South Africa. South Africa received less than 12 international airlines in 2003. More than 70 international airlines now fly into the country. Recently released Statistics South Africa data reveals that the U.S. displaced Germany as the number two source of overseas tourist arrivals behind the UK in ¶2008. The number of U.S. visitors grew 3.8 percent to 302,090 despite the U.S. economy slipping into recession. The growth of U.S. tourist arrivals is directly related to the increase in direct air service provided by Delta and SAA. ¶11. (U) Demand for additional direct flights to South Africa is expected to increase during the 2010 FIFA World Cup. Copeland warned the Consular section to prepare for a large number of U.S. fans to travel to South Africa for the games. More than 1.5 million applications for tickets to the 2010 FIFA World Cup had been received by March 31 during the first phase of ticket sales. U.S. fans led foreign ticket applications (with over 93,000 tickets purchased),followed by the British, Germans, Italians, and Australians. Copeland said there was a possibility that Delta could QAustralians. Copeland said there was a possibility that Delta could consider increasing service just for the World Cup period, but Delta was worried about the ability of filling those planes with passengers on the outbound trip to the U.S. while the tournament was ongoing. -------------- SOUTH AFRICA TO INCREASE TOURISM MARKETING IN U.S. -------------- ¶12. (U) The South Africa Tourism (SAT) chamber also announced that it would increase its marketing efforts in the U.S. in light of the increase in U.S.-based tourism to South Africa. SAT Acting CEO Didi Moyle said "historically, SAT marketed only to Americans who would spend $5,000 in two to three weeks, but this was a low-volume and ultimately unsustainable market." Recent SAT research revealed that young urban professionals were the most interested in South Africa travel and expressed a preference for $1,999 all-inclusive travel PRETORIA 00001134 003 OF 003 packages. The American Society of Travel Agents also had its annual expo at Sun City in South Africa this year, the first time it had been held in Africa. SAT research estimates the number of Americans who would be interested in visiting South Africa at about 6.3 million. -------------- PROMOTING REVERSE TOURISM AND TRADE -------------- ¶13. (SBU) The Commercial Counselor told Delta officials that he would like to see a reciprocal increase in South African tourism and trade promotion to the U.S. The Commercial Service would like to launch a series of quarterly conference calls with tourism boards in the U.S. and would welcome Delta's participation. He would also like a Delta representative to make a presentation on its Africa route expansion strategy at the 2009 Corporate Council on Africa's (CCA) Business Summit in Washington, D.C. in September. Copeland indicated that Delta had made efforts to promote the U.S. as a tourism destination for South Africans when it first launched its service in South Africa. Delta sponsored U.S. trips for South African tourism journalists, but was disappointed by the way these visits were utilized by the journalists and the lack of media coverage following the trips. -------------- COMMENT -------------- ¶14. (U) Increased air service between South Africa and the U.S. has improved bilateral tourism and trade growth. The number of direct connections between the Western Hemisphere and Africa is still relatively low and there is still potential for increased growth as countries in the region develop their tourism industry. Delta is well-positioned to take advantage of this market growth considering the fact that its main competitor SAA is experiencing severe management and financial difficulties. It will take time and a substantial financial commitment from the incoming leadership at the DPE to deal with past mismanagement and financial constraints at SAA. LA LIME