Proudly sponsored by

‘Comair has done itself an enormous disservice’

If this problem persists I think it’ll be inevitable that British Airways, Discovery and associated brands may want to withdraw from their licensing or partnering agreements with Comair: Guy Leitch – Editor, SA Flyer.

FIFI PETERS: The Competition Commission says that it is meeting with the leadership of competing airlines to talk to them about the implications of Comair’s decision to suspend British Airways and Kulula flights. The Competition Commission sent out that message a little earlier this afternoon, so I imagine that that meeting has already taken place.

Nonetheless, it does come after Comair made the announcement that it was suspending flights because it needed to secure a bit more money – probably a lot more money – to stay in the skies comfortably.

Read: Comair suspends flights until funding secured

But for more on the story we are joined by Guy Leitch, the editor for SA Flyer. Guy, thanks so much for your time. Have you heard anything about the meeting or potential outcomes of the meeting that the CompCom had with competitors in the sky presently?

GUY LEITCH: Thank you for asking me here. No, I haven’t heard any feedback from this, but I can understand that the Competition Commission is extremely concerned about it because, if Comair doesn’t survive this current crisis, it’s only going to leave one low-cost carrier in the market, and that is FlySafair. Of course, LIFTis still operating and I think LIFT is also hoping to be able to move into the gap left by Mango – but LIFT is a relatively small operator at this stage.

Meanwhile we’re seeing the other airlines, presumably Airlink and CemAir, increasing the number of routes and the number of seats they’re also providing on the Golden Triangle between Johannesburg, Cape Town and Durban.

Read: How not to run an airline (Comair edition)

FIFI PETERS: So what are the CompCom’s concerns here? Price? The fact that not enough competition will allow the players who are still in the sky to charge at will?

GUY LEITCH: Absolutely, one hundred percent. We’ve already seen accusations of price-gouging from the airlines when they returned to the sky with this massive increase in prices. Two, three years ago, or before Covid, you could book a flight to Cape Town from Joburg for about R700. Now those prices are well over R1 000, and that’s a reflection obviously of change in demand and specifically of a much reduced compound.

Read/listen: FlySafair responds to accusations of price gouging

FIFI PETERS: And the oil price?

GUY LEITCH: The real thing is, as you correctly point out, the oil price. Now that’s obviously of concern to the Competition Commission, but the oil price adds enormously to the cost of airlines. Airlines typically spend 30% to 40% of their total costs on fuel. So a small increase in fuel prices leads to an enormous knock-on effect, and unfortunately it takes a long time for the actual prices to filter through, because people often book seats months in advance.

So airlines have to fly at old prices, even though they’re burning new expensive fuel.

FIFI PETERS: I think ‘turbulent’ is probably the best description of Comair in the recent while. It was grounded, or went into business rescue at the peak of the pandemic, when the lockdowns were in place and no one was allowed to fly. It emerged, and then it was grounded again over concerns around safety. It emerged, and now it is grounded again.

Help us understand from your understanding how Comair got to this situation this time around.

Read: Comair will temporarily suspend all flights for 3 weeks (July 2021)
Read/Listen: Comair’s compliance woes unpacked (14 March 2022)

GUY LEITCH: I’d like to just correct the perception that Comair was grounded over safety requirements. It was more a matter of compliance with the paperwork requirements associated with the maintenance they were having, most of their maintenance done by SAA Technical. There were clearly gaps in the skills level, and that reflected on Comair and the Civil Aviation Authority [was] extremely heavy-handed in grounding them.

But the point is that, yes, it started well before the Covid crisis hit, because Comair was already very stretched, having ordered five new Boeing 737 MAXs. It had bought up a whole lot of other associated companies. Its balance sheet was already stretched weak, and then of course Covid hit it while it was weak. That flattened many of the airlines and so it was natural, I suppose, that Comair go into business rescue.

Unfortunately two years down the line it’s still in business rescue and it hasn’t got the benefit of state funds to just bail it out as SAA has had.

Read: Comair requires more funding (March 2022)

FIFI PETERS: My thinking is that it came out of business rescue.

GUY LEITCH: No, the airline is still in business rescue, and it’s still subject to the limits of raising capital that it has. What happened was that some of the original founders got a consortium together and delisted it from the Johannesburg Stock Exchange by buying it out at absolute fire-sale prices. So now the ability to raise finances are arguably even more limited by the lack of shareholders. There are now far fewer shareholders.

But of course the banks are naturally extremely reluctant to provide further funding to it. There was a R500 million bailout provided for any initial takeover by the old founder consortium, and that has presumably been burned through. So we don’t know whether the airline’s going to be able to get enough money to get back in the air.

FIFI PETERS: All right, thanks for that correction there. Just [although] it seemed as though business was going on as usual because Comair was flying again with Kulula, it wasn’t necessarily the case. As you say, they are still in business rescue.

But my question then is if Comair has it tough like this, what does that mean for the rest of the low-cost carriers, in your view?

GUY LEITCH: Oh, it’s a million-dollar question. I’d like to hope and think that FlySafair has run a very conservative operation in their balance sheet; while it’s not as strong as it obviously was, it’s still strong enough to carry them. And indeed they’re doing an extraordinarily good job in pulling their flights; every report of loads and yields is looking good. So FlySafair is probably making money.

LIFT as well is a very clever marketing tool and it’s operating on very cheap, if you like, leased aircraft from Global Airways and they are going to be folded into the SAA fold shortly.

Comair has still got a place in the market, but the prices are going to continue to go up, especially because the other specialist carriers like Airlink and CemAir, who normally fly smaller aircraft on regional routes, are also increasingly moving into the domestic market with their full-service offering.

FIFI PETERS: Guy, what do you make of what Comair was doing? As late as May 30 they were advertising tickets at discount prices. In fact they ran a campaign, or Kulula ran a campaign, of as much as at a 30% discount. It was a one-day sale, only for May 31. You could fly up until November. What do you make of that, where fast-forward a couple of days later, in fact one day later, they announced that they’d been grounded. That seems a bit dodgy to me because you don’t wake up…

GUY LEITCH: I have to agree with you. I think it’s an absolute shocker and bad timing, and Comair can’t pretend to know that they were launching a massively discounted campaign like this without knowing that they were going to hit the wall on May 31, when their funding was going to be turned off if they hadn’t found alternative funding. So if I was a passenger who’d booked a ticket in terms of their Winter Warmer Sale, I would feel extremely aggrieved.

Read: FNB steps up travel rewards as rivals flounder

People really don’t know whether the airline is going to be able to get back into the air, or when it’s going to be able to get back into the air. That makes it extremely difficult for anyone to decide whether they should just wait and see, or whether they should be spending yet more money on booking on an alternative carrier.

I think Comair has done itself an enormous disservice and has harmed its brand enormously by having the sale and then promptly closing down.

FIFI PETERS: It’s got financial problems. How confident should passengers who bought tickets be that they’ll get their money back?

GUY LEITCH: I think they can be confident they’ll get their money back. Most passengers these days buy and pay for their tickets on credit cards. That means you can get your money back if you don’t actually fly. The airline has essentially promised that you’ll get your money back as well. However, the real question is you need to be able to rely on an airline to get you to where you’re going to go, whether it’s for granny’s birthday or whether it’s to catch connecting flights. As long as the airliner is not reliable in terms of a guarantee to fly, then obviously people are going to want to book elsewhere, which further does enormous harm to Comair.

FIFI PETERS: What about its relationships with other partners? I know they’ve a relationship with Discovery, for instance, whereby you get a discount price if you’re a Discovery member and you want to fly and you use Kulula, you can benefit from that discount on your membership with Discovery. I wonder what you think about the strength of those relationships going forward, just given the turbulence of Comair’s s business, because I can imagine being a Discovery client who might be a little bit aggrieved that I’m not going to have a discount because Comair has its own problems, Where then do I go?

GUY LEITCH: Absolutely. You’re a hundred percent correct in that there must be massive collateral damage to the associated brands, Discovery being just one. They must now be very concerned whether they should be continuing the relationship with Comair, which has been very good for both parties, certainly in being able to put a lot of people into seats for Comair/Kulula that they may not have before.

The big question to me is how long will British Airways tolerate this weakness or this damage to its own brand as well because, as we know, Comair operates the British Airways brand in South Africa.

Fortunately British Airways right now has its hands full in London with massive problems of its own in terms of trying to get people through the airports and onto its aircraft. So maybe it’s not looking quite as closely at Comair’s problems as much as it might. But if this problem carries on for much longer, I think it’ll be inevitable that both British Airways and Discovery and the associated brands may well want to withdraw from their licensing or partnering agreements with Comair.

FIFI PETERS: Well, Guy, we’ll leave it there for now. Thanks so much for informing us of matters happening in the sky, the pertinent ones. Guy Leitch is the editor at SA Flyer.

AUTHOR PROFILE

COMMENTS   1

You must be signed in and an Insider Gold subscriber to comment.

SUBSCRIBE NOW SIGN IN

Find a business rescue practitioner that fixed a business. How does anybody expect an attorney that works on fee rules that grow based on time to fix an airline? The appointees also have far too much power to unilaterally cancel terms and agreements of pre-existing contracts.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Subscribe to our mailing list

* indicates required
Moneyweb newsletters

Instrument Details  

You do not have any portfolios, please create one here.
You do not have an alert portfolio, please create one here.
INSIDER SUBSCRIPTION APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING

Follow us:

Search Articles:
Click a Company: