Kamlesh Bhuckory
MANGO Airlines, the profitable low-cost unit owned by flag carrier SAA, plans to add new routes and planes as a slower local economy increases demand for cheaper flights.
“As the South African population becomes increasingly price-sensitive and moves across to lower and more affordable price options, we are experiencing great passenger demand,” chief executive Nico Bezuidenhout said on Wednesday. “This is going to be a good revenue year for us.”
Mango, which has eight Boeing 737-800 planes flying mainly between Cape Town, Johannesburg and Durban, posted record profit of R40 million for the year to March while sales gained 42 percent. Unprofitable full-service carrier SAA has yet to publish earnings for the period and is awaiting approval from the National Treasury for additional financial guarantees to keep it afloat.
“Good control of unit costs and increasing gain in market share, all add to better margins,” Bezuidenhout said. “Having said that of course, aviation margins are notoriously bad.”
While Mango forecasts higher revenue this year, the flipside of slower South African economic growth was that profit margins might fall, he said.
The International Monetary Fund reduced its forecast for gross domestic product growth this year to 1.4 percent on Tuesday as Africa’s second-biggest economy struggles to recover from protracted strike action and rising inflation.
“This year is a bit tougher. I see there is margin pressure.”
The outlook for the rest of the year is clouded by the arrival of low-cost carrier FlySafair, which operates its first Cape Town-Johannesburg flight next Wednesday. It joins Mango and Kulula, a unit of Comair, in the low-cost market.
As Mango continued to grow Bezuidenhout said it planned to add two Boeing aircraft – likely to be inherited from SAA – and would increase capacity to Port Elizabeth and George with the possibility of a new route to East London. That was while seeking a new destination elsewhere on the continent to add to its flights to Zanzibar. Possible locations included Kenya and Mauritius, he said.
“Our focus is to try to be on the leisure-orientated routes more so than the business-orientated routes.”
Positive cash flow and a debt-free balance sheet would provide financial strength to renew the fleet in about 2021, Bezuidenhout said. The airline would start to look at new Boeing and Airbus models from 2017. – Bloomberg