New SA air­lines strug­gle to beat older ri­vals

The Star Early Edition - - BUSINESS REPORT - Siseko Njobeni

RELIANCE on old air­craft, pa­per-thin mar­gins and a rise in oil prices were some of the rea­sons new en­trants to the South African air­line mar­ket had failed, Plane Talk man­ag­ing di­rec­tor Lin­den Birns said yes­ter­day.

Na­tion­wide Air­lines, 1Time, Vel­vet Sky and Sky­wise ceased op­er­a­tions for dif­fer­ent rea­sons in the past few years.

Birns said that Fly Blue Crane, which started fly­ing in 2015, was the lat­est air­line to find it­self in dis­tress. The air­line lodged an ap­pli­ca­tion for busi­ness res­cue last year. On Sun­day, the air­line’s busi­ness res­cue prac­ti­tioner, Eti­enne Naude, was op­ti­mistic that the com­pany would over­come its prob­lems.

Birns said the lo­cal mar­ket was fiercely com­pet­i­tive. “When new en­trants get to key routes such as be­tween Jo­han­nes­burg and Cape Town, Jo­han­nes­burg and Dur­ban or Cape Town and Dur­ban, they come up against for­mi­da­ble com­pe­ti­tion from es­tab­lished play­ers such as SAA, which in­cludes Mango Air­lines; Co­mair which op­er­ates Bri­tish Air­ways; and ku­l­ula and FlySafair.”

Birns said new en­trants needed deep pock­ets and the right type of air­craft.

Some­times the new en­trants of­fered cheaper rates to at­tract cus­tomers. “But incumbents do pro­tect their mar­ket. That does not help any­body. At some point it is im­pos­si­ble to of­fer much lower fares and still re­main fi­nan­cially sus­tain­able.”

To com­pli­cate mat­ters, lo­cal air­lines’ rev­enue was pre­dom­i­nantly in South African rands while their cap­i­tal costs and air­craft leases were in US dol­lars. “Most bat­tle to close the gap be­tween the rev­enue and the fixed costs.”

Birns said air­lines strug­gled to take mar­ket share away from es­tab­lished play­ers. “How do you in­crease mar­ket share when peo­ple are held up in loy­alty pro­grammes? You must come up with some­thing new to in­crease mar­ket share. That in­cludes look­ing at a new seg­ment be­cause there is no room in the cor­po­rate mar­ket. Big com­pa­nies ne­go­ti­ate their own deals with air­lines.

“So the new en­trants do not go for cor­po­rate clients – they con­sider the self-em­ployed, back­pack­ers, the new mid­dle class and stu­dents.”

But de­spite re­cent fail­ures, the lo­cal avi­a­tion in­dus­try con­tin­ued to at­tract new play­ers. “But they soon re­alise that it is a cut-throat in­dus­try with very thin mar­gins. It may take about four years be­fore you get es­tab­lished.”

Birns said air­lines such as ku­l­ula failed be­cause they re­lied on the wrong air­craft. It was us­ing old planes that were ap­pro­pri­ate only as long as global oil prices stayed low. “The air­craft were main­te­nance in­ten­sive, not fuel ef­fi­cient. The older the air­craft, the more ex­pen­sive it is. As soon as the oil prices in­creased, their prof­its went out the win­dow.”

Vel­vet Sky had also re­lied on old air­craft. The Dur­ban-based air­line launched in March 2011 and ceased op­er­a­tions in Fe­bru­ary 2012, be­ing liq­ui­dated in June 2012.

FILE PHOTO: DAYLIN PAUL

Na­tion­wide Air­lines was one of sev­eral lo­cal air­lines that were not able to keep on op­er­at­ing at a profit. Start-up air­lines face many prob­lems, in­clud­ing ris­ing oil prices.

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