Air Transport Publications
Contact
Login   |   Register
jobs Jobs
events Events
bookmarks
My bookmarks
feature_main_image
Airlines

Heading south

New entrants are once again trying to start up in the challenging South African market. But with a state-supported legacy carrier, high fuel and airport costs and limited passenger numbers, can they succeed? Keith Mwanalushi finds out
 

In the last few years the South African domestic market has had a bumpy ride. The sector, which generated 12.7 million trips last year, is one of the busiest in Africa – but the local airline industry has witnessed the demise of 10 out of 11 independent private airlines since deregulation in 1990.

 

“Airlines operating in the domestic South African market face both demand and cost pressures,” comments Carlos Ozores, principal at aviation consultants ICF SH&E. “On the one hand, South Africa’s economy is growing very slowly by emerging market standards. In 2012, GDP growth was only about 2.5%, and IMF projections over the coming years only rise to the low 3% range.”

 

High fuel prices require airlines to operate more efficiently. In order to remain sustainable and competitive, an airline has to make sufficient profits to constantly reinvest in modernising its fleet. The airline industry worldwide has been forced to recognise the need for radical change, to ensure sustainability as well as profitability.

 

In the South African context, Erik Venter, chief executive officer of South African-based Comair (parent company of kulula.com) highlights a number of issues. He says that the local industry is challenged by a small market; inexperienced new competitors with inadequate equipment distorting the market; regulatory oversight; monopoly suppliers; state-funded competition; challenges with fuel supply; and skill shortages.

 

“The weak economy and poor consumer spend, high oil prices, excessive supplier charges and the weakening local currency all threaten the growth of local air travel. Controlling costs and increasing business efficiencies are [a] top priority for Comair. We have adopted a similar approach taken by airlines worldwide in terms of operating larger but more fuel-efficient aircraft, the implementation of new generation IT systems delivering efficiency and commercial opportunities, [and] embracing new pricing models, as well as offering ancillary products and services,” Venter says.

 

Cost also makes South African operations challenging. South Africa boasts new or remodelled airports, thanks to major investment in the years leading up to the FIFA World Cup in 2010. “Someone has to pay for these investments, and that’s the end-user,” Ozores points out.  “Airport fees in South Africa rose more than 70% following the World Cup, and are among the highest in the world – often 100 to 150% higher than at comparable airports around the world.”

 

Unfortunately for South African airlines, Ozores believes options for operating from cheaper secondary airports are very limited. However, he mentions that one airport that has benefited from the low-cost carrier (LCC) boom in recent years is Lanseria, near the affluent north-western suburbs of Johannesburg. “But most other secondary airports do not have the required infrastructure to accommodate ICAO Code C aircraft, [such as the Airbus A320-family or the Boeing 737-NG models],” he laments.

 

Secondly, he says labour costs in the South African aviation industry are high and comparable to developed markets, due to a combination of high salaries, generous benefits and labour-friendly work rules – which is the result of trade unions’ strong influence on policy making.

 

“Any dollar-denominated cost, such as aircraft leases, fuel and flight crew salaries to name a few, are also putting pressure on South African airlines given the strong depreciation in the rand over the last two and a half years, during which the [currency] has lost 30% of its value,” notes Ozores.

 

There is also the issue of little or no population growth in South Africa, which means that few new potential passengers are being added to the market. “There is a case to be made for the untapped potential of the growing black middle class, but their income levels are not quite high enough to afford to fly regularly just yet,” he observes. >>


To download the PDF file for this article, you have to pay the amount by pressing the PayPal button below!


Filename: Heading south.pdf
Price: £10

Contact our team for more information!


The Airlines channel

Industry blog
Highlights from the Cabin Refurbishment & Repair Conference
Jobs
Events

Comments

You must be logged in to post a comment.

Please login or sign up for a free account.

Disclaimer text: The views expressed in the above comments do not necessarily express the views of Air Transport Publications Ltd. or any of its publications.