Chapters of the Global Competitiveness Study

Department of Environmental Affairs And Tourism and the DTI

Global Competitiveness Study - Integrated Presentation - June 2004

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Copyright © 2004 by Monitor Company Group, L.P. & South African Tourism No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording, or otherwise — without the permission of Monitor Company Group, L.P. This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.

COMPANY CONFIDENTIAL Work in Progress

Objectives for Today

Provide a summary of what the key issues are within the tourism industry Run through selected findings – Data intensive session – 200 slides over 4 hours

As a consequence of the time constraints please note and hold questions until the end of each section

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 2 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress In Phase 1, the dynamics of the value system are illustrated in this presentation by way of five “themes” or chapters

The configuration and functioning of the value system

HOLISTICHOLISTIC UNDERSTANDINGUNDERSTANDING OFOF Drivers and barriers of growth in THETHE TOURISMTOURISM VALUEVALUE SYSTEMSYSTEM tourism in SA

Product positioning, configuration and development

MAPPINGMAPPING ANDAND DESCRIPTIONDESCRIPTION OFOF Transformation of the SA tourism THETHE COMPETITIVECOMPETITIVE DYNAMICSDYNAMICS OFOF industry KEYKEY ELEMENTSELEMENTS

Investment and implications for future investment

IDENTIFICATIONIDENTIFICATION OFOF KEYKEY FOCUSFOCUS AREASAREAS FORFOR INTERVENTIONINTERVENTION DURINGDURING PHASEPHASE IIII

Each “theme” or chapter has specific sub-elements

External benchmark Benchmarking performance The configuration and functioning Internal benchmark Mapping the cluster of the value system The Channel Consumer to market

Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Innovation & Competition Skills and service levels Product positioning, configuration Product Development and development International desire, usage and satisfaction profiles Configuration - key markets Domestic usage and satisfaction profiles Transformation of the SA tourism Key metrics industry Drivers and barriers

Investment and implications for Current investment status future investment Investment Issues

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 4 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress EXECUTIVE SUMMARY Insights from the Global Competitiveness Study

Although numbers of tourist arrivals to SA have grown, from a brand awareness perspective SA still plays in a very narrow part of the market (very much focused around the wildlife experience) For those tourists who overcome specific informational and emotional barriers to come to SA, we do manage to satisfy their needs – The vast majority indicate that they will definitely return to SA, and recommend SA to their friends ‘Word of mouth’ is a critical source of information for most tourists visiting SA – and recommendations from SA citizens forms a critical part of this – This reinforces the need for the domestic market to have a wide experience of Access to and knowledge of market Access to and knowledge of market the SA tourism product (which is currently lacking)

The SA tourism industry is characterised by rapid growth (specifically in sub- sectors such as tour operators and accommodation) There is still a relatively high degree of fragmentation as evidenced by moderate to weak linkages between industry players – There is an urgent need for creation, brokering and dissemination of both operational and marketing data at local industry cluster levels The industry is perceived to be highly internally competitive, with most players indicating that they have recently been forced to fundamentally review the way Configuration of the industry Configuration of the industry they do business

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 5 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress EXECUTIVE SUMMARY Insights from the Global Competitiveness Study (cont.)

There is generally sufficient capacity in key sub-sectors such as accommodation, car hire, airlift and tour operators – Seasonality remains a challenge to the capacity resolution of airlift from a few key source markets – Non-hotel accommodation has seen very rapid growth with indications of over capacity in game lodges and perhaps also B&B’s Product owners generally, but small players specifically, struggle with the marketing challenge – Despite this, product positioning is increasingly geared to the international market at the expense Capacity & capability Capacity Capacity & capability Capacity of product development for the domestic market

On the whole product innovation is moderate, with most product development taking place around the natural resource base Some of the key product gaps identified: the cultural product (in its various incarnations); family product for both domestic and international travelers; affordable ‘attractions’ for the domestic market Product Product and world class beach products configuration configuration – However, consumers are generally satisfied with products and activities

Very weak linkages with training institutions are symptomatic of what the industry perceives as a real challenge to obtain skilled employees (at all levels) HIV is having and will have a major impact on the tourism workforce Transformation remains a major challenge – SMMEs have been able to enter in good numbers into the ITO market, where there are low barriers to entry (e.g. small tour operators / ground handlers), but they face significant structural barriers to sustained growth HR & Transformation HR &

HR & Transformation HR & – SMME product owners face sizable challenges accessing the channel due the structural and pricing characteristics of the channel Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 6 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Agenda

Introduction and Summary of Major Findings

Diagnostic Findings of Phase I

Understanding our current performance in an international context

External benchmark Benchmarking performance Internal benchmark The configuration and functioning Mapping the cluster of the value system The channel functioning Consumer to market

Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Investment and implications for Current investment status future investment Investment Issues

Executive Summary – Economic Benefits

TOURISM PERFORMANCE PARAMETERS ECONOMIC BENEFITS

MACRO DRIVERS OF PERFORMANCE

South Africa has shown good growth in tourism receipts from international visitors, but should still look for substantial upside when receipts are compared to key competitors such as Australia, Thailand and Brazil

The employment figures suggest that overall, the South African tourism industry has been one of the better performers in creating employment – The principle source for these numbers is WTTC. However, the South African numbers have recently been endorsed by a study of the Human Sciences Research Council – Although the order of magnitude of growth is uncertain, the upward trend seems certain

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 9 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The total number of people employed in tourism in Australia WTTC and the US has remained constant Data However, South Africa is employing more people in tourism and tourism-related sectors

Australia United States 2,000 20,000 **CAGR: **CAGR: 16,761 16,975 16,879 16,816 16,425 1998-2002 1998-2002 1,500 15,000 (0.6%) (0.5%) 1,173 1,170 1,170 1,203 1,200 10,174 10,316 10,179 10,174 2 9,922 1,000 Indirect 10,000 671 662 649 681 694 Indirect

500 5,000 1 6,587 6,659 6,700 6,642 502 508 521 522 506 Direct 6,503 Direct Number employed (000) employed Number (000) employed Number 0 0 1998 1999 2000 2001 2002* 1998 1999 2000 2001 2002* South Africa 1,500 **CAGR: 1,200 1,158 1,172 1998-2002 1,079 1,061 1,105 (2.1%) 900 642 651 590 578 605 Indirect 600

300 489 483 500 516 521 Direct Number employed (000) employed Number 0 1998 1999 2000 2001 2002* *Estimate for 2002 **CAGR calculated on total number 1 T&T industry employment (direct) generally includes those jobs with face-to-face contact with visitors (airlines, hotels etc). 2 T&T Economy (direct and indirect) includes the T&T industry plus those faceless jobs associated with industry suppliers, government agencies, manufacturing and construction of capital goods and exported goods used in T&T and supplied commodities. Note: Number reported by SAT in 2002 Annual Report - 492,654 (Tourism Industry Employment) Source: WTTC (The 2003 T&T Economic Research) Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 10 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Thailand and Brazil have cut jobs in the tourism sector WTTC over the last few years Data However, Kenya exhibits an opposite trend with increasing employment numbers in the tourism sector – this seems anomalous given current socio-political events in Kenya Brazil Thailand 4,000 6,000 5,581 **CAGR: **CAGR: 5,210 5,270 5,308 5,162 3,228 3,155 3,159 1998-2002 3,036 1998-2002 3,000 2,887 (-0.2%) (-2.8%) 4,000 2,820 2,830 3,102 3,018 1,694 1,627 1,597 2,977 1,555 1,504 2,000 Indirect Indirect

2,000 1,000 2,390 2,440 2,479 1,534 1,528 1,562 1,481 2,290 2,185 Direct 1,383 Direct Number employed (000) employed Number Number employed (000) employed Number 0 0 1998 1999 2000 2001 2002* 1998 1999 2000 2001 2002* Kenya South Africa 1,500 **CAGR: **CAGR: 561 573 1998-2002 1,158 1,172 1998-2002 600 544 549 1,200 1,079 1,061 1,105 479 (3.5%) (2.1%) 900 642 651 400 320 338 331 337 Indirect 590 578 605 283 Indirect 600 200 300 196 241 235 213 212 Direct 489 483 500 516 521 Direct Number employed (000) employed Number

Number employed (000) (000) employed Number 0 0 1998 1999 2000 2001 2002* 1998 1999 2000 2001 2002* *Estimate for 2002 **CAGR calculated on total number 1 T&T industry employment (direct) generally includes those jobs with face-to-face contact with visitors (airlines, hotels etc). 2 T&T Economy (direct and indirect) includes the T&T industry plus those faceless jobs associated with industry suppliers, government agencies, manufacturing and construction of capital goods and exported goods used in T&T and supplied commodities. Note: Number reported by SAT in 2002 Annual Report - 492,654 (Tourism Industry Employment) Source: WTTC (The 2003 T&T Economic Research) Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 11 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Thailand has a heavy reliance on leisure travelers who make up almost 90% of all arrivals

Total Tourists by Type of Travel (Data for most recent year available) 100% 3.1% 7.6% 11.3% 12.3% 10.7% 18.2% Other 14.8% 80% 8.6% 35.1% 35.0% 19.1% 60% Business

14.5% 88.7% 40% 73.2% VFR

54.8% 52.6% 20% 39.8% Leisure

0% Thailand (2002) Kenya Australia (2002) Brazil (2001) S. Africa (2002) (2002)

For South Africa, the spread of tourists across different traveler categories creates varied opportunities for SAT to continue to grow arrivals Note: Other includes MICE travelers and travelers on ‘stop-overs’ in that country Source: BTR, Tourism Authority of Thailand, Embassy of Brazil- London, ITA Office of Travel and Tourism Industries, SAT Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 12 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Executive Summary – Macro drivers of performance

TOURISM PERFORMANCE PARAMETERS ECONOMIC BENEFITS

MACRO DRIVERS OF PERFORMANCE

The low SA ratio of direct employees to international visitors suggest that we may be under investing in human capital

Australia is not playing the ‘low price game’ and is able to extract more value per employee from total expenditure

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 13 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress South Africa has many more arrivals per tourism employee than

any of its competitors WTTC Data

Number of Foreign Arrivals per Direct Tourism Employee1 , 1998-2002 14

Australia 12

Brazil 10

8 Kenya

6 SA

4 Thailand

2 US

Number of Arrivals per Direct Tourism Employee 0 1998 1999 2000 2001 2002

The ratio for the well established tourism destinations of Australia, Thailand and the US may suggest the optimal ratio for serving visitors. Is SA trading off ‘effectiveness’ for ‘efficiency’?

1 Only employees directly employed in the tourism sector were used to do this calculation Source: WTTC (The 2003 T&T Economic Research) , BTR, ITA Office of Travel and Tourism Industries, Tourism Authority of Thailand, Embassy of Brazil in London, SAT Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 14 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Australia is successfully increasing its value capture in terms of

tourism receipts per employee over time WTTC Data Average Tourist Total Foreign Direct Spend in Country per Employee, 1998 – 2002 CAGR Receipts US$ 20,000

Australia 4.7% (99-02) 12,232 (02)

16,000 Thailand 7.5% (99-02) 5,448(02)

12,000 Brazil 4.5% (98-02) 1,419(02)

-17.4% Kenya 1,261(99) 8,000 (98-99 Y-O-Y)

US -1.4% (98-02) 10,233(02) 4,000

Total Direct Spend in Country per Employee (US$) South Africa 8.2% (98-02) 7,664(02)

0 1998 1999 2000 2001 2002

South Africa’s value extraction is reasonable, but the larger questions are how to grow employment (to Australian levels per tourist) and increase value capture

Source: BTR, Tourism Authority of Thailand, Embassy of Brazil in London, ITA Office of Travel and Tourism Industries Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 15 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress When benchmarked, South Africa compares favourably on most tourism performance parameters compared to competitive destinations

SUMMARY:

Number of international visitors to South Africa remain at a healthy trend (in context of negative growth figures in 2003 for important competitors)

The employment figures suggest that overall, the South African tourism industry has been one of the better performers in creating employment – WTTC numbers have recently been endorsed by a study of the HSRC – Although the order of magnitude of growth is uncertain, the upward trend seems more certain

But the low rate of direct employees to international visitors suggest that we may be under investing in human capital

Comparison with Australia reveals that they are more effective in capturing value from fewer number tourists, creating more jobs per tourist while not losing the value created per employee

Understanding our current performance in an international context

External benchmark Benchmarking performance Internal benchmark The configuration and functioning Mapping the cluster of the value system The channel functioning Consumer to market

Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Investment and implications for Current investment status future investment Investment Issues

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 17 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The tourism sector ranks second behind only the chemicals sector on a GDP contribution per employee measure These figures suggest that on a relative basis the tourism industry uses its resources productively. GDP Contribution per Employee, 2002

148,101 150,000 138,805

128,244 119,824 120,000

100,898

90,000 Amount in 79,998 Rands

60,000

30,000 20,981

0 Chemicals Tourism Automotives Metals Machinery Agro-processing Clothing Sector

Source: DTI; Quantec, 2004, SAT; Monitor Analysis Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 18 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The tourism sector is the only sector showing positive growth in employment1 and GDP

Growth in Employment vs. Growth in GDP Contribution (1998-2002) Positive 2% growth Tourism

Clothing 1%

0% Employment Automotives Machinery (CAGR:98-02) Chemicals -1%

Agro Processing

-2%

Metals Negative growth -3% -2%0%2%4%6%8%10% Contribution to GDP (CAGR: 98-02) Negative Positive growth growth Note: 1 Direct employment CAGR applied to each sector for period 1998-2002 Source: DTI; Quantec, 2004; SAT; Monitor Analysis Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 19 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Tourism has made a substantial contribution both as an employer1 and as a contributor to GDP over the period 1998 to 2002 The general trend in other sectors has been that employment has been decreasing while the contribution to GDP has been growing

Employment vs. GDP Contribution2 (1998 vs. 2002) 600,000

500,000 Tourism

Agro- 400,000 Processing

300,000

200,000 Number of Employees Clothing Metals 100,000 Chemicals Automotives 1998 Machinery 2002 0 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

Contribution to GDP (Rm) Note: 1 This data is for direct employment only 2 For tourism this figure includes direct spend by foreign tourists plus the domestic spend on tourism minus the spend by South Africans on overseas trips (exports + consumption – imports) Source: DTI; Quantec, 2004; SAT; Monitor Analysis Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 20 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Describing the current status of the South African tourism industry: Mapping the Cluster

External benchmark Benchmarking performance The configuration and functioning Internal benchmark Mapping the cluster of the value system The Channel Consumer to market

Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Accommodation

Car Rental

Investment and implications for Current investment status future investment Investment Issues

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 21 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The tourism industry cluster consists of a complex interaction of a large number of players, with a few large players and numerous SMMEs

Government Policy National (SAT, DEAT, DTI & Others) Promotion Regional (Regional Tourism Authorities & Provincial Government) Local (Local Tourism Authorities & Local Government

Attractions Beaches (73) Game Parks & Food and National Reserves Beverage (481) (20,000) Soft Accommodation Infrastructure(97) Cultural (47) Restaurant Channel Hard Hotels (1,233) Hotel Arts & Crafts (87) Catering Outbound Tour Infrastructure Game & Hunting Management Bars & Operator Roads Lodges (1,000- Museums (611) Schools clubs Inbound Tour Airports 5,000) Sport (16) THETA 1 (5,000- Consumers Bed and Adventure (624) Operator & Telecom 10,000) Management Ground Handler Breakfasts Rail Conference Training (>800) Guest Houses Facilities Transportation Programs Security Travel Agents Backpackers Ecotourism (687) Airlines IT Services (>800) (163) Water attractions Car Rental Self Catering (424) (>10) (2,415) Shopping Facilities Railways Timeshare (170) Theme Parks Buses Casinos (35) Taxis Promotion

Supporting Industries Supporting Industries Supporting Industries – Banking – Legal –Catering – Laundry –Medical – Supplies – Outfitting – Real estate – Security services – Insurance – Construction

Note: International and Domestic Consumers Source: JICA, ABSA, AA Travel, Babasa, Portfolio Collection, SAT, Interviews, Monitor Research Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 22 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The various sub-sectors of the industry are generally dominated by a few large players – this is most recently true of the channel Of the major capabilities within the industry, airlift has in fact recently seen less consolidation – in both international as well as domestic routes.

Avis Imperial Car Hire Budget Rent-a-Car1 Hertz

SAA dominant on most international routes Airlift Domestic: SAA; BA / Comair; Nationwide; Kulula.com; 1Time

Southern Sun SAN Parks Accommodation Sun International City Lodge Group Protea Hotels

Tourvest / Imperial Holdings (including Springbok Atlas) The Channel Cullinan Holdings Bidvest

Note: 1Part of Imperial Holdings through McCarthy Source: Company annual reports, INET Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 23 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress When looking at alternative accommodation, we observe rapid growth in the number of providers The estimates for the number of businesses varies widely and is indicative of the lack of reliable statistical data on the industry.

Growth rates of accommodation types: 1996 to 2001, 2001 to 2004

1996 - 2001 > *200%

160% 2001-2004

113% 110%

60% 41% 39%

# of Establishments 27% 15% 6% 10%

-14% -40% House )and other)and Self-catering B&B / Guest Lodges* (incl Backpackers Game, Hunting Note: *This figure has not been triangulated and is sourced from the ABSA report, where the number of game and hunting ranches Hostels /Youth are estimated at approximately 5000 operators Source: JICA 2001, AATravel Guide, Portfolio Collection, BABASA, BTSA, ABSA “Game Ranch Profitability, 2003” Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 24 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Hotels appear to be ahead of the curve and seem to already be in a period of consolidation The number of rooms being offered by the HILG is fairly stagnant over the past few years – although the data does not reflect the past two years.

All hotel rooms 00 - -03 HILG hotel rooms 93-02 54 40 53.3 33.0 53.5 35 30.8 31.4 31.7 31.7 53 52.6 30 27.3 52.5 52.3 52.3 25 22.5 19.7 52 20 16.9 17.9 51.5 15 (Thousands) (Thousands) 51 10 50.5 5 50 0 2000 2001 2002 2003 93 94 95 96 97 98 99 00 01 02

Hotel rooms available in Western Cape Dec 01 - Dec 03 HILG hotel rooms available in CT 93-02 12 12 11.7 11.7 11.7 11.8 9.984 9.984 9.984 9.984 10 9.12 11.5 8 7.044

11 6 5.232 4.275 3.738 4.14

(Thousands) (Thousands) 4 10.5 2

10 0 2000 2001 2002 2003 93 94 95 96 97 98 99 00 01 02

Source: HILG and StatsSA Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 25 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Product owners generally believe that they find themselves in an intensely competitive environment This intense competition is driving innovation, and those who fail to innovate will not survive, allowing for conditions where consolidation begins as weaker players exit the industry.

There is vigorous competition on a You have recently been forced to national basis amongst tourism reconsider the way you operate your product owners within SA business* 80% 80%

70% 70%

60% 60% 54%

50% 50% 44%

40% 40%

PercentagePercentage Percentage 30% 30% 26% 30%

20% 16% 20% 13% 12% 10% 10% 4% 1% 1% 0% 0% Strongly Agree Neither Disagree Strongly Strongly Agree Neither Disagree Strongly agree agree / disagree agree agree / disagree disagree disagree

Note: * Push for more effective marketing, increased efficiency, better service levels, etc Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 26 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Product owners believe that the inter-relationships between businesses within the cluster are moderate to weak as a whole Activity Industry Training Training National national) Information (inbound) Attraction operators operators institutions (outbound) Restaurant owners and government Air transport associations intermediaries associations (regional and Travel agents Land transport Tour operators Tour operators accommodation Tourism boards Hotels and other Local authorities

Very Very Weak Weak Moderate Moderate Moderate Moderate Strong Moderate Moderate Moderate Weak Weak Weak Activity operator Strong Weak

Attraction operator Moderate Weak Weak Moderate Strong Moderate Moderate Strong Weak Moderate Moderate Moderate Weak Weak Weak

Accommodation Moderate Weak Moderate Moderate Moderate Moderate Moderate Moderate Weak Moderate Moderate Weak Weak Weak Weak Owner

Car hire Moderate Moderate Moderate Strong Moderate Strong Moderate Strong Weak Moderate Moderate Weak Weak Weak Weak

Food and Very Moderate Weak Weak Weak Strong Weak Weak Weak Moderate Moderate Moderate Weak Weak Weak beverage Weak

Government or Very Very Very Strong Strong Moderate Strong Strong Moderate Strong Strong Strong Strong Moderate Strong local authority Strong Strong Strong Inbound tour Strong Moderate Strong Moderate Moderate Moderate Moderate Moderate Weak Moderate Moderate Weak Weak Weak Weak operator Outbound tour Strong Weak Moderate Moderate Moderate Moderate Moderate Moderate Weak Moderate Moderate Weak Weak Moderate Moderate operator

Tour guide Moderate Moderate Moderate Moderate Moderate Weak Strong Strong Moderate Moderate Moderate Weak Weak Moderate Weak

Tourism Strong Moderate Strong Strong Strong Strong Moderate Strong Weak Moderate Moderate Moderate Weak Weak Weak association

Training institution Strong Weak Moderate Moderate Moderate Strong Moderate Moderate Weak Moderate Strong Strong Weak Weak Weak

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 27 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Government and local authorities believe that they have strong links with industry – but this view is not reciprocated Industry Industry Training National National national) (inbound) Attraction operators institutions (outbound) Restaurant Information Information owners and and owners government Air transport associations associations (regional and (regional Travel agents Travel intermediaries Land transport Tour operators Tour operators Tourism boards boards Tourism accommodation Local authorities Local Hotels and other other and Hotels Activity operatorsActivity

Activity operator

Attraction operator

Accommodation Owner

Car hire

Food and beverage

Government or local authority

Inbound tour operator

Outbound tour operator

Tour guide

Tourism association

Training institution

Degree of relationship Very Strong Strong Moderate Weak Very Weak Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 28 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Industry associations are seen to be playing an important role and provide members with valuable networking opportunities Larger businesses appear to find the associations slightly more valuable than smaller businesses and on the whole there is a significant percentage of product owners who find very limited use from the associations.

The local industry associations in your How helpful are local industry associations to region are playing a productive role in the established businesses in your region in forming development of tourism industry business contacts or obtaining business advice? 50% 40%

Smaller businesses 40% 32% Larger businesses 40% 31% 30% 27% 26% 30% 28% 23% 23%

20% Percentage Percentage 20% 18% 14% 13%

10% 10% 7% 6% 4% 1% 0% 0% Strongly Agree Neither Disagree Strongly Extremely Very helpful Moderately Slightly helpful Not helpful at agree agree / disagree helpful helpful all disagree

Note: Smaller businesses – Turnover R1m Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 29 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Institutional knowledge creation is fragmented and there is a lack of institutional knowledge transfer within the industry Research is happening on specific topics / or on a needs basis within certain provinces. Resources appears to be a hurdle within certain provinces and national research is lacking.

How would you rate the transfer of tourism-specific knowledge from local institutions to your organisation? Certain provinces have databases of 50% tourism participants (KZN, Gauteng, 46% Western Cape)

Some provinces are doing research on 40% tourism within their regions and provide statistical data

28% 30% Little research is done at a local level – besides those efforts of the DBSA Percentage 20% Many of the tourism industry participants are not aware of the research which is 12% 12% being conducted 10% Lack of knowledge of market-segmentation

1% data indicates that participants are not 0% aware of the research SAT has conducted Very low Low Moderate High Very high

Source: Quantitative Industry Survey, 2003/2004; Qualitative Interviews 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 30 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Businesses see benefits in sharing data but at this stage are not doing so openly This phenomenon is perhaps a function of not having neutral parties to collate, aggregate and disseminate the information.

Companies that share information to a Businesses in your region share great extent lose their competitiveness in information openly with other businesses the long run (whether in the tourism industry or not) 60% 60%

50% 50% 50%

40% 40%

33% 29% 30% 30% 28% PercentagePercentage Percentage

20% 17% 20% 16% 15%

10% 10% 7%

2% 3% 0% 0% Strongly Agree Neither Disagree Strongly Strongly Agree Neither Disagree Strongly agree agree nor disagree agree agree nor disagree disagree disagree

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 31 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress There is a strong call by industry for Government to promote tourism – both domestically and internationally

Priority of Government Intervention Identified by the Industry Stakeholders Drive promotion of SA as tourism destination in overseas source 96.5 markets Improve general infrastructure in the country (roads safety & security etc.) 95.1

Promote tourism generally within SA 88.0

Improve information and communication infrastructure 82.4

Promote specialized education and training programs to upgrade tourism 82.4 workers Implement tax incentives to drive new investment in the tourism industry 81.8

Strictly enforce government regulations (i.e. standards to protect 81.3 environment etc) Ensure stability of the exchange rate 79.3

Increase predictability of government policies 79.1

Simplify compliance procedures related to government regulations 77.0

Support particular needs of start-up companies 76.7

Direct new investment expenditure within the tourism industry 75.6

Increase funding for special research institutes within the tourism industry 69.8

Encourage black economic empowerment within the tourism industry 66.6

Catalyze partnerships among government agencies industry and 66.6 universities Catalyze collaboration amongst industry participants 65.5

0 20406080100 Percentage of respondents

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 32 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

And there is a need for specific infrastructural related investments The basic tourism service provisions are seen as being essential, with roads being relatively less important than public facilities and tourist information infrastructure.

Industry’s view on top priority investment areas: Infrastructure assets that are in most urgent need of government investment to enable an effective tourism service 30%

23%

20% 16%

ondents who felt 14%

11% 11% 10% 7% 6% 6%

this was a top priority 5%

Percentage of resp 0% Roads capacity Domestic air Domestic infrastructure infrastructure network infrastructure Internet access Public transport *Public facilities *Public Airport terminals Safety & security infrastructure Telecommunications Tourist info provision info Tourist Note: *Public facilities: toilets, beach dressing rooms and showers, etc Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 33 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress CONFIGURATION AND FUNCTIONING OF THE VALUE SYSTEM Summary findings - Mapping the tourism cluster

Lack of data / statistics make it near impossible to properly size the cluster and establish exact number of participants / capacity within each sub-sector

The tourism cluster (at a national level) is in a high growth phase characterised by: – Rapid entry and strong competition, amongst accommodation providers and within tour operating industry – Moderate to weak linkages in the system – Lack of information sharing – Consolidating forces driven by large players in various subsectors DIAGNOSTIC FINDINGS Positive aspects from a competitive perspective: – Steadily closer integration of industry players (compared to 1999 Nedlac Cluster Study)

Western Cape demonstrating a higher degree of integration – Moderate levels of innovation – particularly around eco-products – Large infrastructure essentially in place (roads, airports etc)

Negative aspects: – Industry appears to see the value in information sharing and innovation but, generally, this has not translated into action – Marketing and market knowledge overall underdeveloped – Lack of tourism specific infrastructure (public facilities and tourist information)

The functioning of the channel

External benchmark Benchmarking performance Internal benchmark The configuration and functioning Mapping the cluster of the value system The Channel Consumer to market Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Investment and implications for Current investment status future investment Investment Issues

Channel Agenda

Context and importance of the Channel

Overview of market dynamics for Inbound Tour Operators (ITOs)

ITOs: Operations, relationships and pricing

Summary

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 36 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Travel agents (in source markets) and their related media fulfil an important role in the overall destination selection and product booking SMMEs need to access the channel in order to access travel agents

Beliefs about travel agents US Europe

Believe travel agents are helpful when travelling to new long-haul destination

Usually have a specific destination in mind before visiting travel agent = highest importance

Have long-standing relationship with travel agent = lowest importance

Search the internet before going to travel agent

Believe that travel agents offer the best deals

Travel agents save you time

Beliefs about usefulness of brochures Germany France UK

Use brochures to check specific holiday prices

Use brochure to find out about activities / weather at the destination

Book packages offered in brochures

Use brochures to find out about hotels / resorts at the destination Confidential Source:LES-CLS-GCP SAT/Monitor Integrated Deck_V7-26/05/2004-AvM Segmentation, 2001 - 2003 37 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Since SMME operators struggle to access the channel, the size of the market that they can access is reduced Repeat visitors show a higher propensity to book direct – however, in terms of overall numbers the channel still remains very important. Booking of Accommodation, Booking of Accommodation, First Time Visitors Repeat Visitors 100% 100%

90% 90%

80% 80% Personal Personal 70% 70%

60% 60%

50% 50%

40% 40% % of Segment % of Segment 30% 30%

The channel The channel 20% 20%

10% 10%

0% 0% Asia Asia Asia RofW RofW RofW Africa Africa Africa SADC SADC SADC Europe Europe

Note: Insufficient data available Americas for SADC market as this question is excluded from Land Border Post Questionnaire Americas Source: SAT Departure Survey (Jan-Nov) 2003, Channel Interviews Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 38 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Internet travel sales in Japan are growing but are only at 10% of total travel arrangements, with Mail Order showing the most channel growth

Japan: Travel Arrangements for Tourism, 1990 to 2003 100% 2% 3% 4% No answer 7% 10% 90% 10% Others 3% 5% Airlines 80% 18% 10% Internet 70%

60% 25% Mail Order/ Telephone 50% 91% 40%

% of Travellers % of 67% 30% 47% 20% Travel firms 10%

0% 1990 1996 2003

Note: Source: SAT Segmentation 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 39 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress In Western Europe internet sales are growing but account for less than 6% (11.7bn EUR) of total travel sales in 2003

Internet and Non-Internet Travel Sales, Western Europe 1998-2006 € 350 Internet Travel Sales

€ 300 Non Internet Travel Sales

€17.8 €20.5 €14.9 7.7% 8.6% € 250 €2.5 €4.9 €8.2 €11.7 6.6% €0.8 1.2% 2.3% 3.9% 5.4% €0.2 0.4% 0.1% € 200

Forecast € 150 € (Billions)

205 210 214 219 € 100 192 199 203 200 204

€ 50

€ 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 Growth Rates of internet N/A 252% 219% 91% 67% 44% 27% 19% 15% sales

Note: Source: Centre for Regional and Tourism Research, Denmark, SAT Segmentation 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 40 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress In Western Europe, the internet purchases in 2003 (11.7bn EUR) are largely for airtravel This is partly a function of the introduction of low-cost airlines. The implication of this is that currently the internet is a useful marketing and information tool – but not really a good channel for the South African tourism industry

Western Europe: Internet Travel Purchases by Category, 2003 120.0%

2.1% 1.3% 100.0% 100.0% 8.4% 14.4%

80.0% 16.5%

60.0% 57.1%

40.0%

20.0%

0.0% Airtravel Package Hotels Rail Rental cars Other services Total Internet tours Sales

Note: Source: Centre for Regional and Tourism Research, Denmark Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 41 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Agenda

Context and importance of the Channel

Overview of market dynamics for Inbound Tour Operators (ITOs)

ITOs: Operations, relationships and pricing

Summary

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 42 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Structural conditions in the tour operating industry will increasingly drive consolidation despite low barriers of entry

ThreatThreat ofof NewNew EntrantsEntrants

Very limited technical barriers

Rivalry Among Existing BargainingBargaining Competitors BargainingBargaining PowerPower ofof PowerPower ofof SuppliersSuppliers BuyersBuyers Numerous players per source market Is mostly a function of capacity OTO’s are able to trade off ITOs utilization bargaining power High industry growth with against each other intermittent over capacity Branded suppliers have high OTOs are able to trade off bargaining power Macro impacts on source markets destinations (SARS) have increased rivalry SA is typically low percentage of Low branding with consumers current OTO business

ThreatThreat ofof SubstituteSubstitute ProductsProducts oror ServicesServices

Destinations are substitutable (particularly in Asian markets) Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 43 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The end-game will see a handful of very large inbound operators driving large volumes with small players serving niche markets

HIGH

ThreatThreat ofof NewNew EntrantsEntrants

BargainingBargaining Rivalry Among BargainingBargaining MODERATE PowerPower ofof Existing PowerPower ofof HIGH SuppliersSuppliers Competitors BuyersBuyers HIGH

ThreatThreat ofof SubstituteSubstitute ProductsProducts oror ServicesServices HIGH

Large players driving large volumes in a highly competitive and pressurised environment is the end-game. Size is a key variable for improving: – profitability (principally through obtaining better STO rates); – ensuring sustainability (principally through reducing risk by sourcing tourists from various source markets); – maintaining relationships with OTOs that demand high volumes to sustain their own business models. Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 44 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Agenda

Context and importance of the Channel

Overview of market dynamics for Inbound Tour Operators (ITOs)

ITOs: Operations, relationships and pricing

Summary

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 45 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress For inbound operators the barriers to entry are generally low, but barriers to growth are high

Limited licensing requirement or minimum capital requirement Barriers to Entry Some relationship with product owners – but can start small in cooperation with small product owners LOW Only limited technological constraint (no need to have access to GDS)

Track record and negotiating power before outbound operators are willing to back you

Barriers to Deposits / guarantees required for airlines Growth Working capital requirements (e.g. ability to have staff travel extensively to meet with HIGH representatives of both sides of the value chain) Need to be able to guarantee large volumes to get sizeable STO’s

There is a real market opportunity to enter as tour guides / ground handlers – However, Cape example shows that they are already competing to marginal costs – Temptation is to try to circumvent the larger operators who gave them business Implications for and to start acting as small inbound operators small new Pricing stability at risk operators (HDI’s) It could be very difficult for small operators grow their businesses – Thus they get “pigeon-holed” into being “Soweto tour operators etc” The smaller end will constantly suffer from a high churn rate Source: Monitor interviews Note: Robert Wilson who owned Magic Bus estimates that there were 3 ground handlers in Gauteng when he started the business in 1991, and approximately 100 when he sold it in 1997 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 46 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The Inbound Tour Operator sector is seeing both consolidation and rapid entry The Nedlac Cluster Study, 1999, estimated that there were 460 tour operators, with 15 dominant players – which is in stark contrast to the picture today with more than 800 tour operators and less than 10 large players that account for 60% to 70% of the revenue.

Dominant players

Wilson Collins; Thompsons Springbok Welcome Tours Crown; Safari Akilanga ERM Tours Inbound Atlas Plans etc. (Tourvest) (Tourvest) (Cullinan) (Imperial) (SA subsidiary) (Independent) R300 million >R100 million >R100 million >R250 million Smaller but significant

GRS Southern Drifters Absolute Africa African Eagle Karibu Safari Africa Adventures

Conservation Grosvenor Abercrombie & Wilderness Corporation Ikapa Tours Hylton Ross Tours Kent Safaris1 Africa

Small

Thompsons sits within Cullinan Holdings, and shares All within the Imperial Group 800 other an important shareholder with Wilderness Safaris players Source: Channel interviews Note: 1Wilderness Safaris and Thompsons share an important shareholder Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 47 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Inbound operators have multiple relationships with service providers and product owners that are generally fluid in nature

Accommodation & Inbound Tour Outbound Tour Intermediaries Consumers Attractions Operators Operators

Role Definition Interactions

Product owners generally initiate relationships with Product owners drive information flow on new tour operators, however this is a function of size and products; operators inspect quality of product branding – This process is generally efficient from the ITO’s – Rationale is to access customers via the channel perspective but not from the small / emerging

Product owners will generally not dis-intermediate product awareness perspective ITOs by striking up relationships with OTOs – Criteria for inclusion is subjective / value-based – This will have the effect of ITOs terminating the judgments from ITO’s perspective relationship with that product owner The balance of negotiating power is very much a

Niche product owners do however try to function of the supply-demand situation disintermediate by reaching the end-consumers – 2001 / 2002 seller’s market has now been – E.g. Hunting lodges in South Africa visit the reversed International Trade Fair for Hunting and Sporting Only those products that are strongly branded Arms in Nuremburg and try to sign up clients for the with important segments (e.g Lost City & year Kruger Park) are in a good negotiating position

Relationships are fluid and not long term

Inbound operators currently hold the balance of power given the substantial capacity that has come onto the market from a product perspective

Source: Interviews with the SA Channel Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 48 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The rack rate is generally set at a level that will allow sufficient margin for all the players in the international channel that drive significant volumes

The only advantage for LEISURE R2000 consumer to buy through tour CONSUMER operator in this instance is that breakfast / other meals are included in this ‘package’ R2000 R200

OUTBOUND The Travel Agent gets a TRAVEL AGENT 11% gross margin ‘net rate’ of rack minus 10% R1800 R200

OUTBOUND The OTO gets a ‘net rate’ OPERATOR 13% gross margin of rack minus 20%

R1600 R300

Gross margin of 23%. If INBOUND ITO gets only 30%, this OPERATOR margin drops to 14%

R1300 STO of 35% ACCOMMODATION = Effective (net) cost price (Rack Rate: R2000) = Margin Source: Interviews with the SA Channel Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 49 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Outbound operators prefer SA ITOs to quote in leading international currencies where they can: this transfers risk to SA players

Brokering / Distribution “Tour Packages”

ShortShort leadlead times;times; lowlow valuevalue HighlyHighly CompetitiveCompetitive NicheNiche MarketMarket ConditionCondition discreet products discreet products TendencyTendency toto trade-offtrade-off JapanJapan && MalaysiaMalaysia demanddemand operatorsoperators againstagainst eacheach otherother quotesquotes inin DollarDollar

QuotesQuotes inin leadingleading foreignforeign ITOITO riskrisk && returnreturn –– SA SA ITOs ITOs Transaction Rand — Transaction Rand — currencycurrency generallygenerally trytry toto keepkeep denominateddenominated quotation period to 3 months InboundInbound operatoroperator assumesassumes quotation period to 3 months riskrisk && returnreturn oror shortershorter

OutboundOutbound operatoroperator LessLess CompetitiveCompetitive NicheNiche Non-MarketNon-Market ConditionCondition immediatelyimmediately on-sellson-sells == veryvery Stronger relationship Welcome Tours; Thompsons; limitedlimited riskrisk Stronger relationship Welcome Tours; Thompsons; betweenbetween OTOOTO // agentsagents && SpringbokSpringbok AtlasAtlas etc.etc. allall quotequote ITOsITOs inin RandRand RandRand denominateddenominated OTOOTO hashas riskrisk && returnreturn andand recently has started taking OTOOTO // agentagent assumesassumes riskrisk && recently has started taking returnreturn outout forwardforward covercover

All ITOs Smaller ITOs Larger ITOs

Where product owners quote in US$ (Mala-Mala, Mount Nelson / Orient Express) they assume full risk (ITO buy and on-sell in that currency and thus still make their margin)

In 2000 to 2002 OTOs were happy to accept quotes in Rand, now they place pressure on ITOs where they can to quote in leading foreign currency, or to bring rates down

Agenda

Context and importance of the Channel

Overview of market dynamics for Inbound Tour Operators (ITOs)

ITOs: Operations, relationships and pricing

Summary

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 51 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress CONFIGURATION AND FUNCTIONING OF VALUE SYSTEM Summary findings – The Channel

The channel remains important for both package and FIT travellers: little disintermediation – Channel is less important for SADC travelers

Limited “value leakage” in the channel – Margins earned by SA Inbound tour operators are comparable to those of other competitive tourist destinations – Limited forward integration of foreign OTOs into ITOs and product (e.g. ownership of accommodation)

Travel agents remain important gate keepers in nearly all source markets (with role varying between ‘facilitator’ and ‘advisor’) DIAGNOSTIC FINDINGS ITO business in SA is highly competitive characterised by low margins (Gross margins 8- 12%)

Low barriers to entry – ITO numbers doubling over the past five years

Recent consolidation has seen the emergence of a few large ITO businesses – Small players will find it increasingly difficult to compete on price given volume based discounts

Consequently forced to seek out opportunities in niche / new markets

These players play an important role in both market development and product diversity

Majority of product sold to OTOs on a Rand denominated basis, with the exchange rate risk being carried by the OTO

Note: OTO: Outbound Tour Operators, ITO: Inbound Tour Operators Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 52 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Barriers to consumers getting to our shores

External benchmark Benchmarking performance Internal benchmark The configuration and functioning Mapping the cluster of the value system The channel functioning Consumer to market Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Investment and implications for Current investment status future investment Investment Issues

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 53 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress When considering ‘access’ as a potential constraint on growth, one should explore both the tourist and cluster perspective

ACCESS TO MARKET

Access by tourists to SA as Access by SA tourism cluster to tourist destination potential tourists

SA as top of mind destination – strength Access to tourism specific marketing of the brand information

Access to SA specific information Access to marketing resources – Sources of information – Appropriate skills International as well as domestic – Funds

– Management of information Access to the channel “Negative press” on SA – Specifically for smaller product Physical access constraints owners

– Transport Information sharing within the cluster –Visas

Cost constraints

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 54 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Awareness and Familiarity — All Countries South Africa The total and the quality of awareness for SA is the highest in Kenya

100% Aided Awareness 92% Unaided Awareness Top-of-Mind Awareness Percent Very Familiar With

75%

71% 69% 69%

60% 57% 57% 55% 50% 54% 50% 46% 42%

35% 30% 25% 28% 25% 24%

18% 17% 17% 18% 14% 12% 11% 12% 8% 7% 8% 8% 1% 1% 5% 1% 3% 3% 3% 4% 0% 2% 2% 2% 2% 3% Australia Canada China France Germany Japan Kenya Nigeria India Italy Netherlands Sw eden UK U.S.

Favorite and Considered Destinations Very few people regard South Africa as their favorite destination but substantial number of them in Germany, Netherlands, Sweden and UK say they would consider it

Of All “International Travel Destinations,” Which Is Your Favorite?

South Africa 60% Australia Kenya

40% 34% 35% 25% 21% 22% 17% 20% 15% 16% 15% 14% 12% 9% 6% 7% 6% 6% 6% 8% 3%3% 3% 3% 5% 3% 3% 5% 5% 3% 0% 2% 1% 2% 2% 0%2% 0% 2% 2% 1% 2% 2% 2% 0% Australia Canada China France Germany Japan Kenya Nigeria India Italy Netherlands Sw eden UK U.S.

Which of the Following “International Travel Destinations” Would You Consider Visiting and / or Seeking Travel Information About? 100% 80% South Africa Australia 75% Kenya 63% 57% 52% 52% 52% 46% 47% 48% 50% 40% 41% 38% 27% 25% 21% 24% 21% 24% 21% 25% 19% 19% 19% 20% 13% 14% 13% 13% 9% 9% 12% 9% 9% 11% 7% 7% 8% 8% 6% 5% 0% 0% 0% 0% Australia Canada China France Germany Japan Kenya Nigeria India Italy Netherlands Sw eden UK U.S.

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 56 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Intensity of Preference: Total Sample South Africa Note: Positions on the Grid are Relative — i.e., dependent on other countries studied in each market. However, this chart does give a fairly clear indication of South Africa’s relative positioning in each market High Country

Kenya

Netherlands

Nigeria Australia Considered Germany Canada China India UK Sweden

U.S. France Japan Italy

Low Low High Favorite

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 57 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Performance Associations South Africa

Performance Netherla Australia Canada France Germany Italy Sweden UK U.S. India Japan China Nigeria Kenya Associations nds

Is a Safe and Secure 2.55 3.15 3.46 3.31 3.57 3.48 2.96 2.86 3.58 4.02 3.20 4.10 4.93 4.86 Environment

Offers Excellent Value for the 3.91 4.20 4.13 4.44 4.14 5.28 4.49 4.60 4.42 4.96 4.45 4.95 5.36 5.27 Money

Offers a Historical and Cultural 4.93 5.57 5.22 4.90 5.35 5.33 4.92 5.00 5.43 5.21 5.21 5.15 5.54 5.47 Experience

Welcoming People You Can Interact 4.15 4.46 4.57 4.79 4.53 4.41 4.49 4.57 4.70 4.86 4.43 4.80 5.30 4.92 With

A Very Authentic 5.40 5.73 5.55 4.90 5.73 5.76 5.76 5.38 5.56 5.55 5.47 5.48 5.40 5.49 Travel Experience

Is Easy to Get 3.67 3.99 4.23 4.32 3.99 4.46 4.05 4.19 4.19 4.42 3.77 4.46 4.76 5.35 Around

Offers a Rest and Relaxation 3.98 4.33 4.25 4.95 4.43 4.90 4.62 4.73 4.61 5.08 4.35 5.09 5.71 5.75 Experience

Excellent Year- 4.53 5.12 4.41 5.36 4.72 5.35 5.68 5.30 5.12 5.01 4.58 5.04 5.04 6.02 Round Travel

Offers a Natural Wildlife 6.31 6.22 5.72 6.02 6.11 6.35 6.05 6.23 6.18 6.29 5.98 6.29 5.34 5.07 Experience

Too "Cheap" to be 2.71 2.63 2.94 4.11 2.67 3.09 3.01 2.71 2.77 3.41 2.69 3.50 3.65 3.52 Acceptable

Personality Nether- Australia Canada France Germany Italy Sweden UK U.S. India Japan China Nigeria Kenya Associations lands

Memorable 5.75 5.99 5.47 5.49 5.60 5.59 5.84 5.91 5.86 5.84 5.65 5.81 5.56 5.48

Friendly 4.19 4.55 4.37 4.93 3.83 4.87 4.63 4.62 4.77 4.89 5.66 4.90 5.20 4.82

Fun 4.66 5.07 3.91 4.87 4.87 5.21 4.81 4.99 5.08 5.48 5.05 5.57 5.49 5.57

Enriching 5.24 5.58 5.58 5.45 5.35 5.64 5.67 5.31 5.39 5.47 5.25 5.66 5.30 5.32

Relaxing 3.99 4.34 3.86 4.74 4.20 4.89 4.68 4.70 4.50 5.12 4.47 5.15 5.80 5.61

Breath- 5.55 5.80 5.23 5.44 5.35 5.85 4.71 5.82 5.54 5.54 5.38 5.52 4.90 4.43 Taking

Unique 5.59 5.90 5.12 5.53 5.30 5.73 5.30 5.39 5.75 5.60 5.54 5.57 5.26 4.88

Adventurous 5.90 5.92 5.14 5.62 5.49 5.95 5.64 5.70 5.78 5.94 5.55 5.98 5.74 5.75

Challenging 5.39 5.39 4.78 5.22 4.98 5.77 5.30 5.26 5.36 5.28 5.40 5.31 5.26 4.77

Well-Known 5.37 5.36 4.81 3.59 4.35 4.65 4.97 5.65 5.25 5.34 5.07 5.38 5.58 6.07

Slightly Above Average Slightly Below Average Significantly Above Average Significantly Below Average Note: 1 = Does Not Describe at All; 7 = Describes Extremely Well Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 59 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress International tourists find it difficult to access tourism information on South Africa and tend to rely on word-of-mouth The prevalence of “word-of-mouth” influencers underscores the importance of monitoring and managing South Africa’s brand

Key Influencers on Decision to Visit SA, 2003

Editorial material and publicity on South Africa Europe Americas Information from SA Tourism Board Asia Africa I had no choice but to come to South Africa SADC Internet-other computer-accessed information RofW

Tourist brochures, leaflets or videos on SA

Advertisements for SA in newspapers, magazine etc

Advice from business associates

Advice from travel agent

Advice from friends-relations in South Africa

Advice from friends-relations in your country Word-of-Mouth Influencers Personal experience from previous visits

0% 20% 40% 60% 80% 100% 120% Note: Respondents are able to select more than one option therefore totals do not add up to 100%; % of Segments Europe – UK, Germany, France, Italy, Netherlands; Asia – Japan, China; Africa – Kenya, Nigeria Source: Quotes taken from SAT Qualitative Interviews, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 60 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress This trend is mirrored in the domestic market with family and friends providing the primary source of information This raises this question: do domestic tourists rely on word-of-mouth as a consequence of lack of information on the internal travel options?

Source of Information on Travel, 2001 60% 55.8%

50%

40%

30%

% of respondents 20% 16.2% 11.7% 9.0% 10% 7.3% 7.1% 5.1% 4.9% 3.4% 2.8% 2.7% 2.5% 1.3% 0.8% 0.7% 0.5% 0.4% 0.2% 0.2% 0% Other Radio DVDS Internet Airlines CD ROM Television Magazine channel Tourist Brochures Movie Newspaper Colleagues DSTV travel guides Travel videos Tourism books,guides advertisements Car rentalCar firms Friendsfamily or information bureau Tour operators,tour

Source: HSRC (for DEAT and SAT) Domestic Survey, 2001 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 61 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Issues around Safety & Security are still top of mind for many tourists, creating a barrier for consumers to overcome to before they arrive

“…[we were] scared to go out at “Safety for me is the main issue for the “My worst [experience] was being night. …South Africa is very rest of the country is fine.” mugged in down town dangerous, dangerous!” – German tourist Johannesburg…. I was walking in the – Mauritian tourist streets and 4 guys came behind me “…we were worried about the unsafe and strangled me. They emptied my “…politically we know S.A is a safe nature of the place as compared to the pockets, it was very cruel, very brutal place to visit but one problem is people UK, thought the car might be broken and fast and fortunately nothing bruised can’t move in Johannesburg city centre into or that we might be robbed.” but I was very shaken. It is really a by night. The S.A government must do problem.” –UK tourist something to sort out this problem and – French tourist “Before we came here so many people once this is sorted out things will get told us how unsafe this place is and better…” “I couldn’t go around so much because that it was dangerous, but since we got – Australian tourist I’ve always been told that South Africa here we have not had any problems is dangerous, you don’t have to walk and when ever we speak to our parents around on your own especially if you’re on the phone the keep asking us how “I was concerned about the crime. I foreign.” are we and whether anything has had heard about it and safety issues – Zambian tourist happened to us, but we must say that most of those just. I’d just heard “It’s nice being in South Africa except everything has been great and the from people who have been there fear … Actually I have been beating people are very friendly.” and just reading newspapers.” myself [up] most of the time I am in –UK tourist – US tourist such a state when I am on the street.” “I was anxious; I was worried about – Zambian tourist safety and a weary from a security “It was actually my perception; I think “Security [is an issue]… because point.” was too strong I guess. I didn’t see as one of my friends was mugged. –UK tourist much crime or feel as unsafe as I …when we come to such a place we “…I think it’s only that Johannesburg is thought I would, but still not the same don’t expect such a thing. If the not very safe so I just stayed at the as, like I would walk around at night by issue of security could be sorted hotel” myself.” out, I think this would be paradise.” – Danish tourist –US tourist – Ugandan tourist Source: Quotes taken from SAT Qualitative Interviews, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 62 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress A comparison of ‘inclusive packages’ shows that South Africa is generally a high cost option This calls for careful marketing and understanding of the price elasticity of our target segments, as well as careful management of the channel.

Overall Package Price In US$ For Icon City Trip From Range of Source Markets to Range of Destinations

6,922 7,000 Thailand Australia Brazil SA

6,000 5,515

5,000 4,340

4,000

2,837 Price in US$ 3,000 2,605 2,388 2,099 2,206 2,000 1,770 1,668 1,311 1,384 1,408 1,145 1,103 936 1,000 801

8 9 9 9 10 NA 12 12 6 7 12 10 6 NA 87 109 7 NA 0 USA France Japan Netherlands UK

Note: Number at bottom of each graph represents package length in days Source: SAT Offices Worldwide, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 63 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress South Africa is often substantially more expensive than Kenya as well as Brazil in respect of eco-tourism trips

Overall Package Price In US$ For Eco-Tourism Experience From Range of Source Markets to Range of Destinations

7,000 Kenya Australia Brazil SA

6,000 5,849 5,333 4,911 5,000 4,280 4,305 4,202 3,719 4,000 3,515 2,987 3,000 2,859

Price in US$ 2,559 2,393 2,281 1,924 2,000 1,701 1,784 1,447 1,287 1,000

9 8 11 9 7 16 13 16 NA 7 10 11 14 17 16 15 7 12 7 NA 0 USA France Japan Netherlands UK

Are these package prices restricting access by tourists to South Africa?

Note: Number at bottom of each graph represents package length in days Source: SAT Offices Worldwide, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 64 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress DRIVERS AND BARRIERS OF GROWTH IN TOURISM Summary findings – consumer access to South Africa

MARKET INTERNATIONAL TOURISTS ACCESS – Low but growing brand awareness of South Africa in important source Consumer to Industry markets e.g. USA – Australia is a significant brand competitor to South Africa but the converse is not true Word of mouth and travel agents remain the most important sources of information International tourists appear to find it difficult to access useful data on SA

DIAGNOSTIC FINDINGS The “safety and security” issue unequivocally remains top of mind for international tourists Comparison of inclusive packages show that South Africa is generally a high cost option DOMESTIC TOURISTS Very limited use of the channel; word of mouth most important source of information The market believes that the domestic tourist is being out-priced particularly with regards to tourist attractions and high-end accommodation Many international tourists (across the range of source markets) use South Africans for advice on their trip to SA – From an information access perspective, it is a high priority to ensure you have a well informed domestic market

Source: Global Competitiveness Project – Theme 2: Drivers and Barriers to Growth, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 65 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress When considering ‘access’ as a potential constraint on growth, one should explore both the tourist and cluster perspective

ACCESS TO MARKET

Access by tourists to SA as Access by SA tourism cluster to tourist destination potential tourists

Access to SA specific information Access to tourism specific marketing – Sources of information information – International as well as domestic Access to marketing resources – Management of information – Appropriate skills – “Negative press” on SA – Funds

Physical access constraints Access to the channel – Transport – Specifically for smaller product –Visas owners Information sharing within the cluster Cost constraints

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 66 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The industry is of the opinion that they do not have sufficient information on the profile of potential consumers The issue here is around disseminating the knowledge of consumers, currently housed within SAT, to industry participants.

Rate the transfer of tourism specific Industry Quotes knowledge from local tourism institutions 60% “I have not heard of any market research. The data is very disorganized. We also do not know what the tourists want” – Inbound small size tour operator 50% 46% “The pace of the transfer of information needs to be increased.” – Inbound medium size tour operator

40% “Tourism Authority KZN information is beneficial, if you have enough financial resources [and] if you are a well-established tour operator. For SMMEs the information is not that useful. ” 30% 28% – Inbound small size tour operator

“We want to know what the size of the foreign adventure travel 20% market is, which OTOs to contact in which markets, practical useful information that can assist us with networking with 12% 12% offshore tour operators” 10% – Medium size tour operator

2% “We don’t really benefit from institutions doing tourism specific 0% research – need to give detailed info – eg segment specific Very low Low Moderate High Very high data, feedback (good and bad)” – Accommodation Owner

Source: Quantitative Industry Survey, 2003 / 2004, Qualitative Industry Interviews Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 67 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress As a result, industry players are finding it difficult to access and convert their targeted consumers There appears to be room for improvement in more targeted and effective marketing

Targeted International Tourists vs. Serviced Clientele

206 Mature wealthy independent travellers who like to explore 147

179 Mature high-end luxury leisure 122

159 Mature not well-travelled conservative couples who want to relax 85

Extremely well travelled seniors over 60 years old who want to 159 experience a variety of activities and relaxation 108

155 Family travellers looking for safe and easy holidays 97

Multi-purpose business travellers who add some holiday and visiting 145 friends and relatives to their trip 84

Wordly young & unemcumbered adventure travellers looking for 143 value for money 85

Active family travellers who want to have a participatory experience 104 in a cultural environment 47 Targeted Customers 48 Back-packers and students Customers Received 22

0 50 100 150 200 250 Number of Respondents Note: Questions: Please indicate which customer segments you are targeting vs those with whom you are successfully conducting business with Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 68 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress This problem seems to stem from a resource deficiency and a lack of consumer information Product owners appear to lack resources, marketing and sales skills and information on customer segments. The major reasons why tourism product owners are not reaching their prospective customers overseas

Product owners do not have the necessary resources 23%

Product owners do not have sufficient marketing and 22% sales skills

Product owners do not know who their target 17% customers are / should be

Inbound tour operators do not have sufficient 16% knowledge of the industry

Inbound and outbound tour operators do not 13% communicate effectively

Outbound operators make poor choices in what they 10% decide to communicate to prospective customers

0% 5% 10% 15% 20% 25% Percentage of Respondents

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 69 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Lack of marketing knowledge is further compounded by a lack of information sharing along the channel The information exchange inefficiencies appear to be more pronounced between inbound and outbound tour operators

There is sufficient information exchange There is sufficient information exchange between product owners and inbound between inbound and outbound tour tour operators operators 50% 50% 46% 45% 45%

39% 40% 40%

35% 35%

29% 30% 30% 25% 25% 25% 25%

20% 20% 16% 15% 15%

10% 7% 10% 7% 5% 5% 5% 2%

0% 0% Strongly Agree Neither Disagree Strongly Strongly Agree Neither Disagree Strongly agree agree nor disagree agree agree nor disagree disagree disagree

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 70 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Increasingly, smaller product owners need scale to break into the channel, hence the need to cooperate and work smarter The business model of OTOs in SA’s major source market drives the need for scale in South Africa, making access to the channel difficult for small / new players.

Outbound Tour Operator Buying Criteria

High Potential profitability TheseThese buyingbuying criterioncriterion lendlend Volumes of pax visiting destination themselvesthemselves toto dealingdealing withwith largelarge ITOsITOs andand productproduct ownersowners withwith Financial support available (incentives) scalescale –– raising raising thethe barrierbarrier toto Supplier facilities - quality and capacity SMMEsSMMEs

Costs and margins (price structure)

Portfolio fit - destinations, product, segments

Relevance Co-ordinated industry in destination - pricing, efficiency

General consumer awareness of destination - sales time SA’sSA’s major major sourcesource marketsmarkets areare generallygenerally charactercharacterisedised byby strongstrong Agents’ awareness of destination - educationals & training concentrationconcentration withinwithin thethe OTOOTO industry Stability of destination - politically, economically industry

Safety of destination for tourists Low

Source: Interviews with the UK trade Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 71 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Consequently, the industry wants the Government to drive the promotion of South Africa both internationally and domestically Creation of demand in international consumers is prioritized over that of the domestic consumers. Priority of government intervention identified by the industry stakeholders Drive promotion of SA as tourism destination in overseas source 96 markets Improve general infrastructure in the country (roads safety & security etc.) 95

Promote tourism generally within SA 88

Improve information and communication infrastructure 82

Promote specialized education and training programs to upgrade tourism 82 workers Implement tax incentives to drive new investment in the tourism industry 82

Strictly enforce government regulations (i.e. standards to protect 81 environment etc) Ensure stability of the exchange rate 79

Increase predictability of government policies 79

Simplify compliance procedures related to government regulations 77

Support particular needs of start-up companies 77

Direct new investment expenditure within the tourism industry 76

Increase funding for special research institutes within the tourism industry 70

Encourage black economic empowerment within the tourism industry 67

Catalyze partnerships among government agencies industry and 67 universities Catalyze collaboration amongst industry participants 65

0 20406080100 Source: Quantitative Industry Survey, 2003 / 2004 Percentage of respondents Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 72 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

DRIVERS AND BARRIERS OF GROWTH IN TOURISM

MARKET Smaller players lack source market knowledge, as well as actual ACCESS – marketing skills / resources Industry to Strong and undifferentiated desire to attract “international tourists” Consumer Difficulty of smaller players to break into the channel – OTO business model is driving need for scale amongst SA ITOs (which in turn is driving the need for scale amongst SA product owners) – Small product owners’ pricing strategies do not allow for large tour

DIAGNOSTIC FINDINGS operator discounts

Travelers to SA generally use the channel (due to risk aversion), for booking, and to a lesser extent, for information

Both first time and repeat travelers utilize the channel extensively and this reinforces the need to break into the channel

The large number of small product owners make it difficult to use the internet as a disintermediation tactic, due to the high number of individual websites

Domestic market being used as a “fall-back” market in many respects – Drop-off in international numbers sees ‘scramble’ for the SA corporate market

Chapters of the Global Competitiveness Study

External benchmark Benchmarking performance Internal benchmark The configuration and functioning Mapping the cluster of the value system The channel functioning Consumer to market Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Investment and implications for Current investment status future investment Investment Issues

Agenda

Access

Capacity

Pricing

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 75 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Access: Airlines serving SA have declined since 1997 Between 1997 and 2003, the number of airlines serving South Africa dropped from 75 to 45

0 1991 1996 1997 1998 1999 2000 2001 2002 2003

Source: ACSA Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 76 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Access: In 2002, SAT signaled to cabinet two key challenges around airlinks to Asia Two of SA’s key source markets for the future currently have no direct airlink whatsoever and a quarter of our future key source markets are currently not served by an SA-flag carrier on a direct service.

Direct Services SA Carrier Foreign Carrier US UK

Germany

France China (Excl Hong Kong) Japan Zimbabwe

Mauritius Zambia Tanzania Nigeria Egypt

Recent research in Asia by SAT suggests that the lack of direct airlinks is a barrier for key segments from Japan, and the structure of links to both China and Asia (together with other factors) are causing other challenges in capacity and pricing

Note: SAA and Cathay Pacific serve the Hong Kong-Johannesburg route. However, leisure tourism growth in China is coming largely from the mainland Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 77 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Access, once in South Africa, appears not to be a problem as a large number of non-major routes are flown by scheduled and charter companies

KEY FINDINGS OF INDUSTRY INTERVIEWS : The air links of SAA Airlink within SA (They claim to fly to the Scheduled Airlines most number of destinations within SA as a scheduled airline)

SASA AirlinkAirlink is is thethe bestbest localocall exampleexample ofof anan airlineairline Phalaborwa thatthat fliesflies onon ththee non-majornon-major routesroutes,, butbut stillstill offersoffers Polokwane scheduledscheduled flightsflights Hoedspruit TheyThey competecompete withwith thethe largerlarger carrierscarriers onon thethe Mala Mala biggerbigger routesroutes andand withwith tthhee chartercharter companiescompanies onon otherother routesroutes Nelspruit Sun City TheyThey havehave flightflight schedulesschedules (publicly(publicly available)available) andand datadata onon routeroute capacapacitycity asas wellwell asas loadload Mafikeng Johannesburg factorsfactors whichwhich theythey considerconsider strictlystrictly confidentialconfidential NumberNumber ofof scheduledscheduled fligflightshts perper destinationdestination isis influencedinfluenced directlydirectly byby demanddemand forfor thethe routeroute Upington Ulundi Kimberly Charter Airlines Pietermaritzburg Bloemfontein Maseru Durban AreAre generallygenerally ableable toto flyfly toto manymany destinationsdestinations withinwithin SouthSouth AfricaAfrica (and(and inin somesome cases,cases, Africa)Africa) –– Margate andand flightsflights areare ararrangedranged specificallyspecifically aroundaround thethe Umtata client’sclient’s needsneeds [no[no schedules]schedules] OfferOffer unmatchedunmatched levelslevels ofof convenienceconvenience andand flexibilityflexibility East London ThereThere areare quitequite aa largelarge nunumbermber ofof playersplayers –– but but withwith thethe largerlarger onesones ‘spec‘specialising’ialising’ onon oneone oror twotwo Port Elizabeth Cape Town George routesroutes StatisticsStatistics suchsuch asas routeroute capacitiescapacities andand loadload factorsfactors areare irrelevantirrelevant toto thethe veryvery smallsmall playersplayers –– pricingpricing isis perper triptrip onon aa ‘t‘take-it-or-leave-it’ake-it-or-leave-it’ basisbasis Source: www.southafrica.net; Monitor Interviews Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 78 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Agenda

Access

Capacity

Pricing

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 79 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Although in aggregate SADC and African routes are not constrained, on a country–by-country basis, there are some bilaterally-constrained routes Foreign airlines are operating at or close to the limit of the available frequencies on SADC routes

SADCSADC NorthNorth AfricaAfrica EastEast AfricaAfrica WestWest AfricaAfrica

100% Benin 100% Angola 100% 0% 100% Comoros Burkino 0% 0% 0% 100% Botswana 100% Faso 54% Algeria 0% Burundi 0% 67% 0% 100% DRC Ethopia C African 0% 100% 0% Rep 0% 100% 100% Lesotho Cameroon 0% 76% 100% Kenya 0% 100% 50% 64% Chad 0% Malawi 100% Egypt 0% Ghana 67% Mauritius 100% 0% 100% 78% Madagascar Congo 0% 50% 29% Mozambique 72% Gabon 50% 96% 100% 0% Ivory 0% Maldives Namibia 42% Coast 100% 63% 0% 0% Mali 0% Percentage Morocco 0% Seychelles 57% 0% 0% 0% 0% Somalia Mauritania 0% 0% 91% 0% Swaziland 52% Niger 0% 0% Nigeria 0% Tanzania 67% 100% 44% Sudan 0% 0% 50% Rwanda 50% Zambia 10% Tunisia 42% 0% 0% 100% Senegal 21% Uganda Zimbabwe 14% 100% 0% 75% Togo 0%

0% 50% 100% 150% 0% 20% 40% 60% 0% 50% 100% 150% 0% 50% 100% 150% Percentage Percentage Percentage Percentage

EuropeEurope AsiaAsia PacificPacific MiddleMiddle EastEast NorthNorth && LatinLatin AmericaAmerica

Aus tria 0% 100% 0% 0% Aus tralia Bahrain 0% 100% 0% Belgium 0% 0% China 0% 0% 0% Denmark Iran 0% (PRC) 0% 0% 0% Argentina Finland 0% Hong 86% 75% 100% Israel 0% France 44% Kong 100% 0% 0% Georgia 0% 0% India Jordan 0% 86% 71% 0% Germany 33% Greece 75% 0% 0% 0% Japan Kuwait 0% 0% 0% Hungary 0% 100% 75% 0% Ireland 0% Malaysia Oman Brazil 0% 0% 0% 0% Italy 43% 100% New 0% 0% 0% Qatar Luxembourg 0% Zealand 0% 0% 0% Malta 0% Saudi 100% 0% Pakistan 88% 0% Arabia 0% Netherlands 0% 67% 70% 0% Portugal Singapore Turkey 0% 0% 0% 0% Russia 0% (CIS) 0% USA 0% 88% Spain 100% Sri Lanka UAE 0% 0% 0% 67% 100% Switzerland 57% Thailand 0% Yem en 0% 100% 0% 0% UK 72%

0% 50% 100% 150% 0% 50% 100% 150% 0% 50% 100% 150% 0% 50% 100% 150% Percentage Percentage Percentage Percentage

Note: 0% utilisation denotes the fact that although there is available frequency, % utilization by SA Airlines % utilization by foreign airlines it was not taken up by SA / foreign airlines Confidential Source:LES-CLS-GCP Department Integrated Deck_V7-26/05/2004-AvM of Transport 81 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Capacity Planning: The drop of the arrivals aggravates the seasonality issue especially from May to July High degree of increase in the arrivals coincides with the Christmas holiday and SA summer period. Arrivals to SA from ‘Core Countries’, 2003 160 145 145 VolatilityVolatility CharacteristicsCharacteristics 138 140 131 Most of the travelers come from 124 Most of the travelers come from 120 thethe developeddeveloped ccountriesountries thatthat 120 110 have a high share within the 108 Mean of Arrivals 106 have a high share within the 98 totaltotal globalglobal outoutboundbound travelerstravelers 100 andand traveltravel byby airair 80 CurrentCurrent monthlymonthly volatilityvolatility isis 80 70 20%20% Thousands 60 TheseThese marketsmarkets tendtend toto visitvisit SouthSouth AfricaAfrica duringduring thethe springspring 40 Core Countries Included: Australia, andand summersummer seasonsseasons ofof SASA China, France, Germany, Hong Kong, Italy, Japan, Kenya, Netherlands, Nigeria, UK, USA 20

0 Jul Oct Jun Jan Apr Nov Mar Aug Feb Sep Dec May

Note: Volatility: degree of the fluctuation of the arrivals into SA, Quantitatively it is measured by the standard deviation of the monthly arrivals into SA. Source: StatsSA Arrival Statistics, 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 82 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress International Capacity: The UK, French and Hong-Kong routes may be constrained The London and Paris routes have become more constrained over time.

Route Capacity Utilizations - 2001 Route Capacity Utilizations - 2002 Route Capacity Utilizations - 2003 100% 100% 100%

86% 80% 81% 78% 79% 80% 80% 76% 77% 80% 69% 69% 69% 66% 64% 65% 64% 64%

60% 60% 60% 56% 53% 53% 52% 53% 52% 45% 43% 44% Percentage Percentage Percentage 39% 40% 40% 40% 36% 30%

20% 20% 20%

0% 0% 0% UK UK UK Paris Paris Paris Nairobi Nigeria Nairobi Nigeria Nairobi Nigeria Germany Germany Germany Singapore Singapore Singapore Hong Kong Hong Kong Hong Kong Amsterdam Amsterdam Amsterdam Kuala Lumpur Kuala Lumpur Kuala Lumpur C1 : 033001019 028007 10 0 9 2040029 0 10 Note: 1) C: Number of months the route is constrained (load factor>=75%) in the given year 2) The load factors for US-SA are not released due to confidentiality reasons, since there is currently one major player in this market Source: ACSA Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 83 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress International capacity: Airlines have been responsive to increased demand since 2001 Capacity expansion on the AMS and PAR routes may be moving ahead of arrivals growth because of re-routing through these hubs in response to constraints particularly on LHR

Annual Available Seat Capacity1 for the Major International Routes (2001 - 2003) 700 631 599 658 600

500 Seats 400 2001 (000s) 313 2002 274 300 256 2003 190 190 190 200 158 135 138 131 109 125 100

0 UK Germany France Holland Hong Kong CAGR of Available Seats (2001 – 2003) 5% 10% 32% 17% 12%

CAGR of Air Arrivals 14% 11% 20% 12% 11%2 (2001 – 2003)

Note: 1) Available Capacity on a given route is the average of the available capacity for one way per month (arriving to / departing from SA) 2) Hong Kong route incorporates arrivals from Japan, China and Hong Kong Source: ACSA, SAT Arrival Statistics Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 84 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress International capacity: UK Indirect connections are a response to increased demand During November, December and May, direct airfares are significantly higher than those of rest of the months. Indirect airfares are generally less expensive, but not considerably so. The context of strong business demand, and the concentration of consumers from London and the South East on the route are important factors

Monthly British Leisure Arrivals , % of Indirect Flight Passengers (Nov 02 – Oct 03)

Arrivals 60 50% 41% 40% % of Indirect Flight Passengers 45% 50 37% 40% 30% 32% 26% 30% 40 29% 35% 26% 24% 30% 22% 30 25% ( 000s) 16%

Passengers 20% 20 15%

10 10% 5%

0 0% Jul-03 Jun-03 Oct-03 Apr-03 Jan-03 Mar-03 Nov-02 Feb-03 Aug-03 May-03 Dec-03 Sep-03

Source: Departure Survey, 2003 (for Leisure Travel only), Arrival Stats, StatsSA Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 85 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress International capacity: France Re-routing is less strongly correlated to demand density SA’s traditional leisure market in France (NSSA’s and Senior Explorers) typically live in smaller towns outside of Paris requiring flight connections. Lufthansa has been aggressively pursuing this opportunity, increasing its market share on the route significantly

Monthly French Leisure Arrivals , % of Indirect Flight Passengers (Dec 03 – Oct 03)

Arrivals 12 70% 60% % of Indirect Flight Passengers

10 60%

44% 43% 44% 43% 50% 8 39% 35% 33% 40% 6 31% ( 000s) 27% 30% Passengers 4 15% 20%

2 10%

0 0% Jul-03 Oct-03 Jun-03 Jan-03 Apr-03 Mar-03 Aug-03 Feb-03 Sep-03 May-03 Dec-03

Source: Departure Survey, 2003 (for Leisure Travel only), Arrival Stats, StatsSA Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 86 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Capacity issues to watch – UK, France and Hong-Kong

Constrained capacity out of London for 10 months of the year may present problems for TGS growth targets as they relate to:- UKUK Demanding London/SE-based UK NSSA’s Time-constrained (and price-sensitive) UK WL’s who are concentrated in the London/SE region

Time and price sensitive French WL’s are concentrated in the Greater FranceFrance Paris area. Constrained capacity out of Paris could constrain growth from this segment.

Hong-Kong currently serves as the most convenient and cost-effective hub for Japanese and Guangdong-based Chinese target segments. The HongHong-Kong-Kong beginning of constraints on this route (in the absence of direct links) needs to be monitored. The potential of other hubs – e.g. Kuala Lumpur – should not be ignored

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 87 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress International capacity: New capacity is coming on-stream, but is it sustainable? SAT has been instrumental in facilitating additional capacity on a number of those routes.

Route Airlift Company Additional Capacity

London – Ct & JHB British Airways 2 additional flights/ week for UK carriers (route not specified)

10 (Summer) or 7 (Winter) flights/week for LON-CT

UK – Cape Town Civair 3 flights / week

UK - Durban 2 flights / week

Germany – CT & DBN Condor Airways (Charter 2 flights / week on each route, 13,000 seats (November to May) – Thomas Cook)

Manchester – CT & DBN CT2 (Charter Company) 2 flights / week, 13,000 seats (November to May)

Nairobi - Johannesburg Kenyan Airways 1 additional flight/week (to be launched soon)

Cape Town – Munich / Lufthansa Starting September / October 2004 Frankfurt

JHB – Kuala Lumpur SAA 3 flights/ week under consideration

JHB – Dakar - NY SAA Flight / week increased from 3 to 7 (October 2003)

JHB – Hong Kong SAA Flight / week increased from 3 to 7 (October 2003)

All the major routes SAA Cabin capacity increased marginally by 7 seats due to except LON-JHB switching from 747-300 to Airbus

Brazil – Ct & JHB Varig Airlines 3 flights/ week to JHB (rest are code-share with SAA)

1 flight/week to CT

Source: Qualitative Industry Interviews, Airline telephonic interviews (SAA, BA, Kenya Airline) Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 88 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Domestic capacity: In general, domestic capacity is not a constraint The JHB / Cape Town and JHB / George routes are constrained during February and March.

Monthly Load Factors- Johannesburg - Monthly Load Factors- Johannesburg - Cape Town Durban 100% 100% 76% 75%

80% 80% 73% 72% 72% 71% 71% 68% 68% 68% 67% 67% 67% 67% 66% 65% 63% 63% 62% 61% 60% 58%

60% 54% 60% 52%

40% 40%

20% 20% Percentage Percentage 0% 0% Jul-03 Jul-03 Oct-03 Apr-03 Oct-03 Apr-03 Jan-03 Mar-03 Jun-03 Jan-03 Mar-03 Jun-03 Nov-03 Feb-03 May-03 Aug-03 Nov-03 Feb-03 May-03 Aug-03 Dec-03 Sep-03 Dec-03 Sep-03

Monthly Load Factors- Johannesburg – Monthly Load Factors- Johannesburg - Port Elizabeth George 100% 100% 83%83% 83% 82% 82% 82%

80% 80% 74% 74% 74% 71% 69%69% 69% 69%69% 69% 69%69% 69% 68%68%68% 68% 68% 67%67%67% 67%67%67% 66%66% 66% 66% 65% 65% 65% 64% 64% 61% 61% 61% 61% 61% 61% 60% 57% 60% 56% 60%

40% 40%

20% 20% Percentage Percentage 0% 0% Jul-03 Jul-03Jul-03Jul-03 Oct-03 Oct-03Oct-03Oct-03 Apr-03 Apr-03Apr-03Apr-03 Jun-03 Jun-03 Jun-03 Jun-03 Jan-03 Mar-03 Jan-03 Jan-03 Jan-03 Mar-03Mar-03Mar-03 Nov-03 Nov-03 Nov-03 Nov-03 May-03 Aug-03 May-03May-03May-03 Aug-03 Aug-03 Aug-03 Feb-03 Feb-03 Feb-03 Feb-03 Dec-03 Dec-03 Dec-03 Dec-03 Sep-03 Sep-03 Sep-03 Sep-03

Agenda

Access

Capacity

Pricing

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 90 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Pricing: Transport, on average, represents one third of the cost of a trip to SA Long-haul destinations are costly places to get to. The challenge is to ensure that the flight does not prevent the consumer from believing that they cannot afford to pay for those components which make up the desired experience.

Total Spend Breakdown on Tourism – International Air Market, Aug 2002- Jul 2003 100%

7% 3% 5% 12% 6% 80% 100% 14%

60% 27%

40% Percentage 28%

20%

0% Total Meal Airlift Medical Shopping Other Recreation Transportation Accomodation Other Expenses

Source: SAT Departure Survey 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 91 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress International Airfares1: Fares from Asia are higher than for competitors (and from the US in some cases)

August -04 December - 04 August - 04 December - 04 200 200 169 From UK 178 From Germany 153 137 150 127 150 100 100 114 105 102 105 106 102 100 100 103 100 100 100 87 89 Index 50 50

0 0 2 NAI NAI NAI NAI RIO RIO RIO RIO JHB JHB JHB JHB SYD SYD SYD BKG BKG BKG BKG SYD

August - 04 December - 04 August - 04 2003 200 200 From US3 From China From Japan 150 150

107 104 100 100 100 92 89 86 100 88 88 100 78 78 80 82 69 70 Index 65 58 54 48 50 50

0 0 NY IST NAI NAI NAI NAI LIM RIO RIO RIO JHB JHB JHB JHB SYD SYD BKG BKG PAR Note: SYD 1)Long haul ticket prices are discount economy tickets with full flexibility, purchased 21 days in advance for a 14day trip, indexed to JOH prices as of Dec--04 2) Data not yet available 3) The ticket prices are based on the airfares from the East Coast of USA Source: Travel agents of the respective country of origin Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 92 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Domestic Airfares: Off-peak Prices have tended to respond to demand levels, and increased competition The decrease in the airlift prices in real terms is due to the new airlift companies entering the market with lower prices. 150 JHB – CPT Route, August 150 JHB – PLZ Route, August

100100 100100 94 95 95 95 97 97 89 89 92 92 89 89 100 88 88 88 85 89 100 85 85 78 80 84 73 71 78 73

Index 50 36 50

00 0 0 Aug-99 Aug-00 Aug-01 Aug-02 Aug-03 Aug-99 Aug-00 Aug-01 Aug-02 Aug-03 JHB – DBN Route, August 150 150 DBN-CPT Route, August 129129

100100 100100 94 95 95 95 95 92 91 90 91 89 89 100 84 88 100 88 88 85 82 80 72 74 74 Index 60 64 50 50

0 0 Aug-99 Aug-00 Aug-01 Aug-02 Aug-03 Aug-99 Aug-00 Aug-01 Aug-02 Aug-03 Airline 1 Airline 2 Airline 3 Airline 4 Note: The airfares have been deflated and indexed as of 1999. In the analysis, discounted economy airfares with 7 / 14 day restrictions have been usedConfidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 93 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Domestic Airfares: Peak Is SAA’s dominance negating the effect of new competitors?

150 JHB – CPT Route, December 150 JHB – PLZ Route, December 124124 119120 120120 116116 115115 110110 110110 108 104104 100100 101 100100 93 94 94 98 93 100 89 87 100 77

Index 50 50

0 0 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 JHB – DBN Route, December 150 150 DBN-CPT Route, December 144 144 124124 119120 113113 116116 107107 110110 108 100100 102 103103 100100 101 94 98 100 85 87 88 100 89 Index

50 50

0 0 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03

Airline 1 Airline 2 Airline 3 Airline 4

Note: The airfares have been deflated and indexed as of 1999. In the analysis, discounted economy airfares with 7 / 14 day restrictions have been usedConfidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 94 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

DRIVERS AND BARRIERS OF GROWTH IN TOURISM

Access:

Appropriate airlinks exist to most major source markets. China and Japan remain areas for concern – There are significant barriers to establishing direct links with China and Japan

There are adequate links to the various major cities and destinations in South Africa Capacity:

Capacity constraints exist on a seasonal basis for certain segment-specific growth strategies in the UK, France, China, Japan and Nigeria – There has been recent capacity expansion on selected routes, however sustainability DIAGNOSTIC FINDINGS thereof is questionable Re-routing provides additional capacity, however it may pose a competitive barrier for certain segments that prefer direct flights e.g. business, senior and family travelers

Domestic air capacity is currently adequate to meet demand – Charter airlines serve various small destinations, but at a substantial premium, limiting distribution of tourists to more remote areas Pricing:

Airfares represent a significant portion of total holiday cost, and are an important psychological barrier Limited competition on the US and certain African routes appears to be keeping prices high

Indirect routings, and strategic misalignment between airlines and SAT, are driving high prices on links to the Far East compared to competitor destinations Even if domestic prices are competitive when benchmarked internationally, they are perceived by travelers to be expensive, and this has implication for the distribution challenge Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 95 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Chapters of the Global Competitiveness Study

External benchmark Benchmarking performance Internal benchmark The configuration and functioning Mapping the cluster of the value system The channel functioning Consumer to market Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Investment and implications for Current investment status future investment Investment Issues

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 96 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress International tourists are the largest user group of rental cars in South Africa This means, ostensibly the car rental businesses in terms of number of customers is driven

by international tourists. Number of Domestic Travelers that used Rental Cars To and From their destination Number of International Tourists that used Rental 44,177 121,162 Cars in 2003 120,000

800,000 247,038 757,983 80,000 33,738

43,246 40,000

600,000 8,730 0 492,236 9,979 Leisure VFR Business Total Number of Domestic Travelers that used Rental Cars At their destination 400,000 138,622 316,907 300,000

200,000 62,190 200,000

116,095 100,000

0 0 Europe & Asia Africa SADC Total Leisure VFR Business Total US

Source: SAT Departure Survey Jan-Nov 2003, SAT Domestic Survey 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 97 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Avis, Imperial and Budget are the key players and account for 85% of the market share of the car rental industry

EstimatedEstimated MarketMarket ShareShare inin 2003,2003, basedbased onon RentalRental DaysDays BilledBilled

Other National 5% 4% Hertz 6%

Avis 35% Budget 16%

Imperial 34%* * Imperial includes Imperial Car Hire, Tempest Car Hire, Europcar, Khaya Car Hire, Holiday Autos and Swans Car Hire Source: Interview with General Manager and Chairman of the Rental Section of SAVRALA, Interview with Avis Marketing Director Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 98 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The size of the SA car rental market is estimated to be 8.1m rental days, yielding a turnover of R1.4bn in 2003

Estimated number of rental days and turnover for the Other key facts relating to the South African Car Rental Industry from 2000 to 2003 South African Car Rental industry 12 1600 Rental Days (CAGR – 15.8%) TheThe totaltotal numbernumber ofof rentalrental 1400 Turnover 1400 agreementsagreements inin 20032003 waswas 1.81.8 10 millionmillion 1200 (CAGR – 11.7%) 1200 TheThe averageaverage numbernumber ofof rentalrental 8.1 daysdays perper rentalrental agreementagreement 8 7.3 approximatelyapproximately 55 daysdays Million 900 900 1000 days InIn aa carcar rentalrental fleet,fleet, carscars areare 5.8 typicallytypically keptkept forfor 9-129-12 monthsmonths 6 6.4 800 Rm –– 80% 80% ofof thethe fleetfleet inin aa yearyear isis 600 sourcedsourced fromfrom JulyJuly toto DecDec 4 SAVRALA*SAVRALA* membersmembers areare thethe 400 largestlargest privateprivate purchasingpurchasing groupgroup ofof newnew vehiclesvehicles atat 15%15% ofof 2 200 volumevolume SAVRALASAVRALA representsrepresents 95%95% ofof 0 0 thethe carcar rentalrental industryindustry 2000 2001 2002 2003

* SAVRALA – Southern African Vehicle Rental and Leasing Association Note: The turnover only includes the rental and mileage charges and does not include revenue from any of the insurance waivers as these are not reported to SAVRALA Source: Interview with General Manager and Chairman of the Rental Section of SAVRALA, Monitor Analysis Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 99 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Car rental prices have been increasing at a rate below inflation between 2000 and 2004

Car Rental Price index for rental and standard waiver costs and total 5-day rental cost for a Group B car (2000-2004) 140 134.1 Inflation index 130 125.6 124.7

118.2 120 117.6 123 117.1 Index Car Rental + 115.8 Std Waivers 114.9 110 107.8 Total cost for 5 days 105.2 100 104.9 100 100

90 2000 2001 2002 2003 2004

Note: The rates used are the ‘standard brochure rates’ quoted by car rental companies. The ‘car rental + std waivers’ is the charge per day and includes an average of the standard rental charge, standard collision damage waiver and standard theft waiver for three car hire companies. The ‘total cost for 5 days’ includes the above and a mileage charge for 130km per day Source: Statssa, Budget Car Hire, Hertz, National Car Hire, Monitor Analysis Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 100 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The cost per day of rental cars in South Africa does not appear to be out of line with our key competitive markets Prices are calculated based on standard advertised rates

Average Rental Prices Per Day for a Compact Car in South Africa, Brazil, Australia and Kenya 100 92 90 81 80 77 30 70 26 60 55 39 USD / day 50 13 40 13 30 62 51 20 42 29 10

0 Brazil (Rio De Janiero) Australia (Sydney) South Africa Kenya (Nairobi)

Rental Charge Insurance Waivers Mileage Charge*

*- Brazil, Australia and Kenya offer unlimited mileage as part of their standard rates Note: The average rental prices are calculated based on standard prices quoted by Avis and Hertz for each of these destinations Source: Seekers Travel, Hertz.com Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 101 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

DRIVERS AND BARRIERS OF GROWTH IN TOURISM

Sufficient capacity & ability to increase capacity rapidly (6 month lag) CAR HIRE CAPACITY Rand-prices have increased below inflation since 2000; large swings in $ prices due to exchange rate fluctuations – Limited Rand rate increases are driven by strong competition in this market (no monopoly pricing) – Car rental companies do not assume risk on exchange rate (i.e. price and quote in Rand on GDS systems)

DIAGNOSTIC FINDINGS – However, at 10% to 14% of the cost of the average FIT package, ‘car rental’ is significant enough to create the impression of ‘poor value’ when considered in $

This is particularly so in the absence of safe and reliable public transport

Profitability of car hire companies has improved over last four years

Current prices are approximately the same as Australia and less than in Kenya

Chapters of the Global Competitiveness Study

External benchmark Benchmarking performance Internal benchmark The configuration and functioning Mapping the cluster of the value system The channel functioning Consumer to market Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Investment and implications for Current investment status future investment Investment Issues

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 103 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Grading of accommodation is rapidly gaining ground with approximately 36% of all rooms having been graded

Total Room Capacity Available in South Africa by Accommodation Type 2004 180,000 Ungraded Rooms 6% 160,000 36% Graded Rooms 13% 100% 4687 97221 140,000 34% 101% 12655 2,800 313 6983 120,000 15% 2,244 8,581 100,000 3,564 41443 80,000 54% 60,000 7,574

Room capacity available 28791 40,000

20,000 55,544 33,130 0 Total B&Bs Hotels Guest SANParks Lodges Timeshare and Hunting *Backpackers Houses/Farms Game Reserves Self Catering and Catering Self

Note: Majority of alternative accommodation estimates are based on multiple sources and are deemed to be on the conservative side, *Backpackers are estimated at 5,000 rooms based on a bed capacity of 10,000. Guest houses graded at 101% may be due to definitional errors Source: JICA, AA Travel, BTSA, SANParks, BABASA, StatsSA, TGCSA Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 104 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress International tourists spend approximately more than a third of their bed- nights in hotels and the remaining in alternative accommodation types Bed-nights with friends and relatives which is the largest category at over 20 million nights, has been shown separately so as not to distort the picture for paid accommodation.

Bed-nights by Type of Accommodation used in South Africa, 2003 35,000 3% 32,722 7% Total 30,000 8%

9% Rest of World 13.4mil 25,000 13.4mil 9% bed-nightsbed-nights 11% 20,261 SADC 20,000 11% Africa 15,000 41% Asia 10,000

Americas

# Bed-nights (thousands) 5,000

Europe 0 Total Hotel Hotel Trains Trains Camping relatives relatives Friends and Game Lodge Self Catering Catering Self Guest House Backpackers Bed Breakfast and Note: Europe – UK, Germany, France, Italy, Netherlands; Asia – Japan, China; Africa – Kenya, Nigeria Source: SAT Departure Survey, Jan-Nov 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 105 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Domestic tourists spend almost all their bed-nights with relatives and friends and the remaining in alternative accommodation types

Next to friends and relatives, domestic tourists prefer staying in self-catering and camping facilities.

Domestic Tourist Bed-nights by Type of Accommodation, 2003 160,000

138,425 140,000

120,000

100,000

4.4mil bed- 80,000 4.4mil bed- nights nights 60,000

7% 6% 4% 2% 41,201 40,000 9% 11% # Bed-nights (thousands) 13% 21% 20,000 27%

0 Total Hotel Hotel Other Hospital Camping relatives relatives Friends and Friends Game Lodge Self Catering Catering Self Backpackers Backpackers Guest House Bed and Breakfast

Source: SAT Domestic Survey 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 106 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress On average, the prices and occupancy performance of South African hotel accommodation compares favourably on a global basis Although these figures compare favorably it will be more meaningful to compare this data at a more granular level (e.g. by grade)

Occupancy Levels, 2003 Average Room Rates – USD - 2003 68 120 67 110

66 100 65

64 80 82 82 63 80

62 65 61 60 60

59 Room USD / 40

Occupancy Levels, Occupancy Levels, % 58

20 56

54 0 USA Europe Middle Asia South USA Europe Middle Asia South East Africa East Africa

Source: Deloitte Hotel Benchmark Survey, 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 107 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress There has been a lack of development in hotel capacity over the past few years – however this was preceded by rapid expansion from 94 to 99 Hotels appear to have entered a period of consolidation – with the number of rooms offered by the HILG fairly stagnant over the past few years

Stats SA: All hotel rooms (2000-2003) HILG: hotel rooms (1993-2002) 54 40 33.0 53.3 35 30.8 31.4 31.7 31.7 53 52.6 30 27.3 52.3 52.3 25 22.5 Thousands Thousands 19.7 17.9 52 20 16.9 15 51 10 5 50 0 2000 2001 2002 2003 93 94 95 96 97 98 99 00 01 02

Stats SA: Hotel rooms available in HILG: hotel rooms available in CT (1993-2002) Western Cape, (Dec 2001 – Dec2003) 12 12 11.7 11.7 11.7 11.8 10.0 10.0 10.0 10.0 10 9.1

8 7.0 Thousands Thousands 6 5.2 11 4.3 3.7 4.1 4

10 0 2000 2001 2002 2003 93 94 95 96 97 98 99 00 01 02

Source: HILG and StatsSA Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 108 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Grade 5 hotels have shown increases in occupancies over the past 5 years, other grades have been static or decreasing One would expect that the occupancies would increase in line with the growth in arrivals, (assuming that capacity remained fairly static) – however, this is not happening.

International Arrivals and Hotel Room Capacity Utilization 98 - 03

85 7 Grade 3 Grade 4 80 6.50 Grade 5 6.43 7 Millions ofinter Arrivals 75 5.89 5.87 6 71 5.73 5.79 69 70 68 67 67 67 6 national tourists 65 64 64 65 64 64 63 62 62 61 61 60 5 60 59 occupied per annum occupied

Capacity Utilization in % rooms Capacity Utilization in 55 5 1998 1999 2000 2001 2002 2003

Grade 3 Rooms - - 7634 7674 8975 8941 Grade 4 Rooms - - 6637 6609 8436 8433

Grade 5 Rooms - - 4365 4362 5063 5079

Source: Deloitte, Hotel Benchmark Survey 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 109 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The monthly occupancies do not indicate a capacity constraints in the high season – although this does not account for regional and local variances It becomes important to understand at which occupancy level is capacity effectively constrained. Interestingly December occupancies are lower than the November and December figures – is this a function of business travel or incoming VFR tourists? Monthly Occupancies, Grade 3, 4 and 5 (Jan 1999 – Feb 2004) 90%

85% Grade 5 occupancies Grade 4 occupancies Grade 3 occupancies

80%

75%

70%

65%

60%

Occupancy Level Occupancy 55%

50%

45%

40% 2003Jul 2002Jul 2001Jul 2000Jul 1999Jul 2004Jan 2003Jan 2002Jan 2001Jan 2000Jan 1999Jan 2003Nov 2002Nov 2001Nov 2000Nov 1999Nov 2003Mar 2002Mar 2001Mar 2000Mar 1999Mar 2003Sep 2002Sep 2001Sep 2000Sep 1999Sep 2003May 2002May 2001May 2000May 1999May

Source: Deloitte: Hotel Benchmark Survey: South Africa Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 110 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Hotel revenues achieved per room have risen at a compound rate of approximately 9% per annum The compound growth rate in CPIX for the same period is 7,6% - which indicates a small real increase in room rates achieved.

Average Revenue Achieved per Room Sold 98 - 03

7 Grade 3 1000 952 Grade 4 888 6.50 6.43 Grade 5 CAGR 7= Millions ofinter 9% Arrivals 800 739 690 644 623 5.89 5.87 6 5.73 5.79 600 CAGR = national tourists 498 8% 454 398 6 364 377 400 339 336 337 CAGR = 303 9% 272 240 257 200 5 Ave Revenue achieved per room sold per room Ave Revenue achieved

0 5 1998 1999 2000 2001 2002 2003

Source: Deloitte, Hotel Benchmark Survey 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 111 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Hotel REVPAR figures have risen at a compound rate greater than inflation over the 5 year period The compound growth rate in CPIX for the same period is 7,6% - which indicates a small real increase in room rates achieved.

REVPAR Achieved 98 - 03

900 7 Grade 3 800 Grade 4 6.50 6.43 Grade 5 7 Millions ofinter 700 Arrivals 628 633 600 CAGR = 11.5% 5.89 5.87 6 5.79 500 5.73 452 435 national tourists 398 400 367 CAGR = 339 315 8.5%6 REVPAR (R) 300 CAGR = 232 242 242 225 213 218 8.4% 182 200 162 163 169 5

100

0 5 1998 1999 2000 2001 2002 2003

Note: REVPAR – Revenue per available room Source: Deloitte, Hotel Benchmark Survey 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 112 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress When looking at alternative accommodation, we observe rapid growth in the number of providers The estimates for the number of businesses varies widely and is indicative of the lack of reliable statistical data on the industry.

Growth rates of accommodation types: 1996 to 2001, 2001 to 2004

1996 - 2001 > *200%

160% 2001-2004

113% 110%

60% 41% 39%

# of Establishments 27% 15% 6% 10%

-14% -40% House )and other)and Self-catering B&B / Guest Lodges* (incl Backpackers Game, Hunting Note: *This figure has not been triangulated and is sourced from the ABSA report, where the number of game and hunting ranches Hostels /Youth are estimated at approximately 5000 operators Source: JICA 2001, AATravel Guide, Portfolio Collection, BABASA, BTSA, ABSA “Game Ranch Profitability, 2003” Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 113 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Analysis of the Portfolio Collection shows that there has been substantial investment over the past 3 years Extrapolating the investment amounts to represent the establishments in Portfolio Collection, gives a total 3 year investment of approximately R810 million or R105,000 per room1 over the past 3 years.

Portfolio Collection Accommodation Total Amount Invested into Business over Providers – age of businesses the past 3 years

Greater than 5% R5m more than 10 14% years R2m to R5m 14%

R1m to R2m 14% 5 to 10 years 46% R500000 to 15% R1m

R250000 to 22% R500000 Less than 5 40% years

R0 to R250000 30%

0% 20% 40% 60% 0% 5% 10% 15% 20% 25% 30% 35% Percentage of respondents Percentage of respondents Note: 1 – Assuming 7.7 rooms per establishment and 1000 establishments Source: Portfolio Collection Survey 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 114 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Alternative accommodation providers have reasonable occupancy levels – and are increasingly serving the international market The increase in occupancy and international consumers appears to justify the investments.

High and Low Season Occupancy Levels Customer bases of Portfolio Collection (2001 – 2003) Respondents, 2003 80% Low Season 100% international 0% domestic 2.4% CAGR = 70% High Season 66.4% 32.2% 12.1% 60.8% 90% international 10% domestic 60% 52.8% 75% international 25% domestic 50% CAGR = 31.7% 40.4% 10.4% 40% 37.7% 50% international 50% domestic 15.7% 33.1% 30% 25% international 75% domestic 11.6%

20% 10% international 90% domestic 5.8%

10% 0% international 100% domestic 0.5%

0% 0% 5% 10% 15% 20% 25% 30% 35% 2001 2002 2003 % of respondents

Source: Portfolio Collection Survey 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 115 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

DRIVERS AND BARRIERS OF GROWTH IN TOURISM

ACCOMMO- Capacity utilization of 5 star hotels has shown improvement over the past 5 DATION years CAPACITY South African average hotel room rates achieved compare favourably on a global basis

Hotel capacity has stabilized recently (post expansion in late 90’s) – No apparent capacity constraint at the moment

Rapid expansion in alternative accommodation in past 5 years

International tourists spend 25% of nights in hotels (13.4m nights), 40% in DIAGNOSTIC FINDINGS VFR and 35% in alternative accommodation – SADC purchased 43% of all international hotel nights in SA in 2003 (6m nights)

Domestic tourists spend 77% of nights with Friends and Family and 2.4% of nights in hotels (4.4m nights)

There were real price increases during Rand devaluation period and there are now real price decreases

Grading accounts for approximately 2075 establishments and an estimated 36% of available rooms

Chapters of the Global Competitiveness Study

External benchmark Benchmarking performance Internal benchmark The configuration and functioning Mapping the cluster of the value system The channel functioning Consumer to market Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Investment and implications for Current investment status future investment Investment Issues

Agenda

Employment levels, service levels and the potential impact of HIV

Tourism education in South Africa

Linkages between industry and education, skills gaps and wages

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 118 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The alternative accommodation sector is growing in capacity and in employment The data indicates that there is approximately one permanent employee per room in alternative accommodation.

Portfolio Collection Accommodation Providers: Portfolio Collection Survey Respondents: Average Number of Rooms Per Establishment Average number of Permanent Employees / 2002 and 2004 Establishment 9 9 8.2 8 7.7 8 6.7 7 7 6.3 6 6

5 5

4 4

3 3 Average number of rooms Average number 2 2 1.7

1 Ave number of employees / Establishment

0 0 2002 2004 2002 2004 Ave no of Permanent employees Ave no of Temporary employees Source: Portfolio Collection Survey, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 119 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Within the employed ranks, Tour Guides appear to be doing relatively well with an average unemployment rate of only 16% Tour guide employment rate is high in all provinces with the exception of Northern Cape and Western Cape

Tourist Guide Employment by Province 1200 Employed AverageAverage UnemploymentUnemployment Rate:Rate: 16%16% Unemployed 1000

800

749 600 Number

400

200 329 319 276 259 181 211 21 9 16 10 27 19 7 2 2 63 14 0 Eastern Cape Limpopo KwaZulu Mpumalanga Free State North West Gauteng Western Northern Natal Cape Cape

Note: A total of 2879 tour guide are not include as their employment status was unknown Source: Department of Environmental Affairs and Tourism, 2004. Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 120 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Of concern is the fact the Tour Guide industry is currently dominated by whites and foreigners

Number of Tourist Guides by Race 3500 3079 3000

2500

2000

Number 1500 1176

1000 723

500 373

42 0 Foreigners* White Black Coloured Asian

* Foreigners implies non South African citizens Source: Department of Environmental Affairs and Tourism, 2004. Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 121 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The industry believes expectations of the international travelers depend on the product – and appear to have low expectations for standard products in South Africa However, as our tourism industry matures tourists are likely to raise their expectations over time – this has implications for service levels in that the satisfaction bar will be continuously moving higher.

Before arriving in South Africa, Before arriving in South Africa, international tourists have low expectations international tourists have low expectations of international-standard products of South Africa specific products 60% 60%

53%

50% 50%

40% 37% 40%

31% 30% 30% PercentagePercentage Percentage

20% 18% 20% 16% 14% 14% 10% 10% 10% 4% 4%

0% 0% Strongly Agree Neither Disagree Strongly Strongly Agree Neither Disagree Strongly agree agree / disagree agree agree nor disagree disagree disagree

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 122 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress This is contrasted with the high expectation levels expressed by tourists regarding universal products The percentage of tourists coming in with low and very expectations was at most 8% for business and more typically around 4-6% across the product range Unique South Africa Overall Product Universal Products, 2004 Product, 2004 Expectation 100% 100% 100%

29%

42% 44% 41% 75% 47% 75% 75% 51%

21%

Percent of 50% 50% 50% 20% Segment 22% 20% 18% 18%

42% 25% 25% 25% 28% 29% 31% 35% 28% 1% 1% 1% 1% 1% 4% 2% 5% 3% 4% 2% 2% 0% 3% 0% 3% 0% 1% All - B All - NB All - B All - NB All - B All - NB

None Very Low Expectations Low Expectations No Expectations High Expectations Very High Expectations

Note: Universal products include items such as hotels, domestic flights, car hire etc Source: Tourist Satisfaction Index, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 123 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress It is clear that Business travelers have expect higher levels of service – which is highlighted by their complaint levels On the whole, though, the complaints about South Africa emanate from less than 10% of the tourists (business and leisure) that visit the country

Overall Holiday Experience, 2004 Characteristics Failing to Meet Expectations, 2004 80% Exceeded 73% 17% All B All NB Expectations 69% Substantially 10% 70% 67% 63%

60% 32% Exceeded 53% Expectations 28% 50% 50% 50% Percent of Segment* 46% Met My 40% Expectations 36% 49% 34% 34% 31% 31% 30% 28%

Below 4% 20% Expectations 10% 20% 12% 8% Below 2% 10% Expectations All - NB 3% 2%1% Substantially All - B 0% Price Quality Service Authentic Other 0% 20% 40% 60% Levels Experience

Percent of Segment Value for Flexibility of Uniqueness Availability / Money Itinerary Ease of Access * Calculated as a percentage of those respondents with expectations not met Source: Tourist Satisfaction Index, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 124 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The impact of HIV has been to lower the life expectancy within SADC countries to between 33 years and 72 years

Life Expectancy of SADC countries 80 71.8 71.3

46.6 44.6 42.8 Life 39.5 39.0 38.0 expectancy 40 37.0 36.9 36.3 35.3 (years) 33.1

0 Malawi Angola Zambia Lesotho Namibia Tanzania Mauritius Botswana Swaziland Zimbabwe Seychelles South Africa South Mozambique

Source: CIA World Factbook Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 125 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Life expectancy has for the most part been decreasing within SADC due to the impact of HIV The impact of HIV/AIDS on SADC countries is indicated by the low life expectancy

Life Expectancy of SADC countries 100 1994 1999 80 2001 2003 60 Life expectancy (years) 40

0 Malawi Angola Zambia Lesotho Namibia Tanzania Mauritius Botswana Swaziland Zimbabwe Seychelles Mozambique

Source: CIA World Factbook Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 126 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress HIV is set to have an ever increasing impact on the South African workforce – and the Tourism industry with 500k workers is going to be affected The actual impact of HIV on the tourism and hospitality industry is currently being conducted by Grant Thornton and will be available later in the year

HIV Prevalence in the SA Labor Force by Skill Level 30% PAST FUTURE

25%

Unskilled 20% Skilled

15%

Highly Skilled 10%

Percentage of workforce infected of workforce Percentage 5%

0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Note: The 500K tourism workers are directly employed in the tourism industry Source: “South Africa: Research on the Economic Impact of HIV / AIDS”, Neal P. Cohen, USAID / SA March 2002, Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 127 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Agenda

Employment levels, service levels and the potential impact of HIV

Tourism education in South Africa

Linkages between industry and education, skills gaps and wages

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 128 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress In terms of training institutions – there are a large number of public and private bodies training on tourism There appear to be a reasonably high number of tertiary institutions offering tourism courses

Private Training Institutions (excl colleges) Training Institutions registered with Theta, 2002 registered with THETA2 , 2002 130 123 120 50 47 110 100 Mostly in-house 40 Mostly in-house 90 accreditedaccredited trainingtraining 80 facilitiesfacilities 30 70 64 60

Number 50 20 18 41 15 40 30

10 7 20 14 12 5 9 10 5 2 3 4 3 0 0 KZN Other Gauteng School Free State University Technikon Mpumalanga Eastern Cape Northern Cape Western Cape Private college Training centre Northern Province Northwest Province Technical college Technical

Note: 2 The majority of these training institutions are in-house training facilities in groups and chains registered accredited with THETA Source: JICA (Japan International Cooperation Agency) “Tourism in South Africa” 2002 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 129 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Tourism education in Secondary Schools is growing rapidly over time and so are the number of learners taking the courses in grades 10, 11 and 12 Since it’s introduction in 1996, Tourism course have been able to attract more learners every year Number of Schools Number of Learners 800 140,000 CAGR = CAGR 133% = 91% 120,000

600 100,000

80,000 400

Number Number 60,000

40,000 200

20,000

0 0 1996 1997 2000 2001 2002 2003 2004 1996 1997 2000 2001 2002 2003 2004

TotalTotal numbernumber ofof schoolsschools Courses available at high school level are: inin S.A*S.A* == 5,6705,670 Travel and tourism Hotel Management *Only Public and independent secondary schools are counted for the year 2001 Note: Number of learners includes grade 10, 11 and 12 learners Source: Theta research, 2004; Department of Education. Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 130 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Of the tertiary tourism educational facilities we received data from – all are showing declining student rates except for PE Technikon

Tourism at University of Tourism at Western Cape Pretoria Tourism at Cape Technikon University 450 800 80 No of students registered No of students No of 400 700 70 No of graduates registered students 350 600 60 registered 300 No of graduates 500 50 No of 250 graduates 400 40 200 Number Number Number 300 30 150 100 200 20 50 100 10 0 0 0 1999 2000 2001 2002 2003 2004 1999 2000 2001 2002 2003 2004 2001 2002 2003 2004 Tourism at Port Elizabeth Tourism at University of Cape Technikon Town 600 40 No of students registered No of students registered 35 No of graduates 500 No of graduates No of employed graduates 30 400 25

300 20 Number Number 15 200 10 100 5

0 0 1999 2000 2001 2002 2003 2004 2000 2001 2002 2003 Note: University of Cape Town only have postgraduate program in Tourism. The number of employed graduates is based on a survey of all the UCT graduate employed in Tourism industry Source: Each University’s institutional planning office Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 131 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Agenda

Employment levels, service levels and the potential impact of HIV

Tourism education in South Africa

Linkages between industry and education, skills gaps and wages

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 132 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress On the whole, the industry appears to have weak links with the training institutions – and there is a clear call for better integration

“There is sufficient labor, but they are not specialized and trained . We need better training. We need in-house training. Department of Education could help us in this regard.” – Manager, Accommodation Training Training institutions institutions “To improve the skills base we need better training at Teknikon and Universities.” Activity operator – Manager, Major Tour Operator

“Training should be given by the partnerships between the government and the private sector. The Attraction operator Degree of industry should fund the training institutions. We need tourism training academies. Poor funding relationship for the students. The industry should sponsor students. Private institutions should help business Accommodation science students to get internships.” Owner – Lecturer, University Very Strong Car hire “We want to be more integrated into the industry, be invited to discussions and where we can we are brining in the private sector to help us teach current practices” Strong Food and – Lecturer, Training College beverage Government or Moderate “There needs to be better tertiary education – and this can be achieved by improving the local authority interaction between the industry and the training institutions” – Provincial Government Inbound tour Weak operator “We have a trainee program. PDIs are highly demanded. When we train them, we lose them. Outbound tour Very Weak However you can not “not train”. We have a management development program within the group. operator We fast track people’s development by assigning a mentor (a senior manager). They take special guidance courses. We make sure that they have the right tools. We partnership with the hotel Tour guide schools” – Manager, hotel Group Tourism association “Training institutions should be teaching students foreign languages inkling Chinese.” – Tour operator Training institution “We have a good in-house training programme. One cannot always look at the Government” – Manager, Attraction

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 133 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The industry is of the opinion that there is a problem within the educational sector, and as a result they are taking on the responsibility of training staff The fact that the industry does not see high quality employees being produced by the educational sector may well be part of the rationale as to why they see in-house training in such a strong light.

“ Advanced educational programs in your “ The responsibility to upgrade the labor region provide your business with high lies principally with the private sector quality employees” active in the tourism industry” 80% 80%

60% 60%

44% 38% 40% 40%

25% 22% 16% 16% 20% 20% 17% 12% 4% 5% 0% 0% Strongly Agree Neither Disagree Strongly Strongly Agree Neither Disagree Strongly agree agree nor disagree agree agree nor disagree disagree disagree

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 134 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

At a specific level – there are issues around THETA

“THETA very cumbersome, difficult to get hold of. You rather pay the tax. They are complicated, not working.” Key Issues with THETA – Manager 5 Star Hotel “THETA is a debacle!” THETA is not delivering on its – Accommodation Owner mandate “THETA needs to work! They need to consult the industry and listen to Does not appear to consult the the industry Some requirements for tour guides are ridiculous – eg industry sufficiently on training computer skills. Currently no training facility for tour guides in KZN at the programmes moment – big problem!” – Tour Operator Seem to be defensive when it comes to dealing with issues “THETA is a disaster, they apply all sorts of conditions on who should be trained e.g. 25% black females – but these people are not interested or Difficult to interact with (simply coming forward – currently only 4%female adventure tour guides in the communication) country.” – Adventure Tour Operator Bureaucratic procedures “THETA process is confusing and onerous (particularly with regard to the – Claiming of SETA funds is reassessment of tour guides) and this places a financial burden on tour very difficult – major issue operators. Streamline THETA and put in place an apprenticeship for SMMEs program so that it is easier to find trained and experienced guides.” – Adventure tour operator – Larger businesses have dedicated employees “Simply need to be able to claim the SDL refund easier – at this stage it is literally impossible” dealing with compliance – General Manager International Hotel issues “Theta is not performing their role – should fire everyone and bring in new people, and it should have regional representation.” – Provincial Government Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 135 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The industry is of the view that skill shortages are constraining the growth of the industry

“ There is a pool of human resources available in your region that meet your business growth needs” 60%

40% 40%

21% 20% 20% 15%

0% Strongly agree Agree Neither agree Disagree Strongly nor disagree disagree

Source: Industry Quantitative Survey 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 136 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

The industry has identified a variety of skills shortages

“There is a skills shortage throughout the industry including the managers - Lecturer, University Salaries of black managers are very high” - Manager, Major Tour Operator Management Staff “People skills, guest relations and computer related skills” - Manager, Family and Others Accommodation “At the top end of the ladder managerial skills are needed. DOL needs to make the importation of skills more easy – this would also lead to a transfer of skills” - Manager International Hotel “There is high demand for chefs, we also have a lack of black waiters” - Manageress, Attraction Kitchen Staff – Chefs “Good chefs (Difficult to find qualified PDIs in Cape Town)” - Manager, Hotel Group “Mostly only in the kitchen (chefs or chef’s helpers)” - Manageress, Activity and Accommodation

“Adventure tour guides” - Adventure tour operator “Not enough tour guides” - Adventure tour operator Specialised Tour Guides

“Tour guides with foreign language skills are in short supply” - Tour operator “Italian speaking tour guides have organized themselves into a cabal and are charging Language Skills high rates for services” – Cape Town Tour Operator “Mandarin speaking staff – find me some!”- General Manager Hotel and Casino

Source: Qualitative Interviews 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 137 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress As a net effect of the skills issues, the industry has identified training as one of the top five intervention areas for Government

Priority of Government Intervention Identified by the Industry Stakeholders Drive promotion of SA as tourism destination in overseas source markets 96

Improve general infrastructure in the country (roads safety & security etc.) 95

Promote tourism generally within SA 88

Improve information and communication infrastructure 82

Promote specialized education and training programs to upgrade 82 tourism workers Implement tax incentives to drive new investment in the tourism industry 82

Strictly enforce government regulations (i.e. standards to protect 81 environment etc) Ensure stability of the exchange rate 79

Increase predictability of government policies 79

Simplify compliance procedures related to government regulations 77

Support particular needs of start-up companies 77

Direct new investment expenditure within the tourism industry 76

Increase funding for special research institutes within the tourism industry 70

Encourage black economic empowerment within the tourism industry 67

Catalyze partnerships among government agencies industry and 67 universities Catalyze collaboration amongst industry participants 65

0 20406080100 Percentage of respondents Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 138 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

DRIVERS AND BARRIERS OF GROWTH IN TOURISM

The SA industry is creating direct employment

SKILLS & It appears to take more tourists to create one job in SA which is more than it takes in other SERVICE tourist destinations LEVELS The South African workforce is facing an HIV epidemic and this has implications for training, skills development and productivity

From the industries viewpoint, international tourists have low expectations of “standard product” prior to coming to SA, this is juxtaposed with the high expectation levels foreign tourists report having

Industry view is that the available pool of human resources is not sufficient to meet their growth needs, the educational bodies seem to think that the industry does not value graduates DIAGNOSTIC FINDINGS There are specific issues that the industry has named with regard to THETA

Private sector has indicated an acceptance of the responsibility of upgrading skills – There are low levels of inter-firm integration on this issue – Anecdotal evidence suggests that there are high levels of poaching of skilled staff and this makes in-house training an expensive exercise

Industry has weak links with training institutions and academic institutions appear to corroborate this view

There is little evidence of wages increasing above inflation, although this does not appear to be true for HDI management staff

There are some key data gaps (which would be useful to track over time): – Total tertiary tourism enrolments – Total tertiary and NQ level graduates – Employment figures by sub-sector

Source: Global Competitiveness Project – Theme 2: Drivers and Barriers to Growth, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 139 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Chapters of the Global Competitiveness Study

External benchmark Benchmarking performance Internal benchmark The configuration and functioning Mapping the cluster of the value system The channel functioning Consumer to market Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Investment and implications for Current investment status future investment Investment Issues

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 140 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Participants agree that innovation is critical for success in the tourism industry Industry is displaying the right ‘headset’ from a global competitiveness perspective.

Innovation is critical to the success of Innovation is critical to the success of your company – Western Cape your company – Rest of the Provinces 80% 80%

70% 70%

60% 57% 60%

50% 50% 50% 46%

40% 40% 33% PercentagePercentage Percentage 30% 30%

20% 20%

10% 7% 10% 3% 2% 1% 1% 0% 0% Strongly Agree Neither Disagree Strongly Strongly Agree Neither Disagree Strongly agree agree / disagree agree agree / disagree disagree disagree

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 141 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Overall, the industry believes it is moderately innovative, but is showing less innovation in management, logistics and institutional areas Industry believes more in their own capabilities. Product Innovation Management Innovation 50% 50% 39% 37% Changed/ new 38% New ways of 40% products 40% thinking about 29% 30% developed to the 30% tourism stage of challenges, 20% commercialization 20% 15% problems, new 8% (e.g. surgery & ways of managing 10% 4% safari, etc) 10% 5% staff 0% 0% Highly Innovative Somew hat Not innovative Highly Innovative Somew hat Not innovative innovative innovative (stagnant) innovative innovative (stagnant) Promotion Innovation Structural and Logistics Innovation 50% 50% 43% The Enhancement of 40% innovativeness of 40% 34% airport hub 31% 30% the distribution 30% 25% systems, new channels for 25% local transport 20% tourism products 20% infrastructure 10% and services 10% 4% 10% 3% 0% 0% Highly Innovative Somew hat Not innovative Highly Innovative Somew hat Not innovative innovative innovative (stagnant) innovative innovative (stagnant)

Processes Innovation Institutional Innovation 50% 50% 37% 38% Rise in the New, collaborative 40% 40% performance of 41% and regulatory 30% existing 30% 26% structures; new operations, i.e. rules and 18% 20% computerized 20% regulations that management determine 6% 6% 10% systems, etc 10% 2% participation or access to finance 0% 0% Highly Innovative Somew hat Not innovative Highly Innovative Somew hat Not innovative innovative innovative (stagnant) innovative innovative (stagnant) Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 142 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The industry believes that they have changed the way they do business, largely due to levels of competition

Industry Quotes

Competition has recently forced you to “It is a very competitive market to get more reconsider the way you operate your business share of the total international market” 60% – Accommodation Owner

50% “Innovation is an outcome of the competitive pressures in 50% the town: there are a large number of establishments, and standards are high.” – Accommodation Owner 40%

“The driver [for innovation] is the potential money to be 30% earned. ” – Accommodation Owner PercentagePercentage “Innovation is driven by need to grow and survive.” 20% 17% – Accommodation Owner 16% 15%

10% “Historical and cultural shifts are the drivers of innovation. ” 2% – Inbound Tour Operator and Tour Guide 0% Strongly Disagree Neither Agree Strongly “New entrepreneurs are bringing in new products” disagree agree nor agree – Inbound Tour Operator, Limpopo disagree

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 143 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The industry has recognized that international consumers are relatively more demanding than domestic consumers Therefore industry believes that the international consumers have had a more significant impact on the SA product owners in terms of driving their innovation levels.

Innovation within the tourism sector is driven by Innovation within the tourism sector is driven by demanding and sophisticated domestic tourists demanding and sophisticated international tourists

3% 21% Strongly agree 6% 22%

33% 65% Agree 36% 64%

27% 9% Neither agree nor disagree 20% 11%

4% Disagree 33% 35% 4%

Strongly disagree 4% 3%

0% 20% 40% 60% 0 0.2 0.4 0.6 0.8 Small businesses (Turnover R1m)

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 144 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Chapters of the Global Competitiveness Study

External benchmark Benchmarking performance Internal benchmark The configuration and functioning Mapping the cluster of the value system The channel functioning Consumer to market Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Investment and implications for Current investment status future investment Investment Issues

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 145 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress There appears to be a strong dissenting voice as to whether international tourists are receiving value for money from the total offering Inbound operators believe that domestic tourists are being hard done by the industry

“International tourists are currently “Domestic tourists are currently receiving value for money from the receiving value for money from the SA product and package offering” SA product and package offering” 80% 80%

60% 60% 51% 44%

40% 40% 31%

21% 20% 20% 14% 14% 9% 9% 7%

0% 0% 0% Strongly Agree Neither Disagree Strongly Strongly Agree Neither Disagree Strongly agree agree nor disagree agree agree nor disagree disagree disagree

Source: Quantitative Industry Survey, 2003 / 2004 – Tour Operator responses only (n = 45) Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 146 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress High end accommodation, international flights and attractions (for domestic tourists) are the culprits of low value for money according to ITOs

Which part of the integrated SA tourist product offering has/ have recently become too expensive for international and domestic tourists? 100%

90% 86% International 80% Domestic 80% 75% 75% 70% 61% 60% 57% 52% 48%

Respondents 50% 45% 44%

40% 40% 35% 33% 30% 33% 30% 20% Percentage of 15% 10% 0% flights services etc) Car rental General Tour guide Tour and food International 1 to 3 star 1 to Attractions entertainment 4 and 5 star Table Mountain (Robben Island; (Robben Domestic flights Domestic accommodation accommodation

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 147 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Industry views on potential product gaps

Product Gap Analysis Key questions analysed

Quantitative Analysis Qualitative Analysis What are the major product gaps in South Africa? Assessment of differences between what the consumers Assessment of the product – For the international state that they want from a gaps, identified by various market holiday experience and industry players in each available products in South province – For the domestic market Africa

Based on an interview process Which markets / consumer Based on analysis of available segments are currently quantitative data being underserved, since South Africa does not have the appropriate products for them?

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 148 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Approximately a third of the interviewees believed that there are product gaps Some of the interviewees believed that the product offering was sufficient and that the problem lay with market access and information availability related issues.

Core Product Gaps Named by Industry

LackLack ofof qualityquality accommodatiaccommodationon atat affordableaffordable pricesprices

LackLack ofof diversediverse activitiesactivities aattractivettractive forfor aa repeatrepeat touristtourist

ConferenceConference facilitiesfacilities withwith goodgood servserviceice levelslevels (ot(otherher thanthan ICCs)ICCs)

CulturalCultural experiencesexperiences ththatat requirerequire improvementimprovement andand diversification:diversification: –– Museums, Museums, SouthSouth AfricanAfrican cuisine,cuisine, AfriAfricancan curiocurio shops,shops, TownshipTownship experienceexperience

DevelopmentDevelopment ofof worldworld heritageheritage sitessites

AdventureAdventure tourstours

HolidayHoliday resorts,resorts, inin particular:particular: –– World World classclass beachbeach resortsresorts –– Family Family resortsresorts

ThemeTheme parksparks (ent(entertainmentertainment parks)parks)

ToursTours ofof ruralrural areasareas

NicheNiche tourstours Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 149 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Industry believes that SA does not target and therefore does not cater for the needs of some of the markets Industry participants have pointed out six markets, SA could potentially target by creating appropriate products to match their desires and needs. Potential Target Issues Identified by the Industry Consumer Segments

1 Youth Market Increased number of exchange programs between core countries and SA could plant the recognition of SA as a tourism destination to a younger generation of to – be travelers – They would also function as a source of “word-of-mouth”

2 Eastern European Some of the Eastern European markets with counter cyclical behaviour could help alleviate Market some of the seasonality problem 3 Family travellers There is a lack of products geared towards leisure/ business family travelers (i.e. family friendly resorts, theme parks, etc) – The domestic family traveller does not appear to afford accommodation at hotel type of accommodation (A big scale family resort would have discount packages, which would make family travel much more affordable) – The parents would have convenience and their kids taken care of, which is more comfortable than self-catering accommodation

4 Domestic Market Tailor made packages based on true understanding of the needs and desires of the emerging domestic market

5 African Market Tailor made shopping centred packages with an entertainment component would increase the spend per traveller 6 Special interest / Niche Destinations / products themed by niche products can attract special interest consumers Markets groups into SA. (i.e. gay and lesbian products, sporting facilities, etc)

Source: Product Gap Industry Interviews – 2004, Monitor Analysis Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 150 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The first level of enquiry is mapping ‘desire’ against ‘usage’ in order to try and high-light product gaps or information gaps

Domestic Demand International Demand

Desired Experience Product Gap

Product Availability

Information Gap Usage Profile

Service Level Gap

Satisfaction

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 151 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress International visitors display a number of activities which they either don’t desire, or desire but can’t seem to get to The graph below show the usage-desire matrix for only those international travelers from SA’s major source markets.

Desired Experience-Usage Profile for International Tourists, 2003 High 90%

Shopping 80% Nightlife

70% 1

60% Visiting natural attractions 50% Wildlife Cultural historical and heritage Beach 40%

30% Visited a Casino, Social Business Usage Profile, % of Segment 20% Theme parks Adventure Sporting 10% Trading Medical

Low 0% Health 0 5 10 15 20 25 30 35 40 45 50 Low High Desired Experience, Index (Level of Importance)2

Note: Desired experience covers desires for a good holiday experience in South Africa 1 2 Source: SAT Departure Survey (jan-Nov2003), SAT/Monitor segmentation work 2001-2003, Monitor Analysis Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 152 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH The Germans are high users of many products and most times these Work in Progress correlate directly with the experiences they desire most when on holiday in South Africa Adventure and health activities are low on the list of things to do for Germans visiting South Africa Desired Experience-Usage Profile for German Tourists, 2003 High 90% Shopping 80% Nightlife

70% 1 Wildlife Visiting natural Attraction

60% Beach Culture, history and heritage 50%

40%

30% Adventure (e.g. Usage Profile, % of Segment 20% Bungee Jumping)

10% Health (e.g. Hydro) Low 0% 0 10203040506070 Low Desired Experience, High Index (Level of Importance)2

Note: Desired experience covers desires for a good holiday with reference specifically to South Africa 1 2 Source: SAT Departure Survey (Jan-Nov2003), SAT/Monitor segmentation work 2001-2003, Monitor Analysis Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 153 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Different countries show different inclinations for and usage of the tourism product in South Africa The bottom right hand corner represents an opportunity to extract value by tourists desired experience more effectively

Desired Experience-Usage Profile for International Tourists, 2003 High 90%

Shopping 80% Nightlife

1 70% France wildlife● Germany wildlife● 60% USA wildlife ● China casino ●UK wildlife Visiting natural attractions Wildlife 50% ● USA cultural historical & heritage ● Cultural historical and heritage USA beach Beach 40% ● ●Japan visiting natural attractions 30% ●Japan wildlife Visited a Casino, Social Japan cultural France adventure ● ● Usage Profile, % of Segment Business historical & heritage ● Nigeria cultural historical & heritage 20% Theme parks Adventure ● Sporting USA adventure

10% Trading ●China adventure Medical ● Health Japan adventure Low 0% 0 5 10 15 20 25 30 35 40 45 50 Low High Desired Experience, Index (Level of Importance)2 Note: Desired experience covers desires for a good holiday experience irrespective of destination 1 2 Source: SAT Departure Survey (jan-Nov2003), SAT/Monitor segmentation work 2001-2003, Monitor Analysis Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 154 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The next level of enquiry is to assess how satisfied consumers are with their actual experience (regardless of level of usage or desire)

Domestic Demand International Demand

Desired Experience Product Gap

Product Availability

Information Gap Usage Profile

Service Level Gap

Satisfaction

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 155 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress These expectations where high to very high for 60% of both business and leisure tourists with approximately 30-40% not having any real expectations The percentage of tourists coming in with low and very expectations was at most 8% for business and more typically around 4-6% across the product range Unique South Africa Overall Product Universal Products, 2004 Product, 2004 Expectation 100% 100% 100%

29%

42% 44% 41% 75% 47% 75% 75% 51%

21%

Percent of 50% 50% 50% 20% Segment 22% 20% 18% 18%

42% 25% 25% 25% 28% 29% 31% 35% 28% 1% 1% 1% 1% 1% 4% 2% 5% 3% 4% 2% 2% 0% 3% 0% 3% 0% 1% All - B All - NB All - B All - NB All - B All - NB

None Very Low Expectations Low Expectations No Expectations High Expectations Very High Expectations

Source: Tourist Satisfaction Index, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 156 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress 87% of all business and 94% of all leisure travellers, had an overall holiday experience that met or exceeded their expectations Whether ‘meeting my expectations’ is acceptable from an internal configuration point view depends on how this measures up against the actual expectation of the tourist

Overall Holiday Experience, 2004 100% All - B All - NB 80%

60% 49% 46%

40%

% of Segment 32% 28%

20% 17% 10% 10% 3% 2% 4% 0% Below Expectations Below Expectations Met My Exceeded Exceeded Substantially Expectations Expectations Expectations Substantially

Meeting expectations would not be considered successful if the expectation of the product / activity was actually low or very low Sample Sizes: N (B) = 407, N (NB) = 1,048 Source: Tourist Satisfaction Index, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 157 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Leisure tourists’ experiences failed to meet their expectations due to issues around price, value for money and quality While business consumers with sub-expectation experiences found services levels, price and value for money to be the major drivers of their dissatisfaction

Overall Holiday Experience, 2004 Characteristics Failing to Meet Expectations, 2004 80% Exceeded 73% 17% All B All NB Expectations 69% Substantially 10% 70% 67% 63%

60% 32% Exceeded 53% Expectations 28% 50% 50% 50% Percent of Segment* 46% Met My 40% Expectations 36% 49% 34% 34% 31% 31% 30% 28%

Below 4% 20% Expectations 10% 20% 12% 8% Below 2% 10% Expectations All - NB 3% 2%1% Substantially All - B 0% Price Quality Service Authentic Other 0% 20% 40% 60% Levels Experience

Percent of Segment Value for Flexibility of Uniqueness Availability / Money Itinerary Ease of Access * Calculated as a percentage of those respondents with expectations not met Source: Tourist Satisfaction Index, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 158 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Other than ‘characteristics’ such as price, service levels etc, we also need to understand satisfaction of specific products . . .

Germany — Leisure Travelers1

Substantially Expectations vs. Experience of South African Products, 2004 Exceeded 5 Expectations Domestic Flights Hospitable and Friendly People General Infrastructure

Tax Refund Tour Operators / 4 Travel Agents

Public Transportation Tour Guides Customs and Accommodation Immigration Car Hire Tourist Communication Infrastructure Availability of Information Experience 3 of Products

Substantially Below 1 Expectations 12345 Very Low Very High Expectations Tourist Expectation of Product Expectations

Note: 1This graph represents the experiences against expectations of German ‘first time travelers’ only Source: Tourist Satisfaction Index, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 159 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Any experience which does not meet expectations, not matter how high those expectations, should be a cause for concern

Substantially Expectations vs. Experience of South African Products, 2004 Exceeded 5 Expectations

Tourist Experience 3 of Products

2 CAUSE FOR CONCERN

Substantially Below 1 Expectations 12345 Very Low Very High Expectations Tourist Expectation of Product Expectations

Source: Tourist Satisfaction Index, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 160 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

A few products / activities could perhaps be a cause for concern For all the products / activities mentioned below, the actual experience either did not meet expectations, or there was a ‘high to very high’ expectation and the actual experience merely met expectations

South African Products South African Activities & Attractions

Public Transportation –USA Casinos / Health & Medical – United Kingdom

Public Transportation and Customs & Casinos, Theme Parks & Nightlife –France Immigration – China Shopping & Theme Parks – China Business Public Transportation and Customs & Travellers Immigration – Japan Health & Medical– Japan

Public Transportation and Domestic Flights – Adventure, Health and Sporting – Kenya Kenya

Public transportation – Italy Casinos for first time German travellers

Public Transportation, Communication Adventure and Health –repeatFrench travelers Infrastructure and Tax Refunds –China Leisure Health & Medical and Nightlife – China Car Hire, Customs & Immigrations and Tax Travellers Refunds – Japan Health & Medical – Japan

Tax refund – Nigeria Medical –Kenya

Medical – Nigeria

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 161 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress While the average rating for transport meets tourists expectations, relative to the experience of other South Africa products, transport is falling behind 6 of the 22 segments had the lowest satisfaction with public transportation, with 5 of segments having an experience below expectations

Substantially Expectations vs. Experience of South African Public Transportation Product, 2004 Exceeded 5 Expectations Italy - B France - B Kenya - NB France - NB Germany - B SADC - NB US - NB 4 Netherlands - NB Germany - NB UK - B SADC - B Nigeria - NB US - B UK - NB Tourist Japan - NB Experience 3 Nigeria - B of Products China - B

Japan - B China - NB

Italy - NB 2 Kenya -B

Substantially Below 1 Expectations 12345 Very Low Very High Expectations Tourist Expectation of Product Expectations

Average Rating for Transportation Product Average Rating for All Products excl. Transport

Source: Tourist Satisfaction Index, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 162 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Some products / activities at provincial level were not rated that highly by international tourists Products / activities at provincial level were rated on a scale of 1 to 5, where 1 = ‘the experience was substantially below my expectations’ and 5 = ‘the experience substantially exceeded my expectations’

Business Travelers Leisure Travelers

2 Tours of Soweto – 3 (United Kingdom) Sterkfontein Heritage Site – 3 (Japan) 3 Tours of Soweto – 2 (Germany) Tours of Soweto –3; Sterkfontein Heritage Site – 3 (Kenya) Sterkfontein Heritage Site – 2 (Germany) 4 Wits University / Unisa – 3.3 (Nigeria) Gauteng Tours of Soweto – 1 (France) Wits University / Unisa – 3.3 (Nigeria) 5 Wits University / Unisa – 3.1 (SADC) 6 Sterkfontein Heritage Site – 3 (SADC)

Casinos – 3.2 (SADC) Cango Caves –2 (Italy) Western Casinos – 3 (Netherlands) Cape Whale Watching – 3.5 (Japan)

Eastern Township Tours – 3.4 (United Kingdom) Township Tours – 3.4 (United Kingdom) Cape Township Tours – 3 (Netherlands) Township Tours – 3 (Netherlands)

KZN Battlefields – 3.9 (United Kingdom)

1This slide refers only to findings where there was sufficient of a sample size; 2Given 4.4 by leisure travelers; 3Given 4.8 by leisure travelers; 4Given 4.4 by leisure 5 6 travelers; Given 4 by leisure travelers; Given 3.7 by leisure travelers Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 163 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The intentions of tourists give some indication that current levels of innovation are meeting their needs, however solid proof will be increased overall arrivals and repeater rates Given the relative attractiveness of Asia, product and service innovation targeted at them seems imperative Whether respondent would advise Would you visit South Africa again? friends to visit SA? 100% 100%

90% 90%

80% 80%

58% 70% 70% 61%

77% 60% 81% 82% 85% 60% 88% 92% 92% 93% 93% 90% 50% 50%

40% 40% % of Segment % of Segment 30% 22% 30% 20%

20% 9% 20% 9% 7% 16% 10% 8% 15% 11% 10% 7% 8% 8% 7% 6% 5% 5% 4% 5% 2% 2% 1% 2% 4% 0% 0% 2% Asia Asia Asia Asia RofW Africa Africa RofW RofW SADC Africa Africa SADC Europe Europe Europe Americas Americas Americas

Yes, definitely Yes, probably Possibly No, probably not No, definitely not

Source: SAT Departure Survey, Jan-Nov 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 164 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Chinese and Japanese tourists have the most ‘negative’ response to the question “Would you visit South Africa again?”

Japan 100% Yes, definitely

80% 51% 54% 48% 52% 54% 71% Yes, probably 60% 73% 76%

40% 16% Possibly 37% 33% 25%

% of in% Segment 35% 20% 17% 26% 13% 21% Agreement with Statement 19% No, probably 8% 15% 15% 10% 7% 11% not 0% 6% WL (5) - NB PC - NB NSSA Ex - WL (5) - B PC - B NSSA Ex - B Other NB Other B NB

China 100% Yes, definitely

80% 36% 54% Yes, probably 63% 61% 60% 6% Possibly

40% 25% 48% No, probably % of in% Segment 16% 28% not 20% Agreement with Statement with Agreement 14% 18% No, definitely 6% 11% 11% not 0% WL- NB PT - NB PT - B Other - B

Source: SAT Departure Survey, Jan-Nov 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 165 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress However, there is a more positive profile when asked “Will you advise friends to visit South Africa?”

Japan 100% Yes, definitely

80% 47% Yes, probably 56% 59% 58% 64% 68% 63% 60% 73% Possibly

40% 24% 28% No, probably % of in% Segment 15% 27% 30% 21% not 20% 15% 25% 25% Agreement with Statement 17% 6% 13% 14% No, definitely 12% 7% 12% 10% 0% 4% 3% 4% not WL (5) - NB PC - NB NSSA Ex - WL (5) - B PC - B NSSA Ex - B Other NB Other B NB

China 100% Yes, definitely

80% 54% 55% 56% Yes, probably 66% 60% Possibly

40% 16% 28% No, probably % of in% Segment 16% 39% not 20%

Agreement with Statement with Agreement 24% 14% 18% No, definitely not 0% 4% 6% WL- NB PT - NB PT - B Other - B

Source: SAT Departure Survey, Jan-Nov 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 166 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The profile of the Dutch is much more representative of how people generally view their experience in South Africa

Would you Visit South Africa Again? 100% Yes, definitely

80% Yes, probably

79% 60% 82% 81% 82% Possibly

40% with Statement No, probably

% of Segment in Agreement % of Segment in Agreement not 20% 8% 5% 9% 8% 8% No, definitely 13% 7% 11% not 5% 0% NSSA PH - NB NSSA PL - NB Other - NB Other - B

Source: SAT Departure Survey, Jan-Nov 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 167 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress . . . and SADC is also typical of how willing people are to advise their friends to visit South Africa

Would you Advise Friends to Visit SA? 100% Yes, definitely 80% Yes, probably 81% 60% 84% 81% 88% 88% 86% 87% 90% 90% 92% 90% 92% 91% 93% 94% 93% 95% 93% 93% 93% 96% 97% 99% Possibly

ement with Statement 100%

40% No, probably not 20% No, definitely not % of Segment in Agre 0% Congo B Angola B Malawi B Zambia B Zambia Lesotho B Lesotho Congo NB Namibia B Angola NB Angola Malawi NB Mauritius B Mauritius Tanzania B Zambia NB Zambia Lesotho NB Lesotho Botswana B Botswana Namibia NB Namibia Swaziland B Zimbabwe B Mauritius NB Mauritius Tanzania NB Botswana NB Swaziland NB Zimbabwe NB Mozambique B Mozambique Mozambique NB

Source: SAT Departure Survey, Jan-Nov 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 168 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Chapters of the Global Competitiveness Study

External benchmark Benchmarking performance Internal benchmark The configuration and functioning Mapping the cluster of the value system The channel functioning Consumer to market Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Investment and implications for Current investment status future investment Investment Issues

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 169 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress From the industry perspective, product development appears to be rapid (although not always innovative) Innovation and rapid product development does place an additional pressure on the skills resource base – and this again emphasizes the need for an efficient and responsive educational sector

Rate the Level of Product Innovation within South Africa* 50% Market appears to quickly meet market needs and Market appears to quickly meet market needs and market niches, for example: market niches, for example: 39% 40% Adventure travel, golf tours, whaling, 37% Adventure travel, golf tours, whaling, townstownshiphip to tours,urs, pr propertyoperty tours, tours, etc etc The market is quick to emulate successful ventures The market is quick to emulate successful ventures 30% andand so so the the product product offeri offeringng proliferates proliferates fairl fairlyy quickly quickly ––T Thishis is is often often done done in in the the absence absence of of actual actual market data 20% market data ––T Thishis process process is is often often repeated repeated (in (in areas areas with with low low barbarriersriers to to entry entry)) to to th thee po pointint of of o overcapacityvercapacity and and 10% 8% margimarginalnal re returnsturns

4% E.g. B&Bs, tour operators/ground handlers E.g. B&Bs, tour operators/ground handlers New products require new skills and often these are 0% New products require new skills and often these are Highly Innovative Somewhat Not innovative inin short short supply** supply** innovative innovative (stagnant) Note: *Changed/ new products developed to the stage of commercialization (e.g. surgery & safari, etc), **refer to section on Skills and service levels to see detail Source: Quantitative Survey 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 170 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Product development and configuration appears to be biased towards international tourists From the industry’s perspective there appears to be more room for improvement within the domestic market. Configuration and pricing for the international market has important implications of access for the domestic market

The current tourism product offering in SA meets the The current tourism product offering in SA meets the expectations of international tourists expectations of domestic tourists

Meets all of the Meets all of the 9% 7% expectations expectations

Meets to a Meets to a 72% 56% great extent great extent

Neither agree Neither agree 12% 27% nor disagree nor disagree

Disagree 7% Disagree 9%

Stongly Stongly 0 Disagree Disagree

0% 10% 20% 30% 40% 50% 60% 70% 80% 0% 10% 20% 30% 40% 50% 60% 70% 80%

% of Respondents % of Respondents

Source: Industry Quantitative Survey 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 171 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress One of South Africa’s main advantages is having a rich resource base which is seen as a strong basis for attracting international tourists This rich resource base forms a very good platform from which to launch a multitude of derivative tourism products and experiences

Geographical advantage of SA’s natural attractions in SA’s cultural product offering SA in attracting tourists attracting tourists in attracting tourists

Strong advantage 27% 33%

76% Advantage 34% 24% 51%

No Effect 10% 14%

Disadvantage 27% 1%

Strong Disadvantage 2% 1%

0% 20% 40% 60% 0% 20% 40% 60% 80% 0% 20% 40% 60%

Percentage of Respondents

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 172 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress This is confirmed by the activity profile for the majority of international tourists which is focused around these natural assets Tourists from all the key international markets have activities focused around the natural asset base ranking within the top 5 activities undertaken while in South Africa

Selected Activities Conducted While on Holiday, 2003 80% Most popular activity = 74%of segment Wildlife e.g. 70% game viewing in a nature reserve

60%

Visiting natural 50% attractions e.g. scenic drives, parks 40%

Beach e.g.

% of Segment 30% surfing, sunbathing, and swimming 20%

Cultural historical and 10% heritage e.g. cultural village

0% Europe Americas Asia Africa SADC RofW Domestic Market

Note: Europe – UK, Germany, France, Italy, Netherlands; Asia – Japan, China; Africa – Kenya, Nigeria Source: SAT Departure Survey (Jan-Nov 2003), SAT Domestic Survey 2003, Monitor Analysis Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 173 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Although the cultural resource is seen as a strong advantage, industry believes that it is underperforming relative to its potential The cultural product needs to be more targeted, more authentic and more sophisticated – a view that was consistently reinforced to us during qualitative interviews

Cultural product lacks Cultural product is not Tourists lack empathy with authenticity sophisticated enough cultural product

Strongly Agree 9% 8% 7%

Agree 40% 38% 35%

Neither agree nor Disagree 30% 25% 18%

Disagree 20% 26% 36%

Strongly Disagree 1% 2% 4%

0% 20% 40% 60% 0% 20% 40% 60% 0% 20% 40% 60%

Percentage of Respondents

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 174 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The industry does not believe that the domestic tourist is interested in cultural activities The industry has got the beach holiday demand correct but appears to be wrong about the cultural product – perhaps this is a case of not marketing what is existing in the country to the domestic market? (i.e. the domestic traveler does not know about the various cultural products?) For which activities are domestic travellers more demanding more demanding than international tourists

Beach holidays 54%

Gastronomy (food & wine etc) 41%

Entertainment & gambling 39%

Ecotourism (Nature trails & hiking) 37%

Adventure 34%

Wildlife 31%

Spas and wellness treatment 13%

Culture & history 10%

0% 10% 20% 30% 40% 50% 60%

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 175 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Despite the mixed views internally, South Africa’s cultural product is one of the country’s key attractions from the tourist perspective The Americans are most interested in finding out about the cultural experience on offer in South Africa

Percentage of Travellers Interested in Exploring the Culture of South Africa 100%

85%

80% 77%

64% 60% 60%

Percentage 40%

20%

0% American European Asian Domestic

Note: Europe – UK, Germany, France, Italy, Netherlands; Asia – Japan, China; Africa – Kenya, Nigeria Source: SAT/Monitor segmentation work 2001-2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 176 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Moreover, product usage patterns indicate that the cultural product is in high use, but some questions around quality have been raised Whilst the diversity and richness of South Africa’s culture appears to be well recognised by many tourists, the key challenge seems to be showcasing it with dignity and authencity Cultural, Historical, and Heritage Activity Profile , Cultural offering is one of the key attractions of South 2003 Africa and many tourists have expectations around this “I also found the Zulu cultural villages [gave] me a strong 60% image of African culture, and to be able to learn about the lifestyle…” – Chinese tourist 50% “A good holiday would be when I see where the locals live, I see about the local culture not just the tourism [attractions]

40% and hotels. That is my main requirement, understand a bit about the culture. ” – Finnish tourist 30% “I have discovered a very rich culture, very nice people here and a fantastic wildlife …. I was [expecting this and it was] % of Segment just confirmed” 20% – Danish tourist “…South Africa offers a great combination of nature and 10% culture…” – French tourist However, some products lack authencity… 0% “… personally I found it [township tour] more like going to a zoo, I didn’t really feel good about it. I would prefer to be Asia Asia RofW RofW Africa Africa

SADC SADC invited by someone who lives there” Europe Europe Domestic

Americas Americas –Dutch Tourist Note: Europe – UK, Germany, France, Italy, Netherlands; Asia – Japan, China; Africa – Kenya, Nigeria Source: SAT Departure Survey (Jan-Nov 2003), Quotes taken from transcripts of qualitative interviews with International tourists, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 177 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Apart from the natural assets, there are numerous tourism products and services that are showing high growth These products are stemming from several different areas and include creation of niche tourist experiences

HighHigh growth growth products products and and service service providers: providers: ––A Acc:cc: Game Game lodges, lodges, B&Bs, B&Bs, Guest Guest houses, houses, Backpackers Backpackers ––S Serviceervice providers: providers: Tour Tour operators operators and and ground ground handlers handlers HighHigh growth growth niche niche service service providers providers and and markets: markets: ––A Adventuredventure ––S Sportport (in (in particular particular golf golf tours) tours) ––M Medicaledical and and wellness wellness ––E Eco-tourism:co-tourism: whaling; whaling; hiking hiking trails trails (eg (egthree three new new trails trails on on the the Wild Wild Coast) Coast) ––F Festivalsestivals and and culture: culture: town town festivals, festivals, gastronomy, gastronomy, music music festivals, festivals, etc etc

PRODUCT POSITIONING, CONFIGURATION & DEVELOPMENT

Industry believes that it is moderately innovative INNOVATION ABILITY – “Innovation” is typically understood to mean product innovation Factors positively driving innovation are: – Increased competition; increased management sophistication and the demands of sophisticated international consumers

Domestic consumers are seen as less critical to this process DIAGNOSTIC FINDINGS Factors inhibiting innovation are: – Lack of close integration in the industry; – Lack of sharing of timely and meaningful data, particularly consumer knowledge at the local level At least at the highest level, tourists have intentions of returning to / recommending SA, which give some indication that South Africa is meeting their needs – However, ultimate proof that innovation is driving this would need to come from overall increases in total arrivals and repeater rates of tourists

PRODUCT POSITIONING, CONFIGURATION & DEVELOPMENT (cont.)

Product development for the international market (especially on PRODUCT GAPS the back of natural resources) has been quite rapid – driven by strong competition; closer linkages with niche tour operators; better understanding of customer needs and willingness to risk private capital – At the same time there is a very strong element of copying at local level (Very little knowledge of product development in other regional areas) – Several potential product gaps have been identified by the

DIAGNOSTIC FINDINGS industry. Increasing divergence in attention to product development for domestic and international markets Cultural product is highly desired; seen to have real potential; but generally assessed to be under performing: lack of sophistication and lack of authenticity are major charges – Low levels of differentiation in development cultural products – Industry believes that domestic market is not interested in cultural product, but this is misdirected Overall, South Africa is able to satisfy those tourists visiting – This is against the backdrop of high to very high expectations in 60% of consumers

Chapters of the Global Competitiveness Study

External benchmark Benchmarking performance Internal benchmark The configuration and functioning Mapping the cluster of the value system The channel functioning Consumer to market Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Investment and implications for Current investment status future investment Investment Issues

Agenda

Introduction

Progress on Transformation Dimensions

Provisional Assessment, Possible Interventions and Summary

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 182 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress . . . And there is widespread agreement around the potential benefits (increased competitiveness) flowing from transformation . . .

The approach to transformation in the tourism industry should be that, over and above the critical social and moral imperatives achieved through transformation, it should be pursued because it makes business sense

Unlock the creativity, knowledge and enthusiasm of a large part of the population that hereto before were not involved in a productive capacity in the tourism industry

Target the domestic tourism market which presents a real unexploited opportunity

International customers demand an integrated / diverse product – both in terms of the activities they explore / participate in, as well as the way they are served by management and staff of the tourism product

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 183 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress . . . This is supported by tourists who are becoming more ethically conscious, and who are willing to pay for socially responsible tourism A study on UK travellers in 2002 indicates that tourists are increasingly becoming aware of the impact of tourism on the local people, and holidays that would provide benefits are becoming a criteria in selecting holiday destinations

What is Important when Choosing a Holiday Company (UK Tourists 2002)? The Holiday should not Damage the 87% Environment The Holiday should Benefit the People of 76% the Destination they are Travelling to The Provision of Social and Environmental 75% Information in Tour Operator's Brochure The Reputation of the Holiday Company on 65% Environmental Issues

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

For Which Things Would you be Willing to Pay more Money (UK Tourists 2002)? If Workers in the Destination are Guaranteed 49% Good Wages and Working Conditions If Money Goes Towards Preservation of Local Environment & Reversing some Negative 47% Environmental Effects of Tourism If Hotels Serve Food Produced Locally 36%

if Money goes to Support a Local Charity 22%

0% 10% 20% 30% 40% 50% 60%

Source: Pro-Poor Tourism, Brief No. 8: Survey findings on ethical consumerism, prepared for Workshop 24th May 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 184 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress . . . This trend is still small but there is evidence suggesting a larger awareness of these issues From a competitiveness and growth perspective – it appears that a destination can win additional tourists by becoming involved in responsible tourism and marketing these efforts What is known and done about ethical tourism (by British Tourists, 2001)? Have seen Things on holiday which have Disturbed them, such 27% as Poverty or Beach Erosion Thought a Holiday was More Enjoyable if they Booked with a 25% Good ethical Practice

Are Concerned about the Local Environment 25%

Received Information on Responsible Tourism 17%

Were Concerned about Whether their Money benefited the Local 11% Economy

Hadn't Heard of Responsible Tourism 11%

Had Ever Sought a Holiday with and Ethical Code of Practice 7%

Had Changed their Plans due to Responsible Tourism Issues 4%

0% 10% 20% 30% % of tourists

Agenda

Introduction

Progress on Transformation Dimensions

Provisional Assessment, Possible Interventions and Summary

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 186 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Transformation goals for the tourism industry have a solid founding in the broad-based BEE Act of 2003 as well as the tourism charter Both the act on BEE and the tourism charter have clear definitions for BEE and objectives to which they are working towards. However, this has yet to be translated into actionable steps for the industry.

Summary Objectives

Promote economic transformation

Achieve change in racial composition of employment, ownership and management structures Promote investment opportunities and empower rural and local communities

Uplift through skills development

TheThe BEE BEE Act Act will will be be supported supported by by the the Tourism Tourism Scorecard Scorecard whic whichh is is schedule scheduledd to to be be in in placeplace by by th thee end end of of th thee y yearear

Source: Government Gazette, No.53 of 2003: Broad-Based Black Economic Empowerment Act, 2003; Charter of Empowerment and Transformation in the Tourism Industry - TBCSA Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 187 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The following analysis aims to better understand the drivers and barriers to transformation within the tourism industry

TRANSFORMATIONTRANSFORMATION DIMENSIONSDIMENSIONS

Ownership

Management control

Affirmative procurement UnderstandUnderstand thethe DRIVERSDRIVERS andand BARRIERSBARRIERS ofof TransformationTransformation Employment equity

Skills development

Enterprise development

Social development

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 188 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The TBCSA’s research (2002) indicated that in leading tourism enterprises less than 30% of businesses have greater than 25% black ownership Representation at board level is slightly better with 60% of businesses having at least one black board member.

Level of Black Ownership, 2003 Board Representation, 2003 20

16 >50% 14% 14

25-50% 10 14% 18 8

No. of Organisations 6 <25% 9 72% 4 6 6 2

0 No black At least one More than No board board black board 25% black members meember board

Ownership Transformation Summary The transformation goals around ownership issue are highly dependent on the nature of the organisation and its ability to structure it’s equity shareholding.

Progress Characteristic of Tourism Along BEE Drivers Barriers Entities Metric Shareholding structure, particularly Financing of large equity deals – listed entities makes it technically on the whole not the same profit easier to add in a BEE investment generation with which to finance partner Large / listed enterprises deals as e.g. in mining Will follow the lead of other large Finding suitable partners – industry players in different sectors ensuring distribution e.g. Mining, Finance

Having a BEE shareholder positions Legacy lack of involvement of a company better for affirmative HDIs make it difficult to correct Small/medium enterprises procurement ownership through employee Diversity of ownership offers an shareholder schemes innovation opportunity Difficulty of finding HDI partners

Low profitability and low equity in Limited drivers beyond legislation Sole Trader/Family owned business Tourist demand for integrated business Equity tightly held and often product will be pivotal driver in future represents life savings

No progress Some degree of progress High degree of progress

Source: Interviews with the industry Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 190 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The following analysis aims to better understand the drivers and barriers to transformation within the tourism industry

TRANSFORMATIONTRANSFORMATION DIMENSIONSDIMENSIONS

Ownership

Management control

Affirmative procurement UnderstandUnderstand thethe DRIVERSDRIVERS andand BARRIERSBARRIERS ofof TransformationTransformation Employment equity

Skills development

Enterprise development

Social development

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 191 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Affirmative procurement is in the early stages with 60% of large firms having an official policy A number of issues have been raised regarding affirmative procurement

Formal Affirmative Procurement Policy in Place, 2003 Certain barriers to affirmative procurement where raised in the TBCSA survey: A lack of black-owned suppliers in many areas Lack of competitiveness and management expertise Limited market awareness of suppliers Resistance by managers to procurement change No Large company policies which promote intra-group 40% procurement, restricting supplier choice A lack of suppliers with capacity to physically Yes transport goods to remote areas 60% However there are some examples of commitment to Affirmative Procurement: e.g. City Lodge Group is in the process of formalising a policy for affirmative procurement – On recent hotel developments 30% of total expenditure was with empowerment companies

Note: Sample Size – 30 (leading tourism companies) Source: TBCSA, South Africa Tourism Industry, Empowerment and Transformation Annual Review, 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 192 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress But it is not only industry which is slow in affirmative procurement, Government Departments appear slow in complying with DEAT’s Transformation Strategy “Current results indicate that only 6 entities (40%) demonstrated some level of compliance with the DEAT transformation charter, i.e. they have implemented policies, procedures, procurement tools or procurement targets that will drive government's use of BEE tourism products or services.”1 Ranking of National Departments in terms of Compliance with the DEAT Transformation Strategy 90

80 Specific targets for preferential procurement from the tourism industry Existence of preferential procurement targets 70 20 Reporting and tracking mechanism caters for the spending on tourism industry

60 20 Existence of reporting and tracking mechanisms on preferential procurement Units 10 Specific procedures for preferential procurement from the tourism industry 50 Existence of departmental preferential procurement procedures Specific policies for preferential procurement from the tourism industry 40 20 20 20 Existence of departmental prefernetial procurement policies

30 20 20 10 15 15 15 20

10 20 20 20 15 15 15

0 1111111111 Public DEAT Land AffairsHome Affairs National Correctional Foreign Transport Dept. of Minerals & Arts & Science & Labour Justice & Defence Health Service Treasury Services Affairs Public Energy Culture Technology Constitutional Commis s ion Enter pr is es Development

Source: 1 “The Review of The Transformation Strategy of the DEAT”, Part 1: An analysis of Government's Progress in implementing the DEAT’s Transformation Strategy, Empowerdex: V. Jack, C. Wu et al. Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 193 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress However, further research done by DEAT indicate that there are significant challenges, facing both the public sector and BEE suppliers, inhibiting progress

ObstaclesObstacles toto PublicPublic SectorSector ObstaclesObstacles toto BEEBEE SuppliersSuppliers

IdentificationIdentification ofof BEEBEE supplierssuppliers AmbiguousAmbiguous publicpublic sectorsector policypolicy andand practicepractice CommunicateCommunicate governmentgovernment prefpreferentialerential procurementprocurement policypolicy Fast-trackFast-track thethe developmentdevelopment ofof thethe BEEBEE productsproducts databasedatabase throughthrough industryindustry bodiesbodies toto supplierssuppliers Inter-DepartmentalInter-Departmental sharingsharing ofof BEEBEE informationinformation onon InadequateInadequate supportsupport mechanismmechanism supplierssuppliers throughthrough procurementprocurement tooltool Co-ordinateCo-ordinate existingexisting supportsupport mechanismmechanism toto ensureensure itsits coveragecoverage ofof thethe entireentire spectrspectrumum ofof BEEBEE tourismtourism providersproviders LackLack ofof experiencedexperienced BEEBEE supplierssuppliers ConductConduct researchresearch intointo thethe accessibility,accessibility, coveragecoverage andand impact of individual support mechanisms and institutions CreateCreate opportunityopportunity throughthrough joint-ventures,joint-ventures, set-s-sideset-s-side andand impact of individual support mechanisms and institutions parcellingparcelling ofof contractscontracts forfor BEEBEE supplierssuppliers DelaysDelays inin tendertender processprocess Fast-trackFast-track decisiondecision makingmaking proceprocessss inin tendertender invitationinvitation andand Intermediation by travel agency Intermediation by travel agency adjudicationadjudication Implement shorter payment terms for BEE service IncludeInclude preferentialpreferential procurprocurementement byby traveltravel agencyagency andand Implement shorter payment terms for BEE service intermediariesintermediaries asas aa tendertender requirementsrequirements providersproviders Co-ordinateCo-ordinate supportsupport mechanismsmechanisms toto supportsupport thethe fundingfunding ofof GovernmentGovernment departdepartmentment toto monitormonitor thethe levellevel ofof BEEBEE workingworking capitalcapital serviceservice providersproviders toto governmentgovernment (IDC)(IDC) products and services sourced by intermediaries products and services sourced by intermediaries FrontingFronting andand corruptioncorruption LackLack ofof infrastructureinfrastructure forfor preferentialpreferential procurementprocurement ConductConduct thoroughthorough investigatinvestigationion ofof thethe BEEBEE statusstatus ofof supplierssuppliers beforebefore theirtheir inclusinclusionion inin tendertender oror onon thethe BEEBEE DevelopDevelop aa standardisstandardised,ed, linkedlinked procurementprocurement tooltool toto tracktrack productsproducts databasedatabase governmentgovernment spendspend onon BEEBEE tourismtourism productsproducts SkillsSkills shortageshortage Conduct skills audit and support THETA in the EvaluateEvaluate andand clarifyclarify preferentialpreferential procurementprocurement policypolicy Conduct skills audit and support THETA in the adoptedadopted byby governmgovernmentent departmentsdepartments implementationimplementation ofof leadershleadershipip andand trainingtraining programsprograms

Recommendations put forward by Empowerdex

Affirmative Procurement Summary The biggest barriers to affirmative procurement are about scale economies and accessibility. However, procurement has the big incentive of a relatively immediate response to improve a company’s BEE scorecard.

Progress Characteristic of Tourism Along BEE Drivers Barriers Entities Metric Scale economies, level of sophistication, logistics, national coverage Affirmative suppliers provide a easy, Long-standing contracts with non- Large / listed enterprises quick way to meet BEE objectives BEE suppliers Lack of example set in Government sector Market knowledge of suppliers Market knowledge of suppliers Affirmative suppliers provide a easy, Small/medium enterprises Insufficient resources to reach quick way to meet BEE objectives fragmented large market of smaller enterprises Affirmative suppliers provide a easy, High level of competition, low Sole Trader/Family owned quick way to meet BEE objectives margins and risk adversity make business Social responsibility and commitment them unwilling to experiment with to upliftment of local communities new suppliers

No progress Some degree of progress High degree of progress

Source: Interviews with the industry Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 195 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The following analysis aims to better understand the drivers and barriers to transformation within the tourism industry

TRANSFORMATIONTRANSFORMATION DIMENSIONSDIMENSIONS

Ownership

Management control

Affirmative procurement UnderstandUnderstand thethe DRIVERSDRIVERS andand BARRIERSBARRIERS ofof TransformationTransformation Employment equity

Skills development

Enterprise development

Social development

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 196 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Employment equity has strong legislative drivers and there is a high degree of compliance Industry has taken significant steps to following equity guidelines, but have difficulty finding the appropriate people and trying to meet quotas.

Employment Equity compliance, 2003 30 The private sector is launching initiatives in the Published EE Plan industry to boost EE: 25 25 25 Submitted EE Reports City Lodge Group has developed an Employment Equity plan through to 2006

20 “We would like to have black managers. They are difficult to find. There are very few [black] people who go into the business and carry it on” 15 These firms all have – Tour Operator, Western Cape less than threshold

No. of Organisations of 50 employees “Employment equity should allow for the right people to be 10 employed. Quota system does not help. You create more racial incidents than are necessary” – Tour Operator, Western Cape 5 5 5 “The awareness about the transformation [equity] percentages need to be increased” – Tour Operator, Limpopo Province 0 Yes No

Employment Equity Summary Employment Equity, being boosted by its separate act, is one of the more advanced areas of BEE. However, there is still some skew in the distribution of equity placements across organisations at different levels.

Progress Characteristic of Tourism Along BEE Drivers Barriers Entities Metric

Large / listed enterprises Lack of training of HDI managers EE has its own defined act, which High level of poaching of skilled has been in existence for a longer senior HDI resources time period Low level of staff turnover leads to EE has clearly defined targets which slow transformation process Small/medium enterprises provide clarity The nature of the tourism industry (with a high level of unskilled labour) allows for quick transformation at the Ownership and management are Sole Trader/Family owned non-managerial level generally flip sides of the same coin business – very limited scope for outside participation in management

No progress

Some degree of progress High degree of progress Source: Interviews with the industry Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 198 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The following analysis aims to better understand the drivers and barriers to transformation within the tourism industry

TRANSFORMATIONTRANSFORMATION DIMENSIONSDIMENSIONS

Ownership

Management control

Affirmative procurement UnderstandUnderstand thethe DRIVERSDRIVERS andand BARRIERSBARRIERS ofof TransformationTransformation Employment equity

Skills development

Enterprise development

Social development

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 199 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Skills development compliance shows organizations place high value on developing employees In-house training for senior positions is seen as a must have

Commitment to Skills Development 30 Several hotel groups either offer their own Plan makes specific provision for formal training courses or have formal HDIs arrangements with training schools

Have a formal skills plan – Examples of in-house training schools:

City Lodge Academy

Legacy Hotels traineeship programme 20 – Three Cities Group has formal arrangements with hotel schools 21 One of the advantages of skills development programmes is that it allows the company to

No of organisations identify staff with the right commitment and personality for professional development 10 – Comments from industry indicate that education is necessary but not sufficient for success in the industry

6 3 0 Yes No

Note: Sample Size – 30 (leading tourism companies Source: TBCSA, South Africa Tourism Industry, Empowerment and Transformation Annual Review, 2003 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 200 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Skills Development Summary The industry feels this is crucial to the competitiveness of the industry but feels there is insufficient level of training done by government and as a result has taken on the responsibility themselves. Progress Characteristic of Tourism Along BEE Drivers Barriers Entities Metric Strong competition in the industry forces companies to constantly Insufficient level of training done by improve service levels training institutions Large / listed enterprises Lack of skilled HDI staff High poaching of skilled HDI staff The private sector sees this as part Sub-optimal functioning of THETA of their responsibility Usually a much smaller budget for training compared to the large The private sector sees this as part players Small/medium enterprises of their responsibility Training more ad-hoc and less sophisticated (i.e. no courses etc) Sub-optimal functioning of THETA No funds available to train staff – Very intimate interaction with the therefore training limited to basic Sole Trader/Family owned consumer - Basic training will be training only – no career path business critical to consumer satisfaction development Sub-optimal functioning of THETA

No progress Some degree of progress High degree of progress

Source: Interviews with the industry Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 201 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Agenda

Introduction

Progress on Transformation Dimensions

Provisional Assessment, Possible Interventions and Summary

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 202 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Preliminary estimate of the transformation activity within the tourism industry

Sub-sectorsSub-sectors ofof thethe TourismTourism IndustryIndustry

Other Accommo- Attractions / Tour Authorities/ Car Hire Airlines Tourism dation Activities operators Associations TransformationTransformation Businesses DimensionsDimensions

Ownership ? ? ? ? ? NA ?

Management control ? ? ? ? ? ? ?

Affirmative procurement ? ? ? ? ? ? ?

Employment equity ? ? ? ? ? ? ?

Skills development ? ? ? ? ? ? ?

Enterprise development ? ? ? ? ? ? ?

Social development ? ? ? ? ? ? ?

No progress Some degree of progress IdeallyIdeally one one would would like like to to be be able able to to indicate indicate the the level of transformation within each of the sub- High degree of progress level of transformation within each of the sub- sectorssectors on on this this chart chart Source: Monitor esitmate Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 203 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress TRANSFORMATION OF THE SA TOURISM INDUSTRY Summary Findings

Quantitative data on the transformation of the tourism industry is very difficult to collect – TBCSA is doing the majority of this work in their annual transformation survey Tourism BEE scorecard is set to be in place by the end of the year On the whole transformation has been limited, and is not being assisted by the structural conditions of the industry: Industry participants at all levels generally at least express the need for and commitment to transformation – yet often complain about lack of certainty Ownership transformation initiatives are underway in the large listed enterprises (the question is whether or not this is meaningful), but there is very little movement within

DIAGNOSTIC FINDINGS privately held companies (which account for the vast majority of value within the industry) – Private tour operators (which are often sizeable in terms of turnover) and small accommodation owners are the furthest away from broad-based transformation There is general commitment (and clear incentive) to affirmative procurement, but – The more technical / complex the supply chain, the more risk-averse the purchasers are of changing the supplier – ‘Outsourcing’ tends to pigeon-hole black operators (such as seeing them as ground handlers and township operators only) There exists broad-based commitment to training and skills development – The private sector has taken this responsibility upon themselves, probably as a function of their dissatisfaction with the THETA and other government training initiatives

Chapters of the Global Competitiveness Study

External benchmark Benchmarking performance Internal benchmark The configuration and functioning Mapping the cluster of the value system The channel functioning Consumer to market Market to consumer

Market Access Drivers and barriers of growth in Airlift tourism in SA Capacity Car Rental

Accommodation

Investment and implications for Current investment status future investment Investment Issues

Agenda

Current Investment Levels

Entrepreneurs: Investment Mindset and Business Challenges

Access to finance and Government Incentives

Opportunities for Government and the Private Sector

Summary

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 206 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The industry believes tourism industry is sufficiently profitable to attract investment The industry also believes that on the whole investment is not flowing into the right areas – which begs the question “Why not?”.

The SA tourism industry is sufficiently profitable Investment in the SA tourism industry is to attract local and foreign investment currently flowing to the right places

60% 60%

39% 40% 38% 40% 33%

27% 26% Percentage 20% 20% 15% 12%

6% 4% 1% 0% 0% Strongly Agree Neither Disagree Strongly Strongly Agree Neither Disagree Strongly agree agree nor disagree agree agree not disagree disagree disagree

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 207 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Foreign Direct Investment is happening in South Africa, but the pattern is erratic There is no clear trend with regards to FDI and the picture currently excludes 2003. The investment has been into a variety of areas, with hotels and real estate combined taking approximately 50% of the total investment over the 8 year period.

Foreign Direct Investment 94-03 Areas of Foreign Direct Investment 94-02 300 272 266 Rail, Road and Freight 10 253 257 250 231 227 Restaurants and Pubs 101

200 Leisure Facilities 85

150 Gaming 157 119 Real Estate Holding and 286 100 Development

FDI (Millions USD) FDI (Millions 84

Hotels 396 50 28 Airlines and Airports 437 7 0 0 100 200 300 400 500

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 FDI (Millions USD)

Note: The data does not report actual investment – only the value deals announced Source: BusinessMap Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 208 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress There is evidence of substantial private sector investment into the alternative accommodation sector – but this is not quantifiable at a national level The total investment over 3 years is approximately R810million or R105,000 per room1 over the past 3 years

Portfolio Collection Accommodation Providers – age of Total Amount Invested into Business over the past 3 businesses years

Greater than 5% R5m more than 10 years 14% R2m to R5m 14%

R1m to R2m 14% 5 to 10 years 40% R500000 to 15% R1m

R250000 to 22% R500000 Less than 5 46% years R0 to R250000 30%

0 50 100 150 200 250 0 20406080100120 Percentage of respondents Percentage of respondents Note: 1 – Assuming 7.7 rooms per establishment and 1000 establishments. Source: Portfolio Collection Survey 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 209 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress

Agenda

Current Investment Levels

Entrepreneurs: Investment Mindset and Business Challenges

Access to finance and Government Incentives

Opportunities for Government and the Private Sector

Summary

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 210 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress There appears to be two distinct business models entrepreneurs use within the tourism industry

ThereThere appears appears to to be be two two typestypes of of business business models models in in operationoperation in in the the industry industry

1. INCOME MODEL 2. ASSET GROWTH MODEL

A desire to cover costs and Profits taken through the interest charges income statement. Happy for the profits to rest in A focus on cash flows and the asset growth over time positive returns greater than Model adopted by some cost of capital SMMEs

Pricing targets and occupancy Ability to discount down to levels need to met specific marginal costs but still be targets for the operation to be successful successful Less concerned about low capacity utilization

Source: Qualitative industry interviews 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 211 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Currently the decision making process does not appear sophisticated and is predicated on experience and strength of relevant networks

From the preceding discussion the entrepreneur appears to face a complex decision – However, from the qualitative interviews it was apparent the majority of decisions are made under the following conditions:

In the absence of statistical data

Based largely on experience within the industry and some degree of ‘gut-feel’ (i.e. making it difficult for outsiders to enter the industry)

Ideas are testing within trusted networks of tourism experienced entrepreneurs

The investment model applied is largely:

“Build“Build it it and and they they will will come” come”

This model applied even to larger more sophisticated entrepreneurs

Agenda

Current Investment Levels

Entrepreneurs: Investment Mindset and Business Challenges

Access to finance and Government Incentives

Opportunities for Government and the Private Sector

Summary

Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 213 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The industry believes that access to finance is an issue and that Government needs to play a bigger role

There is sufficient funding available for tourism There are sufficient incentives for financial investors to industry enterprises invest in the tourism sector 60% 60%

39% 40% 40% 37% 28% 27% 22%

Percentage 20% 16% 16% 20% 13%

2% 1% 0% 0% SA A NA/DA D SD SA A NA/DA D SD

Government has an important role to play in the facilitation of funding and investment in the tourism industry 60%

46% 44% 40%

20%

5% 3% 2% 0% SA A NA/DA D SD Neither Agree Strongly SA Strongly Agree A Agree NA/ND Nor Disagree D Disagree SD Disagree

Source: Quantitative Industry Survey, 2003 / 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 214 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Majority of finance used for the alternative accommodation sector appears to bypass financing institutions This information tends to support the hypothesis that access to finance is problematic.

Financing methods used by Portfolio Collection Survey Respondents, 02 to 04

Own cash 32%

Funded via the existing businesses' cash flow 23%

Private loan from a bank (eg mortgage on your personal 16% property)

Raised capital from a commercial bank using the business 10% assets as collateral

Loans from friends and family 6%

Retirement funds 4%

Other 4%

Raised finance from a commercial bank on the merits of the 3% business case

Government or quasi-government 2%

0% 5% 10% 15% 20% 25% 30% 35% No of respondents Source: Portfolio Collection Survey, 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 215 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress The problem highlighted by industry regarding Government incentives appears to be related to a lack of knowledge and bureaucracy The key here appears to be marketing and accessibility. One of the key findings that the cost of compliance for SMMEs is high.

Portfolio Collection – use and knowledge of Government incentives

DTI's Small / Medium Enterprise 27.7% “Government incentive schemes are often long-winded, Development Programme (SMEDP) difficult and too much red tape is involved. Also lots of

Unaware of any of these schemes 22.1% advisors who want thousand of Rands upfront to "help" one get assistance. It needs simplifying and more accessible” Tourism Enterprise Programme (TEP) 21.4% “Could you distribute a flyer with all the schemes available Other (please specify) 11.2% for funds? “ “Please could Portfolio help with supplying me with contact International Tourism Marketing 8.1% Assistance Scheme (ITMAS) details on these various schemes or where to look on websites “ Tourism enterprise finance (IDC) 7.7% “Funding by SMME projects is great - just incredibly difficult and paper intensive - help needed in this regard to The Poverty Relief Programme 0.7% meet the requirements “ “DTI applied (small) but it's 9 months have gone by and Development Bank of South Africa (DBSA) 0.4% nothing has happened. WHY ARE GOVERNMENTAL ORGS SO SLOW? “ Khula credit guarantees 0.0% “I would like to know more about Financial assistance from 0% 5% 10% 15% 20% 25% 30% 35% 40% the tourism industry“ % of respondents Source: Portfolio Collection Survey 2004 Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 216 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH Work in Progress Access to finance is an issue – but for very clear reasons when one considers the relative positions of entrepreneurs and finance houses Given the information gap below, it is difficult for banks to see how businesses are going to make money – especially service type businesses where there is no collateral

ENTREPRENEUR FINANCING HOUSES

Complex business challenges Banks tendency is to strive for zero Lack of available industry and consumer risk exposure data Acknowledge the complex business

Business plans are based on challenges faced by entrepreneurs assumptions and anecdote As a consequence have identified Industry is attractive and seen to be multiple risk areas for evaluation ‘sexy’

“Rigorous data driven INFORMATION “Rigorous data driven “Build“Build it it and and they they will will come” come” GAP evaluationevaluation of of bus businessiness plans plans acrossacross multiple multiple dimensions” dimensions”

Agenda

Current Investment Levels

Entrepreneurs: Investment Mindset and Business Challenges

Access to finance and Government Incentives

Opportunities Government and the Private Sector

Summary

INVESTMENT

Level of Investment

There is no national statistical data on the level of domestic investment

FDI is occurring – but in an erratic fashion

Currency has an influence on consumer behaviour and this is an issue when planning investments

The industry is calling on Government to invest into several infrastructural areas with regards to tourism The industry is in a growth phase and has seen substantial investment – order of magnitude, areas of investment, and source of funds are not known DIAGNOSTIC FINDINGS Investment Issues Access to finance is an issue – Entrepreneurs currently have a fairly simplistic investment model which is in strong contrast to the rigorous evaluations conducted by financing institutions – Small operators are mostly investing in the form of own cash – this poses a transformation challenge – There is a bias to financing ‘bricks and mortar’ type businesses as opposed to service type businesses due a perception of increased risk Investment occurs at a local level and this is where the least market information is available Operators appear to be investing to serve an international market There appear to be several broad product gaps and service level gaps Many operators (approximately 25% of small operators) have never heard of any of the Government incentives The institutional support appears to lack reach and awareness (by entrepreneurs) Confidential LES-CLS-GCP Integrated Deck_V7-26/05/2004-AvM 219 Copyright © 2004 Monitor Company Group, L.P. & South African Tourism — Confidential — JOH