#202 A conversation about the long-distance passenger market in SA

BEHIND THE SCENES: Behind every article published, a lot of developments take place. Discussions, calls and conversations go back and forth. In the case of AutoPax, usually reporters can not cover all the discussions they have with the people they interview in detail. So to at least give you a picture of what the whole discussion involved, I’ve decided to publish the correspondence. Perhaps this may provide deeper insight to the readers who are interested in the topic. An excellent opportunity to reflect. Read Tshegofatso’s full article on Mail & Guardian.

Tshegofatso Mathe (TM) Can you detail how big Autopax’s financial losses are. And please explain what got the company here? 
Ofentse Mokwena (OM) Autopax’s financial losses for the 2019 financial year have increased from R 345 million in 2018, to R 442 million. This follows severe declines in fare and luggage revenue as passenger volumes decline from 2.5 million to 1.8 million between 2016 and 2018. Meanwhile, the Land Transport Survey from StatsSA reveals that income from the road passenger market is growing faster than the passenger journeys in the market, However for Autopax, loss in market share has diminished their potential to lean into these developments. 

Did they make any bad acquisition deals that contributed to the problem? 
Let me put it this way: two allocations are made to them from the Estimates of National Expenditure. First are operational allocations which are set to grow from R448m in 2015/16 to R1.2bn by 2021/22, with fewer passengers this implies higher subsidies per passenger trip— which might distort the competitive market if they are not reinforced by service improvements. The second allocation is capital based. Fleet renewal is the focus of this allocation, which has gone from R217m to R191m, for the same period— but fleet renewal did not take place as anticipated. The ageing fleet is in need of refurbishment, meanwhile the current fleet may not be competitive enough to attract the customer base and service offering in a competitive market. 

Can a person look into Autopax’s financial problems without scrutinizing their parent company Prasa? Or is its financial problems solely its own.
Between 2014 and 2018, Autopax accounted for 25% of PRASA’s revenue, while only transporting less than 1% of the total passengers transported by PRASA per year. Organisationally, the 2019/20 Corporate plan from PRASA places emphasis of ‘divisional alignment’, a lack thereof has impeded the potential scale effects underlying PRASA’s institutional mandate. It is difficult to tell when comprehensive divisional reports are not part of their annual report; and the Auditor General’s reports highlight uncompetitive processes across the Agency’s functions. However, I can deduce that the consistent instability at a strategic level poses as much risk as the instability found in other SOEs. How can an SOE escape a perpetual planning loop when every other year a their strategic mandate is interpreted by a board, or executives who have not built sufficient institutional memory in those positions? (Remember the stolen fleet in 2010, irregular appointment of an executive, and security service contract in the Public Protector’s derailed report?)

Can we attribute their problems to mismanagement and bad leadership? Or is it the economic conditions the country is in? 
The economic conditions in our country are quite conducive for long-distance passenger transport services. It is a rapidly growing market, but the service offering of City to City and particularly Translux are not consistent with the market segments they are attempting to serve. Compared to other operators, Eldo Coaches, and African People Mover are penetrating the City to City segment; while Translux was inherently designed to compete with Intercape integrated value chain and Greyhound’s renewed fleet— but this comes at a cost. 

Should a government entity be operating in this market? 
If it serves to fill a failing market, then government should intervene through providing an affordable long-distance service with a higher value proposition than the price point. However, at this rate, with a possible increase in subsidies per passenger and the cost of capital renewal and organisational reform there is a possibility that Autopax could distort some market segments— especially where there is preferential treatment. It is an important service for PRASA’s service offering for a complete trip, but the complementarity between rail and road services remains unclear. The secondary reason for a government entity to operate in this market is to scope’ the market for regulatory purposes— but to my knowledge this is not currently happening. 

As compared to other companies, how big was Autopax? What is their market capitalization. Who is the biggest company in this industry?
The 300 million passenger per year formal road passenger transport market is under researched, largely due to the intensity of competition and the significant value propositions each operator attempts to offer their market segments. For the 2017 year, Greyhound for instance is part of the KAP (*industrial holdings limited) transport and logistics group; Intercape is expanding its offering toward long-distance logistics services; and new entrants are capable of competing with dominant operators in the smaller segments. Eldo Coaches and African People Mover are two of the new entrants that are the ‘low-cost-carriers’ of the long distance market. 

Besides Autopax, can you detail what are the challenges the industry faces and how they can be solved?
At the heart of the long-distance market is the relationship between the terminals and the operations, the service offering is not significantly regulated. Which may be a good thing, but what are our national objectives for the long-distance passenger economy? Consider that there is only one long-distance commuter train, Shosholoza-Meyl, which is a heavily subsidised service. The market is also faced with airlines, mini and midi-bus taxis which all serve the long-distance economy in a free market. There is no clear indication that we have a national strategy to coordinate and envision the potentialities of this important industry. Even with the JDA’s investment into a larger terminal, no alarm bells ring to have an integrated regional and national long-distance transport strategy. 

How has the industry changed over the years? How competitive is the industry?
I think these two are answered. 

The email correspondence took place on the 2nd February 2020. Only where * is indicated were there changes made from the email. Thank you for reading this note, especially under the complex market circumstances.

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