Low-cost carriers battle for SA’s skies
Competition is finally heating up in South African skies again, more than two years after the collapse of Velvet Sky and 1time.
The dogf ight bet ween low- cost carriers has been ratcheted up with the entry of Skywise, the fourth low-cost carrier, earlier this month.
Previously unheard of fares between Cape Town and Johannesburg are suddenly tripping off the tongues of established and would-be passengers. Skywise officially launched this month offering a couple of thousand seats at R450, undercutting previous entrant FlySafair’s offer of R499.
But the promise of a cheap flight needs careful examination. FlySafair’s strategy is to charge per bag on top of the fare. You pay R150 for a bag up to 20kg if you book online and R250 if you only let them know at the airport. Skywise’s claim, at least for the moment, is that there are “no hidden costs”. On a Skywise f light, your first 20kg bag costs nothing extra.
But other than price there aren’t many ways for airlines to differentiate themselves, particularly on short-haul trips. It’s why SAA has hinted it is going to leave the local routes to its low-cost operator Mango and focus purely on regional f lights. Last month, SAA’s acting CEO Nico Bezuidenhout said that SAA’s average break-even fare for domestic and short-haul f lights was R1 700, while Mango’s was below R900. It was a “no-brainer” what a consumer would choose.
FlySafair, part owned by Ireland-based ASL Aviation Group, got off the ground just in time to take 200 000 passengers on holiday to George, Cape Town, Durban and Johannesburg. Only those that got in first (and were travelling light) got the deal, but it’s a good bet that a lot of people made breathless enquiries and the airline has made its name known.
However, last week Dave Andrews, CEO of FlySafair, admitted that the airline loses money on the cheap seats. While it is “making a contribution” to the parent company, it “isn’t making a profit yet”. And it probably won’t for the next couple of years at least.
Flights might have been around 75% full so far and fares are scaled upwards the closer a booking is made to the time of departure, but margins are razor-thin and input costs are monstrous.
The Airports Company South Africa (Acsa), for example, charges around R169 per passenger to provide services that include everything from parking spaces, bag packing, bussing people to and from the planes and air traffic control. The two biggest costs though are salaries and aircraft costs – like lease fees, fuel, maintenance and insurance.
The only factor that can be controlled is the staff costs and FlySafair, like all the other low-cost carriers, is keeping this rock bottom.
Skywise, owned by a “consortium of high-net-worth individuals in the Middle East and Africa”, kicked off with four flights a day earlier this month. Pak Africa CEO Tabassum Qadir said that the idea was to offer “less price with more value. We want to focus more on consumers’ benefit than competitor’s detriment.”
But while Skywise’s R450 special was snapped up with R499 tickets now available “with no hidden costs”, how long can this kind of loss-leader really last?
Asked whether FlySafair’s entry into the market had been well received by Mango and Kulula, Andrews laughed. “Not really,” he said. The response was to be expected: a series of specials were quickly made available from the big two – Kulula and Mango.
“So far t hey’ve been reasonable though,” Andrews said. “They haven’t gone f lat out to close us down.”
It’s not impossible though. Kulula and Mango, with their long-established track record, large f leet numbers and years of experience in the local arena, could no doubt carry these kinds of losses far longer than any new upstart.
Although it is meant to be operating independently of SAA, it is hard to tell what kind of reliance Mango puts on the national carrier for some of the more onerous input costs. However, even if it wasn’t able to stand alone it is unlikely the state would allow it to plummet out of the competition for local routes.
SAA has just received its l atest taxpayer-funded guarantee of R6.5bn to raise its f inancial position above complete insolvency. At a long-delayed annual general meeting in January, SAA admitted it had almost doubled its losses in the 2014 financial year to R2.6bn.
A few f light enquiries on Tuesday, 10 March, showed you could get to Cape Town from Johannesburg on Skywise the same day for R499, on Mango for R879, FlySafair for R1 029 (R879 plus R150 for a bag up to 20kg). Kulula would have got you there for R1 124.
CEO of FlySafair