FlySafair in hot water

It is difficult to resist the temptation to comment on the current turbulence relating to FlySafair. The turbulence relates to 2 issues, both of which have politico-legal substance.The primary issue relates to the FlySafair "ownership" issue, and the second relates to FlySafair overbooking practices.

As far as the ownership is concerned, both the domestic and international licencing councils have declared FlySafair to be in contravention of South African aviation policy regarding foreign ownership. We currently are waiting for these bodies to announce the sanctions to be proposed. Note that both of these councils consist of government appointees.

There are three areas for discussion of the ownership debate. The first is the overall merit of the requirement for a limit on foreign airline ownership, the second is the legalise surrounding the definitions of ownership, and the third is the impact of the council findings, and who gains and who loses.

For discussion on the overbooking debate we should look at the concept of consumer rights, as opposed to the industry practices, and their impact on airfares.

Ownership Issues

1. The principle of foreign ownership

Although we are in an era of airline deregulation and open skies, many countries do still insist on some portion of local ownership of airlines. This portion varies generally from 25% to 75%. Why is this?

Air transport is a major contributor to any country's economy. The connectivity which the industry provides, leverages major economic activity. Nations are therefore keen to ensure that maximum benefit accrues to local interests in the home country.

Airline profits are wafer-thin, and thus the earnings portion of economic benefit is small compared to the other benefits, such as tourism income, job creation and travel industry earnings. Conversely, for a country with a small economy, the availability of foreign capital can unlock more benefit, than the actual airline earnings portion. This motivates the recent Qatar investment in Airlink.

2. Legalities and sanctions

The licencing councils are constituted as impartial arbitrators, whose role is to enable industry participants whilst ensuring that the air regualtions are complied with.

The fact that it has taken a few years to constitute the air services licencing councils, has led to a long waiting period to address the issues at hand with respect to FlySafair. This should not influence the judgment on this issue, but is most unfortunate.

There is some disagreement on whether owners have to be "natural persons". Most South African airlines have portions of ownership not belonging to natural persons. There is a reasonable argument which proposes that few natural persons have the financial resources to own part, or all, of an airline. This would suggest that the licencing councils, the interpretation, or the air regulations, are off the mark with the rulings under discussion.

There is a suggestion that the licencing councils are being patriotic and chauvinist, rather than pragmatic and understanding of the industry contributions. It is also reported that the councils are imposing conditions on their findings which are not specified in the regulations.

The sanctions available to the licencing councils include fines and suspension of a licence. It seems hardly practical to summarily suspend the FlySafair operating licences. This would have dramatic impact on the travelling public, and the industry in general. A fine seems unlikely, since if we conclude that FlySafair is breach, then it would be argued that is the failure of the licencing councils that FlySafair have been allowed to operate for such a long period.

 

 Winners and losers

Should FlySafair be forced to terminate services, the winners would be the competitor airlines, indeed they are the main instigators. This would include the government owned SAA. The losers, if FlySafair are forced to suspend operations, will be the entire travel industry, including customers, as well as current employees. In the longer term, we would expect airfares to move upwards, thanks to reduced capacity supply, and the disappearance of a benchmark low-cost operator.

 

Overbooking Issues

4. Industry practice

Globally, airlines do overbook flights since on every flight there are likely to be no-shows. The International Air Transport Association fully supports the practice. Each individual airline will adopt a detail policy based on its market and refund policies. In South Africa, some airlines have commented that they do not overbook, but prefer to refuse refunds to no-show passengers.

5. Consumer interest

It is tough to judge which is the worst of 2 evils: overbooking or no refund for the consumer. No-show passengers can have very valid reasons for failing to arrive for a flight. In both cases we believe that the crux of the matter is the manner in which the airline manages and recovers the situation. For example, we would hope that overbooking level is reduced where there are no alternative flights to a destination on the day of the occurrence.

There is no specific provision for airline overbooking in South African consumer legislation. Globally there are specific compensation regulations.

Spring 2023 Update

After an hiatus of over 2 years and much action on the local front, here is an update on the Southern African scene.

In South Africa, FlySafair has rapidly risen to the dominant domestic position, now flying 37 Boeing 737 aircraft, and serving domestic and regional destinations. Boasting impressive ontime performance and pleasing customer service, this low-cost carrier receives many awards and accolades.

Airlink has also grown significantly since the end of the epidemic and now has an extensive regional network served with a large fleet of mainly Embraer aircraft. Airlink is a higher yield carrier with a profile more business focussed.

South African Airways, Lift, and Cemair make up the remainder of the South African domestic scheduled marketplace, which appears to be somewhat underserved at peak times in the main leisure markets.

Comair, SA Express, and Mango remain dormant. Comair are pursuing legal action against Boeing, and Mango are attempting resurrection but being blocked by government.

South African Airways is starting to operate the longest locally originated flights out of Johannesburg to Ghana and Nigeria and also to Buenos Aires, but otherwise foreign operators dominate longhaul in and out of South Africa.

Regionally, there are developing signs in various Southern African territories. Perhaps the most established is Proflight in Zambia, which has now started operating Boeing aircraft. Government backed Zambia Airways has also just started competing with them, with co-operation from Ethiopian. Ethiopian is also involved in Malawi, where they have a stake in the local carrier. 

Air Botswana have stabilised, and are offering a reliable 3 aircraft operation, with jet service to Cape Town, Harare, and Lusaka. LAM Mozambique are absorbing Mozambique Express and have a co-op agreement with a consulting group to try and lift them to liquiditý/profitability. FlyNamibia are showing good growth on the base of the Westair Aviation group. 

In Zimbabwe, FastJet seems to have re-appeared in a more local suit and is presenting a dynamic profile. They are capitalising on the failure of Air Zimbabwe to offer a viable service.

The underlying economic weakness of Africa remains a factor which is holding back development but there are encouraging signs, and certainly tourism is at least returning.

 It seems that the airline industry is in a "new normal", there is not going to be a sudden disappearance of the pandemic, and that we can no longer view the situation as a temporary aberration. It is therefore necessary to establish a new context to allow the Southern African industry the best opportunities to rebuild and flourish.

We call on those responsible to:

1. Give full impetus to implementing a standard vaccination passport as per ICAO and IATA guidelines which can contribute to the opening up of international travel restrictions into, and out of, Southern Africa;

2. Urgently re-constitute the International Air Services Licencing Council, so as to facilitate the flow of regional and international air traffic and eliminate any forms of protectionism;

3. Completely remove airport slot restrictions, and the regulations thereto associated, until traffic levels meet the required levels for re-imposition as per international standards;

4. Give all possible assistance to destination marketing bodies in both public and private sectors.

Gary Webb

Aviation Advisory Board

Aviation Advisory Board

The newly formed Southern Africa Aviation Advisory Board has got off to a fine start. We now have a solid working group of 15 experienced aviation professionals from various sectors, and from as far afield as Canada and Germany. All the members have African roots. In addition we have 35 members who have indicated a desire to assist where possible. 

We are united in our love for aviation and our belief that we can create a better aviation future.The members are committed to staying in touch with developments in the industry, both locally and internationally.

The Board will make itself available to provide advice on aviation matters affecting the region, assist in aviation research projects, engage in topical conversations, and also intends to publish viewpoints on current aviation affairs. The subject matter expertise currently onboard includes Air Traffic, Training, Airports, Airlines, Tourism, Regulatory Affairs, Consulting, Security, and Publishing.

At this time the team is shortlisting the critical issues which the Board wants to focus on in the near-term. These include the reboot of air services, collaboration with associated industries, and the overall aviation education and training landscape.

We invite interested professionals who wish to participate in any way to get in touch with us.

We are also prospecting for possible sponsors.

gary@webb-elgin.com

Aviation Advisory Board Africa

Organisation of the Advisory Board is proceeding and the name list is substantial.

As part of efforts to create an Aviation Advisory Board we have created a quick survey of opinions to help us align to the needs of the industry. We would really appreciate a couple of minutes of your time.

https://www.surveymonkey.com/r/3V283HJ

#saveaviation #savetourism #aviationafrica 

Our mission:

Help to build a sustainable aviation industry for Southern Africa, securing the talent and expertise that exists in the region, avoiding past mistakes, and defining appropriate regional solutions.

Save SA Aviation

Is now the time to form an SA Aviation advisory board in a bid to save the remnants of the industry. It is going to take a concerted harmonised effort to put the industry back on track and consequently also help to rescue tourism to some extent. Consisting of solid experienced aviation buffs from all disciplines. I am pretty sure that they are out there and at this time have the space to put in some effort.

The overall brief could be "How to reactivate a healthy aviation industry in Southern Africa within the envelope of major pandemic and economic distress". Examples of the questions needing to be covered (in no particular order) would be airport distancing, charter permissions, private flying, subsidies, capacity caps, role of government, open skies, temporary relief of non-safety related regulations.

An example of the crazy current scenario is that Gautrain can operate but airlines cannot. It appears to be a function of the airports rather than the aircraft.

Another crazy is that government wants to ceate a new national carrier from the ground up whilst being unwilling to support existing successful entities.

hashtag#saveaviation #wecoms #webbelgin


We have started to solicit candidate names

South Africa - Airlines Update

As South Africa ushers in a "new era", here is a review of the state of play in the South African market.

South African Airways: The new CEO has completed an initial situation analysis. Jurana said that even with a government injection of R10 billion expected in March, SAA would remain under-capitalised with over R9 billion in negative equity, outstanding debt of R13.8 billion and rising, and with loans to domestic lenders and the US’s CitiBank of R4 billion due by March 2018. He said that the loss for 2016/7 was R5.6 billion and not the R4.6 billion previously forecast (or an even earlier forecast of R2.8 billion). Revenue came in at R14.5 billion, nearly R1 billion lower than the budgeted R15.4 billion. All domestic routes are losing money.

SA Express: State-owned airline South African Express has been unable to satisfy the auditor-general that it can continue operating as a going concern for the next 12 months. This was the reason given by Public Enterprises Minister Lynne Brown for the airline’s failure to table its annual financial statements for the 2016-17 financial year in Parliament before the end-September deadline. The airline tabled only its 2015-16 financial statements in the past few weeks. The loss-making airline has already faced an application for liquidation by a creditor, which has been withdrawn.

Mango: The third state-owned airline is adding more capacity, and picking up some of SAA's routes domestically. They are believed to be operating 9 aircraft.

Airlink: Airlink is privately owned and does not publish results, but it is seen to be continuing to grow, and is in the process of introducing EMB190 aircraft. The route network continues to grow and is a balance between thin domestic routes and medium regional routes. Airlink is seeking to acquire Safair domestic operations.

Comair: Comair [JSE:COM] issued its annual financial results on Tuesday, reporting a 54% increase in profits to R297m and a 28% increase in cash generated by its operations.
Comair operates under its low-cost airline brand, kulula.com, as well as under the British Airways livery, as part of its British Airways license agreement. Income generated by its non-airline brands now constitutes 20% of its earnings.

Safair: Safair is one of South Africa's oldest operators. The low-cost operation, FlySafair, is a recent launch. Now operating 9 aircraft domestically, and reportedly profitable. The target of merger talks with Airlink.

Cemair: A second tier operator operating thin routes.

Fastjet: Based in Johannesburg and operating regionally. Fastjet Plc will begin flying from Mozambique this year and expects to commence internal South African services in 2018 as it rekindles growth plans put on hold as losses mounted. With the operating loss down 57 percent in the first half and break even forecast for the fourth quarter, Fastjet is ready to revive its pan-African ambitions, aided by a $44 million fundraising, about one-third of which will come from shareholder Solenta Aviation Holdings, it said Friday.

Federal: Federal Air is the market leader in Southern Africa in Air shuttle services and operates daily flights to all the top game lodges and reserves in the region.