The Airports Company South Africa has been labelled the jewel in the crown of state-owned enterprises, because the company is so profitable. So why is it then passing on cost increases to passengers at airports? It’s related to the massive infrastructure spend, says the FD.

Bruce Whitfield:
For every R2.20 in revenues Acsa would have banked nearly R1 in profit. It is a margin of close to 50 percent so certainly supremely profitable and that is why Jeff Radebe, the minister in charge likes it so much and Brookes Mparutsa is the financial director. Jeff Radebe once said that Acsa was the jewel in the state-owned enterprises crown, didn't he?

Brookes Mparutsa:
Yes that is true Bruce, he certainly did.

Bruce Whitfield:
Tell us about Acsa now. The way in which you are passing on the increases, inflationary increases, sure they are reasonable, in some cases though the increases that you are proposing in what you call passenger service charges are triple in some cases. I mean for domestic flights they go up from R12.27 to R38.59 a ticket.

Brookes Mparutsa:
Bruce maybe to start off, the R12 is certainly not correct. Our current charges are R30 and they increase from R30 to about R38 but I think one has also got to take into context our regulatory environment and it is important to note that we have just gone through an entire review of our financial forecasts as well as our investment forecasts and that this is what has resulted in a 9.8 percent tariff increase.

So the tariff increase that we will receive for the 2008 financial year is actually 9.8 percent increase and that is off a capital expenditure program of close to R20-billion.

Bruce Whitfield:
I assume the regulator has approved these increases.

Brookes Mparutsa:
Yes he has approved the 9.8 percent increase.

Bruce Whitfield:
Again, now government bolts at paying civil servants more than 7.5 percent yet a company which is owned by government is able to pass on these increases of nearly 10 percent.

Brookes Mparutsa:
I think Bruce what is important is to identify what is driving the need for the 9.8 percent tariff increase. If you recall over the last five-year period that we forecast, we were only forecasting R5.2-billion in infrastructure and now it is almost four times that amount and that is largely as a result of the demand for infrastructure at our airports and this is the demand from the travelling public and part of our mandate is to actually meet that demand.

So we consult with the airlines over the five-year period and beyond to say you know what is going to be the demand for air travel and basically our investment programme seeks to match that demand. So that is what is driving the tariff increase.

Bruce Whitfield:
You said planned spend of R5.2-billion and now it has gone up to R20-billion because of customer demand. I mean what sort of customer demand is there? Are we building a Rolls-Royce airport for perhaps a Toyota Corolla airport going public?

Brookes Mparutsa:
Certainly not Bruce we are not building a Rolls-Royce. I think if you look at our traffic patterns in the past we have for example in this last financial year we achieved a 12 percent increase in domestic traffic. After consultation with the airlines we certainly under forecast that demand and we have reforecast and based on that we have to bring forward certain capital expenditure projects and that is what has increased the price.

Over and above that I think all South Africans are aware of the inflation in the construction industry particularly at this time as we lead up to 2010. So it is not only the demand for the capacity but the increased pricing. You know we cannot benchmark steel price increases by inflation over the last couple of years and neither can we forecast it in the next couple of years to increase by inflation.

Bruce Whitfield:
But Brookes, already the Airports Company South Africa is supremely profitable. There are very few businesses anywhere in South Africa that are as profitable as the Airports Company South Africa, you do have a monopoly, consumers have got no choice but to use your services.

Surely you will make up for some of that in volumes; you say 12 percent passenger increase in volumes. Shouldn't you be going to the debt market and raising that debt and paying it off over the next five or 10 years like any other business might have to do if it was in your position?

Brookes Mparutsa:
You asked a number of questions there Bruce. First of all most airports around the world, big airports, are monopolies and that is why we have regulators. Even if you look at privatised airports such as British Airport Authority which operates Heathrow it is a monopoly in that environment and that is why it has got a regulator.

Bruce Whitfield:
Do they pass on 10 percent increases though onto the travelling public?

Brookes Mparutsa:
Certainly they do. With the construction of the new terminal, Terminal 5, in the UK certainly the increase in tariffs has been a multiple of their inflation rate and we have seen the same in Paris which was privatised and listed last year over and above that I think you will note that Acsa has registered a R12-billion domestic note program basically to March 2010.

So we are going to use a mixture of funding and we are certainly going to be increasing the debt on our balance sheet significantly over the next couple of years.

Bruce Whitfield:
Brookes Mparutsa thanks very much indeed, financial director at Acsa, nice good clear answers there.