Following on the introduction of the A380 superjumbo on the route, SAA respond by reducing capacity. The A330 will however also reduce fuel cost on the route.

From Travel News Online today:

SAA will be replacing the A340-600 on Johannesburg-London route with an Airbus A330-200 from March 28.

The A330-200 is smaller than the A340-600, which will result in SAA decreasing its capacity on the route.

When asked why SAA was decreasing capacity on its London route, SAA Spokesperson, Tlali Tlali, said the decision was informed by customer feedback “so that we are able to meet the expectations of our passengers”. The airline has admitted that all its international routes are loss making.

British Airways recently increased capacity on its route between Johannesburg and London, with the addition of three weekly A380 services to the airline’s existing B747-400 weekly services. BA will add a further three services by March 6.

SAA seeking another govt bailout

Feb 19 2014 20:05

news24.com

 

Cape Town - SA Airways remains constrained by a weak balance sheet and needs a capital injection from government to thrive, airline executives told MPs on Wednesday.
Briefing parliament's select committee on labour and public enterprises, SAA CEO Monwabisi Kalawe said he remained confident the airline's long-term turnaround strategy would yield results by 2018.
"Somewhere between year four and year five, the business should either break even or show a small profit," Kalawe said.
MPs grilled him on the continuing bailouts by government, which have seen the airline severely criticised. Kalawe explained the bailouts were in the form of government guarantees which allowed the state carrier to borrow from banks.
"Against those loans we pay heavy interest." This was setting the airline back even more.
"When SAA was taken out of Transnet, it is our view... that the balance sheet was undercapitalised," he told MPs.
Poor management?
He insisted the call for a capital injection was not as a result of poor management by the current board and executive management.
"We inherited a business with a balance sheet that was not properly capitalised. All we are asking for is give us a fair start, shareholders," Kalawe said.
He could not publicly say exactly how much they were asking for.
"I'm not able to give you ratios or numbers because if I do that, I will compromise the confidential conversations that are taking place between DPE [department of public enterprises], our shareholder, and National Treasury," he said.
DPE deputy director general Kgomotso Modise confirmed her department was in talks with Treasury to ask for the capital boost and said the numbers were currently being "worked out".
 A capital boost
SAA chairperson Dudu Myeni threw her weight behind the airline's request for a capital boost.
"The issue of being bailed out all the time, every year, is not something that augurs well with the board... There must be an end to when we go to government with a hat," Myeni said.
The lack of a capital injection meant the airline would continue to make losses on specifically international routes, where older "gas guzzlers" aircraft were still being used. As a result of the weak balance sheet new wide-body planes could only be delivered by 2018.
The fuel price, a volatile exchange rate, and loss-making routes were some of the issues blamed for the over R900m loss the airline made last year.
The long-term turnaround strategy would include "aggressively" negotiating fuel costs, closing loss-making routes or reviewing them, and improving sustainability.
New routes
The South Africa to Kigali route had already been closed, and flights to Buenos Aires were to be withdrawn.
The loss-making Johannesburg to Beijing route would remain open, as government saw it as a key route for maintaining relations with China.
Myeni confirmed that SAA would most likely open up flights between Durban and Cape Town.
"We made a mistake by just closing the route altogether. We probably should have... looked at the frequencies... maybe, Monday, Thursday and Friday, instead of seven days a week."

Cemair, the ORT based operator, is continuing its cautious safari into scheduled service and now is adding Plettenberg Bay to its network. In December, they added Margate. They are operating King Airs and filling in some of the gaps left by Airlink.

In another league, British Airways first regular A380 service from Heathrow landed on schedule at OR Tambo International this morning.

The attached article appeared in Travel Online this morning. Comair are doing their best to discourage competition, as we would expect from a listed company.

Comair profits up, but prices stay the same 

12 Wed, Feb 2014

  

Comair has effectively doubled its profit, as was forecasted at the end of January. But ticket prices won’t come down.

Comair’s revenue also grew by 23%, which, the airline said, was attributable to the 15% increase in capacity arising from the replacement of Boeing 737-300s with the larger 800s. The airline has ordered another four new Boeing 737-800s, which are expected to be delivered in late 2015 and 2016. Cash generations were strong, resulting in a cash balance of R695m, the airline reported.  

Despite the positive results, Erik Venter, CEO of Comair, said in a statement ticket prices would remain the same as the levels are necessary to recover the escalating costs of fuel and the continued devaluation of the Rand. He added that the domestic market was plagued by overcapacity.

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. 

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

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.