Johannesburg - The competitive low-cost airline is hurting the pockets of some participants, while others are strategising and arguing that the price race to the bottom is not sustainable.
Tabassum Qair, co chair of Skywise Airlines, notes the sector is very competitive in SA and adds that ten airlines have failed to successfully spread their winds locally, including the now defunct 1Time.
Skywise was launched in February and operates three Boeing 737 planes, undertaking eight daily and 52 weekly flights on the Johannesburg-Cape Town route. It recently launched an "unlimited flying” subscription on the Cape Town-Johannesburg route, allowing frequent flyers to pay R7 999 a month to fly as often as they want to between the two cities.
The package is targeted at business executives, government officials and sports fans and travellers who fly between Johannesburg and Cape Town at least three times a month.
Qair notes, while some are sceptical another airline can make a go of it, there is huge potential in the local market. However, she cautions the sector needs government to support it, and not act in what she believes is effectively an anticompetitive way by bailing out the national carrier.
Another local low-cost airline, Comair, has previously said government’s bailouts for South African Airways are unfair and - because the airline is technically insolvent - allow it to undercut other operators, to their detriment.
SAA recently received another R5 billion guarantee from the state.
Comair’s most recent results, released this month, show a 17 percent decline in annual profits after its gains from the collapse in the oil price had been returned to customers when it was drawn into a price war with new entrants to the domestic airline market.
The airline, which operates services as a British Airways franchisee and under its own Kulula brand, said revenue for the year to June had been flat at R5.9 billion.
Profit was down from R265 million to R219 million, thanks largely to a price war with new competitors Flysafair and Skywise, which entered the market “with very aggressive, but more than likely unsustainable pricing”. Headline earnings per share came in at 47.9 cents, down from 57.8 cents last time
Despite the new capacity in the market, Comair said it had maintained its passenger volumes largely due to the strength of the Kulula and British Airways brands.
Race to the bottom
FlySafair, which arrived on the local scene last September, believes South Africans have saved R614 million in airfares since it launched. It says in a recent statement that, at 400 000 flight seats per week, South African domestic capacity is at the highest levels yet.
However, this race to the bottom is not sustainable and, to succeed, airlines need to keep their aircraft full most of the time and be aggressive on costs, the low-cost airline says. It adds growth can also be achieved through good passenger service.
“The challenge presently facing the domestic market is a potential excess capacity, with reports indicating we are about to exceed a record high of over 400 000 flight seats per week.
“The sustainability of local operators depends on whether demand will rise to meet this supply, such that airlines can fill their aircraft. It’s interesting to note that incumbent airlines have chosen to increase fleet size and seat capacity at a time when there are so many new entrants into the market.”
FlySafair notes the trend facing the market - of aggressive discounting by the incumbents that could be below sustainable levels - will not succeed in the long-term. “This may be great for the consumer at present because fares are very low, but in the long run operators will seek to recover losses with higher fares, or bailouts – neither of which are in the consumer’s favour.”
Says Qair, the low-cost airline sector has not taken off as it should, although Africa is growing. She notes the decline in tourism is also hampering the sector, which has the potential to create thousands of jobs. Tourism numbers are down after government controversially changed the visa ruled to make it harder for foreigners to enter the country.
Qair says Skywise, a subsidiary of Pak Africa Aviation, sees the sector as “tough” at the moment and should be focusing on on business and not competition. “[But,] if we are pushed enough, we will take the challenge,” she says about the competitive environment.
Skywise is focused on growing its business through its big brother’s network as Pak Africa has regional routes it can tap into, says Qair. She expects point-to-point connections on the continent to open up in the next two years to free up a neglected sector as travellers often need to go via Europe to get from one African country to another.
“You can’t just be stagnant; you change your strategy as needed.”
IOL