Flying in a holding pattern as cash burns
But airline association boss predicts pent-up demand after the crisis
SA’s airlines, which have been haemorrhaging money since March last year amid stringent travel restrictions, are in for a tough ride for at least the next year to 18 months, with survival odds favouring those that have access to cash and can cut fixed costs.
Wrenelle Stander, the new CEO of the Airlines Association of Southern Africa, says as it stands, airlines find themselves “in a holding pattern” doing what they can to survive. “They have to have access to cash while they are in this holding pattern. In addition, they would have hopefully cut their fixed costs so they are not burning as much cash.”
Stander, who started her new job last month, says airlines that are able to handle these two challenges the best have the greatest chance of survival.
She is under no illusions about the difficulty of the task ahead of her as she begins her new position during “one of the single biggest crises for the aviation industry and the airline industry in particular”.
“Although airlines are front and centre of the crisis, it affects all of the players in the ecosystem; your air navigation services, airports, civil aviation authorities, OEMs [original equipment manufacturers], maintenance organisations and passengers.”
Stander, who holds an MBA from the School of Business at the Oxford Polytechnic in the UK, has held various executive positions in the industry during her career of nearly three decades. She was CEO of Comair, which operates British Airways and Kulula in SA, and MD of the Air Traffic & Navigation Services company. She has also held senior regulatory positions, including deputy CEO of the South African Civil Aviation Authority and chief director of aviation and maritime regulation at the national department of transport. She was previously MD of Sasol’s gas division.
She says whether airlines can survive boils down to whether their investors agree to “nurse them through the next 18 months” with cash injections or, “alternatively, if they have got access to some form of funding or the other”. And those that “haven’t used the opportunity to scale back on their fixed costs would probably find the next few months rather challenging”.
In the domestic market, supply currently outstrips demand. Before the pandemic there were about 14.5-million passengers flying annually in SA, which has now dwindled to about 6-million, says Stander.
“Right now you’ve got all of the airlines pretty much with their existing fleets. So naturally there is more supply than demand in the market, but having said that, there is pent-up demand. We’ve seen that the minute the risk levels [of lockdown] are adjusted downwards, passengers start travelling again.” But because of the “current level of demand”, competition among domestic airlines is “going to be fierce”, she adds.
“You will probably see price wars and customers benefiting from that, but airlines will be burning cash. They have to cut prices. You can’t stay out of the market.”
She believes there could be domestic airline casualties over the next year but says this also depends on whether the vaccine rollout can be accelerated and international travel, which is a crucial feeder for domestic airlines, resumes on a large scale. Then airlines could even see a return to some level of normality within a year.
Typically after a “crisis of this magnitude” it could take anywhere to up to “18 months for the industry to recover”, she says, and that the International Air Transport Association estimates the world should see a full recovery in passenger loads in 2023 or 2024.
Stander says that globally the airline industry is “very resilient” and has been able to bounce back quickly from events such as the September 11 terror attacks in 2001. Soon after the attacks, the industry globally agreed on “common harmonised rules” for travel, which helped the sector recover quickly. The same principles need to be applied to get the airline sector recovering after Covid-19, which could include common Covid protocols for testing, among other things.
In her new role, Stander says her first focus will be on helping the industry, both in SA and Southern Africa, to recover to its preCovid levels in terms of passenger numbers.
“The airline industry supported 470,000 indirect jobs in South Africa and 70,000 direct jobs in addition to its R150bn contribution to GDP, a large portion of which has been lost. For the good of the country and the industry, we want to get back to those preCovid levels. My immediate focus is going to be working with all the players to get back to full and safe resumption of scheduled services in South Africa but also in Southern Africa. Don’t forget we are an organisation that looks after Southern African airlines.
“The second element is going to be about driving confidence that flying is in fact safe and healthy and that passengers are not going to compromise their health and safety.”
Stander says a longer-term focus for her is to increase air connectivity in Southern Africa and on the continent.
“It’s getting customers to connect to as many destinations as possible. It’s actually quite incredible, sometimes when you want to get to another city in Africa you have to fly to Europe first and get a connecting flight. We need to get air connectivity increased across Southern Africa and the rest of Africa, so I’m very passionate about that.”
She says she will also work to ensure that there is fair competition in the industry, including clear rules that are consistently applied to all players, both state and private.
You will probably see price wars and customers benefiting, but airlines will be burning cash Wrenelle Stander CEO of the Airlines Association of Southern Africa