Take a look at the latest article from Comair - trying to convince us and shareholders that new entrants will not lower fares !!

Airfares won’t come down - Comair

07 Fri, Feb 2014

  

Domestic travellers aren’t likely to see airfares come down, even if new carriers should enter the market. 

This is the word from Erik Venter, Chief Executive of Comair, who says a drop in airfares would not be sustainable. 

Comair is expecting its profits to double when it announces its financial results this week. The airline indicated last week that earnings per share and headline earnings per share for the six months ended December 31, 2013 were expected to be between 32 and 35 cents per share. Comair’s EPS for the same period in the previous year was 16,4 cents, when the company generated R262 million. 

Fastjet has vowed to bring down domestic fares if the airline succeeds in entering the South African market. CEO, Ed Winter, says the current duopoly created by SAA and Comair is keeping airfares at an all-time high. “Prices went up by 35% after 1time fell. Fares are higher than they need to be and, in peak season, capacity is not there. For the South African consumer, a third airline would be a huge benefit.”

However, Venter strongly disagrees: “Of course every start-up airline makes a lot of fuss about how it will sell cheaper tickets but the reality is that it is just not possible.” 

He says there is an 8% excess capacity in the market, partly created by the fact that domestic travel market has shrunk by 5%. “There is already strong competition for passengers between kulula and Mango, keeping prices as low as they can realistically be. The only way to get prices lower is to go bankrupt.” 

Venter says that in the last financial year, Comair made a profit of R46 per passenger. “Talk of reducing fares by 20% with the entrance of a new airline is nonsense. On an average fare of around R750, this would mean a reduction of R150 or, put differently, a loss of R104 per passenger.”

Although the local travel industry has seen the crippling effect of high fares on the domestic travel market, industry players are also doubtful that a significant drop in airfares would be feasible. They are wary of yet another fare war that might result in bankrupt airlines and stranded passengers.