Weaker economy will hit air travel demand — Comair

COMAIR CEO Erik Venter is concerned that a struggling South African economy weakened by prolonged electricity load shedding will decrease consumer demand for air travel.

“I don’t think people have realised how tough things can get. Economic growth is not particularly strong right now. Load shedding is closing some small businesses including restaurants,” Mr Venter said.

“Yes, airports are key points with power and we can operate. I do think though that consumers are set for more pressure and expect Comair’s growth to come from complementary businesses such as our training centre, lounges and catering businesses as opposed to increased passenger numbers.”

The South African domestic passenger market was still below its 2008 peak volume and any near-term recovery in local consumer spending was unlikely, said Mr Venter.

The JSE-listed carrier nevertheless managed to keep its costs in tow over the past reporting period, with operating expenses increasing only 2% in the six months to December.

Consumer price inflation averaged 7% over that period. Financial results released yesterday showed that headline earnings had risen 9.6% over the halfyear to December.

Period-to-period revenue growth was 5%, reported at R3.13bn for the period compared with R2.96bn for the six months to December 2013.

The rapid decline in the dollar oil price towards the end of the year helped Comair, but not substantially when compared with the negative effects of a volatile weak rand.

Mr Venter said the oil price effect had been offset by a further 9% average weakening of the dollar-rand exchange rate compared with the previous year, which affected 48% of costs. “While the decline in the oil price has provided welcome relief, we are of the view that it will increase in the second half of the year,” he said.

“The current market swap price for the 12 months ahead is averaging $65 to $75 per barrel, indicating expectations of a recovery in the price of oil.

“The impact of the lower fuel price is anticipated to equal around 3% of total cost for the full financial year and we are seeing related downward pressure on ticket prices,” Mr Venter said.

The carrier hedged 26% of its fuel consumption for the second half of the financial year at an average price of $82 per barrel.

Its cash balance was R688m at the end of the period.

While the decline in the oil price has provided welcome relief, we are of the view that it will increase in the second half of the year