Comair gains by spending to save

Comment on this story

Despite soaring costs and a shrinking domestic airline market, regional and domestic airline Comair ended the first half of its financial year with a 23 percent rise in revenue to R29.6 billion and a cash balance of R695 million.

Now it has become the first African airline to order Boeing’s technologically advanced 737 MAX aircraft, due to go into production in 2017.

Chief executive Erik Venter announced yesterday that it had ordered eight of the new jets, with a list price of $830m (about R8.9bn at yesterday’s rate) each, to ensure the airline’s continued profitability in a future where fuel costs are likely to stay high.

Venter pointed out that although the development of biofuels was expected to reduce levels of pollution from aircraft, biofuel was expensive to produce and was unlikely to be available in quantities big enough to enable airlines to do more than add a small proportion to existing aviation fuel. The new 737s are expected to use 14 percent less than the most fuel-efficient single-aisle planes available today.

Fuel prices have become the biggest expense faced by airlines today. Failure to replace the fuel-guzzling aircraft used a few years ago has led to the disappearance of several previously successful airlines, including 1time, removing competition on domestic airline routes for Comair’s kulula and SAA’s Mango.

Comair, which previously used second-hand aircraft, has replaced these in recent years with new models chosen for their fuel economy. It now has a fleet entirely composed of Boeing aircraft, while SAA, which is also replacing older aircraft, is obtaining its new planes for use on domestic and regional routes from rival European aircraft manufacturer Airbus.

Although Comair is the first airline in Africa to order Boeing’s newest aircraft, it will have to wait until 2019 to receive the first of them. The eighth and last of its order is due to be delivered in 2021.

Venter said yesterday that Boeing had received more than 1 800 orders for the plane since its development was announced in 2011.

Meanwhile, Comair’s decision to upgrade its fleet with the most up-to-date aircraft available at present, has reduced its fuel consumption by 28 percent in the past seven years.

 

Telkom

Even for sceptics, Telkom’s strategy, if not its numbers, is becoming laden with promise as relatively new chief executive Sipho Maseko prepares to present his first full-year results in June.

Just the other day, Telkom announced its financial performance for the 12 months to March would be boosted by a net curtailment gain of approximately R2 billion on the retirement medical aid liability, and a subsequent tax benefit of approximately R246 million.

Maseko’s first port of call was an aggressive cost cutting drive, including the sale of non-core properties and the renegotiation of contracts with suppliers.

Recently Telkom announced that it had entered into heads of agreement with MTN South Africa, which will manage Telkom Mobile’s radio access network. This is expected to relieve Telkom of the strain of keeping the start-up afloat.

Telkom’s results for the previous year were affected by a R12bn non-cash impairment of assets, the provision for Competition Commission fines of R592m and R434m related to the cost of voluntary severance and early retirement packages.

“I think Telkom’s challenges are complex,” Maseko told media in September last year, adding that signs of a turnaround would be measured by customer and shareholder feedback.

Maseko’s masterplan hinges on resetting the cost base, creating a new affinity with customers and resolving the challenges facing its cellular business, “in a way that is sustainable, enables us to be a telecoms company of the future and look to intervene in some aspects in terms of our revenue base overall”.

The company is upgrading its infrastructure and planning new services including video on demand. From next month it will have separated its wholesale and retail business as part of a settlement that saw the Competition Commission waive anti-competition penalties against it.

The separation will require innovation on products to increase volumes on Telkom’s network. “All we can do as a management team is to leave the place better than we found it,” Maseko said in September.

 

Edited by Banele Ginindza. With contributions from Audrey D’Angelo and Asha Speckman.


sign up
 
 

Comment Guidelines



  1. Please read our comment guidelines.
  2. Login and register, if you haven’ t already.
  3. Write your comment in the block below and click (Post As)
  4. Has a comment offended you? Hover your mouse over the comment and wait until a small triangle appears on the right-hand side. Click triangle () and select "Flag as inappropriate". Our moderators will take action if need be.