Operational reviews – Bidvest Travel and Aviation review

Bidvest South Africa Bidvest Travel and Aviation

Allen Kotze: Financial director

From left to right: Garry Marshall – Managing director Bidair Cargo, Irene Butterworth – Financial director Bidair Cargo, Sandra Alfaiate – Financial director Bidair Services, Colin Mitchley – Financial director Bidtravel, Kobus van Niekerk – Managing director Bidair Services, Allen Kotze – Financial director Bidvest Travel & Aviation Services, Mariette Pienaar – Financial manager Bidvest Premier Lounge, Gavin Bell – Managing director Bidvest Premier Lounge, Allan Lunz – Managing director Bidtravel, Paulette McGhee – Managing director Budget Rent a Car, Melanie Hodgson – Financial director Budget Rent a Car

Bidvest Travel and Aviation provides industry-leading travel management services to corporate businesses and leisure travel market, delivers a wide range of services to the aviation industry and offers car and van rental services. Aviation activities include ground-handling, cargo services and airport lounge hospitality at the country’s leading airports. Budget Car and Van Rental operations include chauffeur drive, door-to-door services and coach hire.

The travel business’s brand bouquet includes internationally renowned names such as Carlson Wagonlit Travel, HRG Rennies Travel, BCD Travel and Webjet. Award-winning aviation teams serve some of the world’s leading airlines while maintaining world-class operational standards and service levels. The Bidvest Premier lounge is the only commercial airport lounge brand with truly national representation.

Highlights

	Turnover rose 9,4% to R2,4 billion (2013: R2,2 billion)
	Trading profit rose to R421,4 million (2013: R379,9 million), delivering pleasing double-digit growth off a higher cost base despite challenging trading conditions
	Cash generation rose to R373 million (2013: R349 million), representing 91,57% of operating profit
	All businesses achieved operational efficiencies and continued to implement robust cost-containment programmes
	Funds employed eased higher to R1 589,8 million (2013: R1 475,3 million) while ROFE showed continued improvement at 27,5% (2013: 26,0%)
	Ground-handling operations entrenched their position as industry leaders, achieving top scores in industry audits of service and efficiency
	Bidvest Premier Lounges performed strongly in a largely stagnant market
	Budget achieved average rates growth despite continued discounting across the sector
	Operations optimised the short-term business opportunity presented by an uptick in charter flight and associated cargo volumes – a consequence of the inflow of world leaders and VIPs following the death of former President Nelson Mandela
	Strong focus on transformation ensured all businesses maintained or improved their empowerment status, with Budget Car and Van Rental moving up to level 3
	IATA extended ISAGO accreditation to Cape Town operations and the Johannesburg head office
	A stable industrial relations climate was maintained, with decentralised managers staying close to local issues.

2015 targets, objectives and factors affecting future results

	Our market will remain challenging, necessitating a continued pursuit of efficiencies and savings. Further improvements in ROFE have been targeted
	The launch of the Webjet online travel tools creates an opportunity for growth in the leisure travel sector. Ongoing customisation and enhancements to further improve the user experience is a management priority
	Growth will be sought in the SME sector to complement our established position as a leading provider of travel management services to major corporates
	Our new global contact centre product will be energetically rolled out
	Further efficiencies will be sought in the car and van rental business following changes to the management team in the prior period
	Opportunities for acquisitive growth will be explored by all businesses in the division
	The prospect of taking selected products and services into international markets will be investigated
	The bar has been set higher by more rigorous B-BBEE requirements. Efforts will be stepped up to ensure we maintain our empowerment status
	ISAGO accreditation will be sought at all operations that have yet to be accorded this level of certification.

Material issues and performance

MATERIAL ISSUE		WHY IT IS IMPORTANT AND STRATEGIC OBJECTIVES	KPIs AND TARGETS	PERFORMANCE AGAINST TARGETS AND ACTIONS GOING FORWARD
Performance Maintain consistent financial performance		Why: Sustained profit is essential to support continued investment in systems, thereby ensuring that our businesses continue to operate to world-class standards in an international industry Customer spend has become more cautious Margin pressure Objective: To maintain price-competitive services at a high level of quality	Customer satisfaction ratings Service offering cost benchmarking General financial performance	Actions: Continued investment in efficiencies and new systems Improved customer retention

People Maintain rigorous safety standards		Safety is more than a compliance issue. Workers require a safe working environment to perform at their best. Morale improves when it is evident everything is being done to ensure worker safety, especially as some of our businesses operate in a hazardous environment To improve safety record by enhancing our certified safety procedures and training	Lost-time injury frequency rate Lost-day rate	Injury rates at BidAir Cargo increased to 11,87 (2013: 7,63), BidAir Hospitality decreased to 1,24 (2013: 4,94) and Commuter Handling Services decreased to 2,81 (2013: 5,03) (Injury rate is measured as number of injuries per 200 000 hours worked) The lost-day rate (per 200 000 hours worked) due to injuries dropped from 10 to 9
Promote employee health and satisfaction Enhance talent attraction and retention		People have a right to be healthy and happy. Team spirit and cooperation improve in a happy, healthy and productive environment To improve talent attraction and retention To use innovative approaches to improving the health and wellbeing of all employees	Resignation rates Absentee rates	Various industries are covered within Travel and Aviation therefore each company monitors their staff-number movements according to their industry
Promote skills development		Skills are essential to drive growth and innovation while improving the competitive position of our business	Training spend per employee Training hours per employee	Average annual training spend per employee R4 633 41 hours per person
CSI		Nation building builds pride in the business and our role as a positive contributor	CSI spend	CSI spend decreased to R2,6 million

	New capital expenditure reached R60,3 million (2013: R22,6 million). A focus area was new ground-handling technology to further improve operational efficiency
	We customised the Australian Webjet online travel agency technology to South African market conditions, creating a world-class travel site and online booking tool – enabling the division’s first entry into the leisure travel sector
	Began the development of a new corporate online booking tool – a proactive response to growing demand for a smart solution to deliver travel management efficiencies while allowing the corporate client to retain hands-on responsibility for bookings. The niche product will be targeted at mid-size companies that don’t generate sufficient volumes to warrant a fully-fledged corporate on-site travel management capability, but still require affordable assistance with executive travel arrangements. The design flexibility of the tool does, however, also allow larger corporates to make use of the system should they so prefer
	Refurbished the Bidvest Premier Lounge at Port Elizabeth and extended the George lounge
	Developed the global contact centre concept – a product targeted at corporates with various operations in multiple jurisdictions. This new travel management product creates a single point of contact, enabling cost and time efficiencies within the parameters set down by the corporate client
	The cargo business bedded in its new fully integrated operational and financial platform. The system, which includes internet-based tracking, delivered the anticipated efficiencies
	Restructuring and the appointment of a new management team at Budget Car and Van Rental had the desired effect as significant efficiencies and savings were achieved.

	Roll-out of the Webjet online travel site took longer than anticipated, but time was needed to develop a world-class product capable of leading our strategic entry into leisure travel
	The airline industry remained under pressure. To contain costs, airlines continue to cut routes, reduce flight frequencies and downgrade their aircraft, cutting passenger and cargo volumes. The effect is to limit the growth potential of Bidair Services at a time when investment in training and systems has created an industry leader
	Corporates continued to cut executive travel budgets while leisure travellers also cut back
	Discounting remains a central feature of the vehicle rental industry, despite continued rises in the cost base.

The trend to online convenience in the travel sector picked up pace, entrenching the division’s competitive advantage as a provider of fully integrated solutions

Price sensitivity remained intense in the ground-handling sector. However, a key change became apparent in decision making within the airline industry on the issue of outsourced services versus the traditional in-house approach. By year-end it was apparent that some airlines were ready to make broader use of our range of outsourced services, with focus on passenger handling. Our teams have strongly communicated the message that specialists can not only lift service levels, but do so at very cost-effective rates.

	Limited market size accentuates competitive risk in the ground-handling business. Three major companies compete for a share of the market for airport and airline services in an industry that is relatively small by world standards. Airlines therefore tender aggressively to secure the lowest contract price. The risk is that a race to the bottom will become the norm. The division responds by constant enhancement of its service offering, creating a highly competitive value proposition. The search for innovation and efficiency is constant as new approaches and effective utilisation of assets facilitate cost containment – the key factor in winning airline tenders
	The travel industry is technology driven and technology risk is acknowledged. It is possible that an international breakthrough might at some stage render some established systems obsolete. This risk is mitigated by constant scrutiny of the international technology horizon and the adoption of leading-edge systems customised for the South African market. Risk awareness has contributed to competitive advantage as the division has developed fully integrated systems and is known as a successful innovator
	As a major employer with a high percentage of unionised workers, there is a risk that a breakdown in labour relations may occur at some stage. Mitigation measures include the provision of competitive wage and benefit packages complemented by strong focus on training, people development and workplace health and safety
	In common with many large businesses, the division acknowledges policy risk, specifically black economic empowerment legislation. In effect, acceptable BEE scores have become a licence to operate. The business responds by making ongoing transformation a business imperative. Our CSI efforts have long included an enterprise development component. Bidvest Lounges helped a start-up bakery business develop into a biscuit and confectionary supplier able to serve large retail chains. This grounding in ED will become increasingly important as this aspect of the BEE scorecard becomes critical in 2015.