OUR MATERIALITY CONTEXT
In addition to identifying the top risks we face in the current operating environment, we identify the most significant economic, environmental, social and governance matters that have the potential to impact on our ability to create sustainable value.
Matters that are material to the sustainability of our business relate to our internal and external operating environment, key stakeholder concerns and the risks that may or do impact on our business. Consideration of these matters informs our business model, strategy, capital resource allocation and stakeholder engagement process.
Material matters are identified by drawing information from a range of sources, as indicated in the analysis below.
Material matters analysis
The advent of the COVID-19 pandemic, together with subsequent events like the war in Ukraine, the global cost-ofliving crisis and jet fuel shortages, have radically changed the environment in which we operate as well as stakeholder expectations and perceptions. The following analysis examines matters that are material to the sustainability, success, and growth of our business. In each case, we describe the nature of the matter, our response to it, the impact of our response on our stakeholders, the strategic objectives of that response, the risk areas it relates to and the immediate considerations or outcomes we have to consider as a business.
MATERIAL MATTER: Macroenvironmental Instability
| Description |
The process of globalisation, rapid technological development, the impact of the COVID-19 pandemic, the effects of the war in Ukraine and the global cost-of-living crisis have all resulted in greater socio-economic instability around the world. As societies and economies are now so interconnected and interdependent, no single economy can be said to be insulated from external shocks, over which they may have little or no control. The COVID-19 pandemic, in particular, has had a fundamental impact on the way in which societies are organised and operate. While South Africa as a nation and we as a Group are slowly recovering from this disruptive event, it is difficult to determine how long it will take to regain the ground that has been lost, especially with added complications ate home. This makes accurate predictive modelling difficult and mitigation strategies are therefore provisional by nature. |
| Our response |
Our response to both external and internal shocks during the past three reporting periods has been to adopt a scenario planning approach to strategy and operational planning in order to ensure that we remain flexible and agile as an organisation. We continue to use this approach within the greater framework of our three strategic pillars: run airports, develop airports and grow footprint. |
| Impact on stakeholders |
COVID-19 pandemic-related lockdowns around the world closed off certain markets altogether, influenced passengers’ ability to travel and affected the ability of suppliers and service providers to operate. Locally, this was exacerbated by dips in both investor and consumer confidence following such significant events as the civil unrest of july 2021, the flooding in kwazulu-natal in april 2022 and the implementation of the country’s most severe and persistent period of load-shedding in September 2022. More specifically, the aviation sector was impacted by the reduction in the number of international flights during the height of the COVID-19 pandemic and by the closure of comair and kulula in June 2022, which reduced domestic seating capacity by 40%. We nevertheless managed to gain a firm recovery position during the 2022/23 financial year and continue to focus on sustaining and growing our business, diversifying our revenue streams, delivering innovative digital solutions, engaging all our stakeholders, building our brand, and providing service excellence that reflects international best standards. |
| Strategic objectives |
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| Risk areas |
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Immediate considerations and/or outcomes
Ongoing uncertainty, both locally and internationally, means there is inevitably some level of ambiguity in our predictive models and risk mitigation strategies. We nevertheless continue to manage the business according to the Recover and Sustain Strategy and the revised Financial Plan adopted in 2020, the Growth Strategy approved by the Board in 2021 and by the most recent iteration of our Corporate Plan, which was approved by the Board in February 2023.
MATERIAL MATTER: Transformation
| Description |
Our mandate requires us to make a positive contribution to the socio-economic transformation of South Africa by promoting inclusive growth that boosts the economy, creates jobs, and empowers people. We strive to transform our business, our people, our society, and our environment in order to address inequality, strengthen our democracy and promote sustainable use of environmental resources. |
| Our response |
Internally, we are consistently transforming our organisation through our People and Culture Strategy, our approach to employment equity, our policies and procedures, our management controls, and our educational and skills development programmes. Externally, we focus on forming empowerment partnerships through preferential procurement agreements and enterprise development programmes in seven different sectors. As a State-owned Group, we believe our approach to value creation must be focused on addressing the legacies of the past as well as on current socio-economic imbalances. We also aim to deracialise our organisation and our society to achieve broad-based fairness and equity. In order to advance our transformation agenda, we focus on five priority areas: Strengthening black-owned businesses through our procurement practices; improving market access for new black entrants in the aviation and related sectors; promoting access to funding through strategic partnerships with financial institutions; providing training and upskilling opportunities; and building capacity in the small and medium enterprise sector. We work to achieve this through skills development programmes, enterprise, and supplier development programmes, sustainable socio-economic development programmes and corporate social investment within our business, communities, and the country. |
| Impact on stakeholders |
Our focus on broad-based transformation provides advancement opportunities for our employees in line with legal requirements and our transformation agenda. It also provides access to transformation opportunities for our suppliers, particularly local small, medium, and micro suppliers and service providers as well as blackowned businesses. On a broader basis, we empower communities through our socio-economic development programmes. |
| Strategic objectives |
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| Risk areas |
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Immediate considerations and/or outcomes
Reduced revenue and profits due to the impact of the COVID-19 pandemic and other external events will inevitably result in constraints within the Group and lower contributions to transformation and socio-economic development. As revenue improves, these contributions will also improve.
MATERIAL MATTER: Economic Regulation
| Description |
Our aeronautical income is derived from regulated charges or tariffs. These comprise aircraft landing and parking charges and passenger services charges, which are reviewed in three-year cycles. The Airports Company Act (no. 44 of 1993) provides for an independent statutory body, the regulating committee, to oversee the economic regulation of the group but the unpredictability of decision-making regarding regulated charges impacts on long-term financial and infrastructure planning and decision-making. We have submitted a new permission application for the 2023/24 to 2027/28 financial years. An increase of 17.5% has been applied for in each of the first two years followed by zero increases. There were delays with the submission of the application and, to mitigate this, the regulating committee has granted an interim increase linked to cpi for the 2023/24 financial year. |
| Our response |
We consistently engage with the economic regulator regarding the best regulatory framework within which to facilitate our road to recovery and to create a platform for future growth. We also engage with the department of transport on an ongoing basis. |
| Impact on stakeholders |
A lack of predictability relating to our aeronautical revenue impacts on our ability to plan and invest in the necessary infrastructure to meet future demand. This, in turn, impacts on stakeholders that operate within our aviation ecosystem such as airlines, passengers and tenants, as well as on the broader South African economy. |
| Strategic objectives |
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Immediate considerations and/or outcomes
Constraints on revenue generation resulting from the regulatory model limits growth opportunities and places pressure on the generation of non-aeronautical revenue.
MATERIAL MATTER: Digital Technologies and Cyber Security
| Description |
Rapidly evolving digital technologies enable us to improve our operational efficiencies, levels of innovation, stakeholder satisfaction, and our safety and security. Most of our stakeholders continue to demand innovation and readily embrace new initiatives. While advances in technology and digitalisation represent many opportunities, we are alert to the risks associated with these, especially the risk of cyber attacks, which has increased exponentially since the advent of remote and hybrid working. |
| Our response |
Our digital strategy ensures that we adopt and leverage appropriate digital technology in order to enhance operational efficiencies and the customer experience while simultaneously protecting our systems and information. During the pandemic, several initiatives in the digital strategy were placed on hold because of financial constraints. Key initiatives were nevertheless identified and prioritised and funds were made available for these to ensure that our operations remained safe and efficient. Microsoft has since committed an investment of USD10 million, (approximately R180 million to R200 million) to the ACSA security operations centre (soc), which is to be disbursed over the four years from 2023 to 2027. This is to assist with the process maturing our business as a whole and securing our systems against evolving cyber threats. This investment is being used to:
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| Impact on stakeholders |
Our increased use of digital technology has enabled us to process passengers more safely, efficiently, and conveniently, engage with multiple stakeholders online, and provide a digitally enabled working environment for our employees. It has vastly improved our operational, financial management and communications capabilities. |
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Immediate considerations and/or outcomes
Technological advancement and digitalisation require a high level of capital investment. While some investments have been postponed in the short-term in order to secure liquidity, higher cost implications will begin to become evident in the medium- to long-term.
MATERIAL MATTER: Digital Technologies and Cyber Security
| Description |
Growth in the domestic, regional, and international environments remains a key focus of our strategy. While our short-term focus is on securing our post-COVID-19 pandemic recovery and navigating current challenges, our medium- to long-term focus is on rebuilding and extending our network, especially in the wake of so many routes having been suspended during the COVID-19 pandemic. In order to secure and develop our footprint, we will continue to actively seek opportunities that provide alternative sources of revenue and improve our long-term sustainability in South Africa, africa and around the world. Among other measures, we will respond to the opportunities presented by the African Continental Free Trade Agreement (AFCFTA), support tourism growth both locally and internationally, and increase our infrastructural capacity to support the import and export of cargo. We will continue to improve the overall passenger experience, develop digital innovations, and diversify our business. The implementation of our aerotropolis strategy will present opportunities for smart technology-based developments around O.R. Tambo, King Shaka and Cape Town International. The development of these facilities, supported by a focus on business intelligence, digitalisation, technical advisory and consultancy service capability will enable us to grow our footprint significantly. |
| Our response |
To support our Recover and Sustain Strategy and our Growth Strategy, an enhanced operating model backed by a fit-for-growth Capability Model has been developed and is being implemented. |
| Impact on stakeholders |
The diversification of our revenue streams is reducing our dependence on aeronautical revenue and our debt-to-finance ratios. The recovery and growth of our business is creating employment opportunities and stimulating economic activity both within and beyond our operations. |
| Strategic objectives |
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| Risk areas |
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Immediate considerations and/or outcomes
Technological advancement and digitalisation require a high level of capital investment. While some investments have been postponed in the short-term in order to secure liquidity, higher cost implications will begin to become evident in the medium- to long-term.
MATERIAL MATTER: Growth in the Domestic, Regional and International Environments
| Description |
Growth in the domestic, regional, and international environments remains a key focus of our strategy. While our short-term focus is on securing our post-COVID-19 pandemic recovery and navigating current challenges, our medium- to long-term focus is on rebuilding and extending our network, especially in the wake of so many routes having been suspended during the COVID-19 pandemic. In order to secure and develop our footprint, we will continue to actively seek opportunities that provide alternative sources of revenue and improve our long-term sustainability in South Africa, africa and around the world. Among other measures, we will respond to the opportunities presented by the African Continental Free Trade Agreement (AFCFTA), support tourism growth both locally and internationally, and increase our infrastructural capacity to support the import and export of cargo. We will continue to improve the overall passenger experience, develop digital innovations, and diversify our business. The implementation of our aerotropolis strategy will present opportunities for smart technology-based developments around O.R. Tambo, King Shaka and Cape Town International. The development of these facilities, supported by a focus on business intelligence, digitalisation, technical advisory and consultancy service capability will enable us to grow our footprint significantly. |
| Our response |
To support our Recover and Sustain Strategy and our Growth Strategy, an enhanced operating model backed by a fit-for-growth Capability Model has been developed and is being implemented. |
| Impact on stakeholders |
The diversification of our revenue streams is reducing our dependence on aeronautical revenue and our debt-to-finance ratios. The recovery and growth of our business is creating employment opportunities and stimulating economic activity both within and beyond our operations. |
| Strategic objectives |
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| Risk areas |
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Immediate considerations and/or outcomes
By diversifying our revenue sources, we are reducing our dependence on aeronautical revenue and creating a more robust and sustainable business.
MATERIAL MATTER: Safety and Security
| Description |
We constantly review our safety and security model and benchmark it against international best practices. We continuously engage with our law enforcement partners and invest in security enhancements, including integrated communications systems. Prevention and threat response procedures are in place to deal with crises should they arise and to ensure both personal safety and continuity of operations. This integrated safety and security approach throughout our environment is essential to provide airport security and aviation security in general. |
| Our response |
We continue to engage with various stakeholders, including the South African Civil Aviation Authority (SACAA) and our law enforcement partners, and to invest in security advancements to mitigate safety and security risks. Preventative and threat response procedures are in place at all our airports to deal with crises should they arise and to ensure personal safety and the continuity of operations. |
| Impact on stakeholders |
Our airports continue to remain free of major safety incidents or security breaches. |
| Strategic objectives |
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| Risk areas |
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Immediate considerations and/or outcomes
Increased safety and security measures come at a financial cost but also improve efficiency and have a positive influence on the overall passenger experience. It is therefore necessary to balance the need for best-practice levels of safety and security against the financial cost of implementing these measures.
MATERIAL MATTER: Funding
| Description |
Negative perceptions of South Africa’s economic prospects and of poor financial management in the public sector continue to be a significant issue. Together with current constraints on our core revenue, our ability to access affordable funding may be affected by this and it may become a significant material threat to the long-term financial sustainability of our business. |
| Our response |
Throughout the past three periods, we have been able to secure affordable funding, most notably by taking a loan from the Development Bank of Southern Africa (DBSA) and by issuing preferential shares. We sold our stake in Mumbai International Airport Private Limited in FY2021/22. During FY2022/23, the group maintained a positive cash position and new debt funding will not be required during the current period. |
| Impact on stakeholders |
The quality of the services we provide could be affected by ageing infrastructure and/or a lack of capacity. This, in turn, would impact negatively on our business and financial sustainability, |
| Strategic objectives |
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| Risk areas |
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Immediate considerations and/or outcomes
Our ability to access affordable funding influences our ability to maintain our existing assets and embark on major infrastructure projects and programmes. Limited capacity to secure funding would affect our ability to implement our strategic objectives, earn revenue and remain financially sustainable. Conversely, the cost of funding means that we need to be selective about the projects we undertake.
MATERIAL MATTER: Funding
| Description |
Our employees are an essential component to our value-creation process as they have the skills needed in all aspects of our business. In order to manage our skills mix effectively, we attract, retain, and appropriately develop employees with critical skills, which supports our long-term sustainability. The COVID-19 pandemic did, however, impact on our ability to retain, develop and acquire skills and the effect of this is still being felt. |
| Our response |
The human resources cost-reduction programme we had to undertake in FY2020/21 and FY2021/22 resulted in many experienced employees leaving the group and required both a freeze on recruitment and a reduction in training and development spend. Although these changes impacted on the organisation, our hr optimisation procedures mitigated their effect and enabled us to ensure business continuity. For example, they gave us the flexibility to deploy resources to areas of the business in which there were serious constraints and to insource certain activities that had previously been outsourced. This process presented us with the opportunity to re-evaluate the skills needed to ensure long-term sustainability in line with our Recover and Sustain Strategy, operating model and governance framework. Our people and culture strategy has provided a strong framework that has enabled us to retain institutional knowledge, develop skills where necessary and attract key employees as our recovery gains momentum. We continue to support our employees through a competitive remuneration mix. Additional benefits such as our housing and transport schemes and our bursary initiatives have, however, undergone several changes to ensure the long-term sustainability of the programmes. Externally, we have continued our support of skills development initiatives through our enterprise development programmes. While these programmes have also been affected by financial constraints brought on by the COVID-19 pandemic, we remain committed to contributing to job creation, in particular for the youth and within areas where there is a skills scarcity. |
| Impact on stakeholders |
Through active consultation with our staff and other stakeholders, we were able to implement our human resources cost-reduction programme ethically and effectively, with many employees opting to take voluntary retrenchment packages. Our remaining employees did, however, experience increased work pressure in the wake of this and we are now working to normalise this situation. |
| Strategic objectives |
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| Risk areas |
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Immediate considerations and/or outcomes
While our negative impact on the environment was significantly reduced during the past three periods, we recognise that it is now increasing again as operations recover. We therefore continue to strengthen our strategies, systems, and procedures to mitigate this impact, which we are doing in partnership with various stakeholders.
MATERIAL MATTER: Natural Environment
| Description |
We consistently strive to reduce the impact our operations have on the environment through the effective management of aircraft noise, air pollution, bird and wildlife strikes, land, water, electricity, fuel, and waste but our environmental impact is nevertheless linked to operational intensity. In times of growth, our impact increases and in times of reduced operations – such as in the past three reporting periods – our impact decreases. |
| Our response |
We are proactive in the management of our impact through our environmental management system, which is ISO 14001 accredited. We also participate in the ACI’s Airport Carbon Accreditation Programme to ensure that we manage our carbon emissions optimally and are aiming to reach net zero emissions by 2050. In addition, we generate our own power at four of our airports, which have fully operational solar farms. A fifth is currently in development. Finally, we are investing in research to explore long-term green energy and even green fuel options. We aim to be carbon neutral by 2050. Despite the financial constraints resulting from the COVID-19 pandemic, we have remained compliant with all legislative and regulatory requirements and continue to implement measures to manage our impact on the environment. |
| Impact on stakeholders |
ACSA’s environmental impact was significantly reduced during the pandemic due to reduced operations, but this is naturally increasing as operational levels recover. |
| Strategic objectives |
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| Risk areas |
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Immediate considerations and/or outcomes
While our negative impact on the environment was significantly reduced during the past three periods, we recognise that it is now increasing again as operations recover. We therefore continue to strengthen our strategies, systems, and procedures to mitigate this impact, which we are doing in partnership with various stakeholders.
