Thursday 12 December 2013

Wrapping Up 2013

As 2013 draws to a close, news of Madiba's passing and the accompanying memoriams have dominated our thoughts. For all South Africans it is the end of an era. Tata Madiba is a great example of humanity and its strengths and weaknesses. Above all we sympathise with the family, as he was a dear relative.

On a more topical front, the African aviation world has not ended the year with any major developments. The hoped for emergence of new South African airlines has not materialised, so SAA and its family continue to dominate, in spite of their dire financial straits.

Safair attempts to take off have again been thwarted by Comair and its legal team, them having served an objection 5 minutes before the deadline. This has had the effect of postponing any further moves by Safair until 2014.

Fastjet have encountered similar turbulence and have made little impression in 2013, apart from significant share price collapse, and the eventual divestment by Lonhro. They do seem to be showing some growth in the Tanzanian domestic marketplace.

Skywise are still posturing and making noises, but there are no solid signs of progress.

Pakistani investors, together with some 1Time and Excalibur cronies, have joined hands with Global Aviation to exploit the status of 1Time Holdings as a listed company, but it is not yet clear how this will turn into actual service, although there are indications that Zimbabwe may be the first theatre of operations.

International developments have of course been notable, and the year has ended with the seat width "debate" taking up a leading place. The A350 continues flight testing. Air show sales have been strong, with the Middle East airlines being the main buyers.

Wishing you all of the best and see you in 2014.

You can find out more about us on these websites:

www.webb-elgin.com

www.airlinestaff.co.za

www.staffweb.co.za

Monday 28 October 2013

Clash of the Titans

Imagine a soccer or rugby cup final in which one team had unlimited replacements, who do you think would win.

Well in the South African airline market that situation is a reality, and the economic and human costs are very significant. This is accentuated by the mini-price-war now being raged between Airlink and SA Express. Here is the reporting picked up so far:

Fin24 Sep 29 2013
"SA Express on Friday announced that it would be launching flights on three routes where Airlink had up to now enjoyed a monopoly: Cape Town to George, Johannesburg to Nelspruit, and Johannesburg to Pietermaritzburg."


Fin24 Oct 8 2013
"SA Express shocked the industry by announcing flights from Cape Town to George in direct competition with Airlink. Before the SA Express announcement, a one-way flight from Cape Town to George with Airlink cost R570 (excluding taxes/fuel surcharges). SA Express then had an opening special of R300 (excluding taxes/fuel surcharges) on the route, and Airlink has now responded with an astonishingly low R40 (excluding taxes/fuel surcharges) one-way fee from Cape Town to George."

IOL Travel 28 October
"It is hard to understand why the heavily indebted SA Express, which told the parliamentary committee on public enterprises this week that a R539-million government loan guarantee is due to expire in February 2015 and is ordering a new fleet, should be competing with Airlink by offering lower fares on three new routes all at once."

Once again the players in the South African domestic airline industry have created a dichotomy of interests. At first glance, the consumer clearly wins, as the fares on these routes will reduce significantly. In broader economic terms this may not be true however. SA Express, like its bigger brother, is in dire financial straits, and subject to qualified audits, and unexplained unathorised expenditures. There are a wealth of financial articles eluding to this. So in reality, in the case of SAX, the reduced fares are in fact subsidised by the taxpayer, and so in the long run, the consumer does not really save.

In broader economic terms, the possibiity exists, once again, that the state will drive a vibrant private enterprise out of the market and out of business. There is little that a privately funded entity can do to counter a price war conducted by a state-owned enterprise with infinite cash, and 1Time and Velvet Sky bear witness to this, as do a string of SA airline failures starting way back with Flitestar.

Airlink roots go back pretty far and pre-date SA Express by a decade or so. Airlink has traditionally provided service on the so-called "thin routes", and in the early years provided a feeder service into larger carriers such as SA Express. Today it has broader scope and has become a powerful player in the regional market alongside SA Express.

SA Express has laboured along for nearly 20 years and has cost the country millions. It has now been called on by its owners to turn around its poor performance, and the immediate response has been to adopt a posture to remove competition. Through the narrow looking-glass this tactic sounds reasonable, and we can understand how the owners may fall for this approach.

The doomsday scenario, however, is that in 5 years we are left with a sad collection of state-owned "airlines" that continue to knock on Treasury's door every few months, are granted further funding, and achieve this by rewriting the "Grand Strategy" and the 20 year plan.

 

Tuesday 8 October 2013

Court interdict prevents FlySafair operations

FlySafair flights, which were due to start on October 17th, have been suspended due to legal action. The courts yesterday granted an interdict which forces the Safair licence application to be reviewed by the Air Services Licencing Council. This is as a result of questions being asked about the true ownership of FlySafair.

Passengers are protected in that they can obtain a full refund, or elect to travel on Comair for the same price.

This, and the fastjet episode, once again highlight the strict regulatory regime which exists in Southern Africa.

Whilst we cannot predict the final outcome of the FlySafair chapter, the fact remains that it is a diificult tightrope to walk between encouraging competition versus protecting the travelling public from risky business ventures. If one looks further North in Africa, the results of uncontrolled airline proliferation can clearly be seen. That road is littered with failures and accidents. And indeed, South Africa also has a high proportion of domestic airline failures.

South African civil aviation law requires a local ownership portion of 75% in order to obtain a domestic air services licence. This is not an uncommon provision, and it would be argued that this is an equitable policy, considering that competing nations have similar rules.

Given this, why are there few new entrants. Clearly, local investors fully understand the dynamic of the South African domestic air market. The structural problems created by the existence of 3 state-subsidised, loss-making airlines, are the root cause.

In the meanwhile, the incumbents enjoy outstanding profits due to the uncompetitive nature of the majority of the major routes.

Thursday 29 August 2013

Safair, a well established leasing and cargo entity, was awarded a Domestic Air Services licence this week and has announced plans to commence flights between Johannesburg and Cape Town with B737-400 aircraft before the end of 2013. Comair, now starting to act like a national carrier, has objected to the award and is taking court action.

Monday 26 August 2013

Where are these new airlines?

In the aftermath of the failures of Velvet Sky Aviation and 1Time Airline during 2012, there has been much talk and publicity about the new airlines that would rise from the ashes. I am quite fascinated how rumours can very quickly become firm predictions and even launch announcements, but in reality, the road to the first flight of a new airline is a long and arduous one, and in South Africa it can take up to 2 years to complete all the necessary formalities. Of course, on the finance side, millions have to be raised simply to fund working capital.

Way back in January 2013, there were reports of more than one party in talks to resurrect 1Time, and since then, different players have entered the fray, the latest being Pak Africa. It is reported that the Aurora/Excalibur team that was involved with Velvet Sky is active in this new project.

 “In a year or two, 1time will be the biggest brand in Africa,” Tabassum Qadir, the Managing Director of Pak Africa told CNBC Africa on Thursday. 


The previous interested party, fastjet, has other issues to contend with. African Aviation Tribune reports that 
"Struggling LCC fastjet (FN), is set to become the second major Tanzanian carrier to embark on a redundancy drive following reports that it is in consultations with its employees regarding pending staff cuts aimed at trimming its head-count by 12%. "

fastjet has been  romancing all over Africa in search of a golden key to unlock the aviation riches of Africa, but has so far failed to establish a serious foothold, mainly, it is believed, due to its high operational costs and lack of local knowledge.

The other offshoot of the 1Time legacy, Skywise, has shown more promise, although it has also been tempted to over-promise without being able to re-introduce low-cost air travel into the South African domestic market. It has successfully obtained its Domestic Air Services Licence and now has to convince the CAA to issue its AOC. Latest statements indicate that staff are all in place, but there is some debate over whether the necessary funding is in place.

There are two other players who remain relatively silent on their intentions. flyafrica.com have a website with a countdown timer, that tends to reset every now and again, and they dub themselves as "Africa's Low Cost Carrier" - sounding a little like fastjet. They are believed to be backed by entities in New Zealand, and some ex-SAA executives are mentioned in discussions.

And then there is Safair, traditionally a freight and charter outfit, who are toying with the possibility of moving into scheduled service, and who have been recruiting flight deck crew. It is possible that some mix-and-match could still happen amongst the four players mentioned.

The losers in this waiting game are the consumers, and industry service providers, but the winners are Comair and Mango. With air fares now up to as much as double those of 2 years ago, the survivors are reaping good margin and growing fast. In its last statement, Comair was predicting a 20% increase in earnings, and Mango is almost doubling its fleet and adding new destinations.

There is space in the market and the December peak is fast approaching. It is probably now or never.