SIKI MGABADELI: British Airways and Kulula operator Comair reported their results for the year to end-June today. Revenue was flat for the year at around R5.9bn, with a 1% saving in operating costs. Comair warned in its results against the unsustainable pricing strategies of its competitors.
My colleague Hanna Barry spoke to Erik Venter, Comair CEO, and asked him if that comment had anything to do with FlySafair’s R1 birthday promotion sale, where it sold 30 000 flight tickets for R1.
ERIK VENTER: Not specifically that. We weren’t too bothered with that one. In fact, our sales picked up on the day quite nicely – but not for R1.
It’s a broader issue, obviously, of just so much capacity in the market when there is not actually revenue growth in the market. So it’s just back to the normal old Economics 101: when there is overcapacity the pricing comes down. It obviously stimulates a bit of extra volume, but not enough revenue to actually support these kind of prices in the market.
So because we are all fighting over the same pie, obviously Kulula has to climb in there and fight just as hard for its slice of the pie. But that’s the benefit of competition. Unfortunately it’s not really sustainable. But while it lasts it’s great for the consumer
HANNA BARRY: Are we going to see one of the new airlines pulling a 1Time on us and go belly-up?
ERIK VENTER: Well, the fares are going to have to go up very dramatically or there is going to be some big capacity adjustment in the market. So we’ll see which way it goes.
HANNA BARRY: Let’s talk about the new visa regulations. They have caused an outcry, as we know, among the tourism industry, which claims that they are hampering travel to South Africa by foreign tourists because of the requirements when travelling with children. Has this been Comair’s experience also?
ERIK VENTER: We’ve definitely seen it on the over-border routes, so our very heavy tourism routes such as Victoria Falls and Livingstone and Windhoek have been affected. And we are seeing that it’s affecting both the international tourists – because we have seen a big drop-off in the connecting traffic of international flights – and we are actually also seeing quite a big impact on the domestic tourists. So South Africans who want to travel to the likes of Victoria Falls but now require the unabridged birth certificates are actually holding off on that travel,
HANNA BARRY: How is Comair engaging with government on this front, if at all?
ERIK VENTER: Well, we have been working through the Airline Association to try and provide statistics and talk about alternative solutions, etc, to deal with the visa regulations. Ja, it’s been difficult. We haven’t really been able to get the audience that we were expecting to get but I think it’s inevitable that it will have to be rectified. It’s having such a massive impact on tourism in South Africa that it can’t just carry on like this.
HANNA BARRY: Staying with government, your case against SAA was thrown out by the High Court in June. In light of the ongoing bailout of SAA, Comair wanted parliament to oversee the use of taxpayer funds and also have government take into consideration its own domestic air-transport policy when making these funding decisions. That’s briefly why you took SAA to court in the first place. Has Comair appealed that High Court motion and where do matters stand now?
ERIK VENTER: I think we would have loved to appeal it but there is a huge technicality hanging over our heads if we appeal it, and that is that we are actually challenging a specific government administrative action. We can’t challenge the broader principle of SAA funding, we have to challenge a particular action of government, which was the R5bn guarantee. And a technicality that is a threat to us is that if we take it on appeal they could simply cancel that guarantee and replace it with a new one, and then they would say well, that administrative action has been eliminated and therefore you are wasting your time with this court case. So we are stuck with a bit of a legal administrative issue there that, if we take it on appeal, it could quite easily just be sidelined by an action of government.
HANNA BARRY: So it’ll be business as usual for now for SAA?
ERIK VENTER: Ja, the same old business that we’ve dealt with for the last 20 years. I guess it’s business as usual, ja.
HANNA BARRY: The price of oil, Erik – that’s been very volatile over the past few months. It dropped down to $43/barrel, back up to $50, and is now hovering somewhere around $48/barrel. Will Comair’s flight prices remain relatively modest or stable for the rest of the year, or are we going to see an uptick?
ERIK VENTER: Look, it depends really on what happens with the competition. As I said earlier, it’s really a case of protecting our slice of the pie, and we’ll have to do whatever is necessary to hang onto our customer base and price competitively. But, like I said, it isn’t really sustainable. So somewhere along the way, either through reduced competition or through a bit of sanity across all competitors, we will see prices going up. It just isn’t possible to maintain the way they are. Yes, Comair also needs to get its prices up again. So we’ll try to obviously keep flying as affordable as possible, but there is also a reality that we’ve got planes pay for, etc, and therefore we do need to make some money at the end of the day.
HANNA BARRY: Other than pricing, Erik, how else is Comair planning to make money to grow in a low-growth environment?
ERIK VENTER: We’ve got a lot of focus on our ancillary businesses, so the lounge business as we are going just beyond the domestic lounges; we are building lounges for other airlines now. We are doing a lot of training for other airlines, pilot training and flight simulation. We’ve developed our own catering business and we are looking at other products and other markets to supply with our catering facilities. And then of course the Kulula travel side, which is distributing car hire and hotel packages and all those other good things. So we are really looking at diversifying a bit more towards other products and not being entirely reliant on airline seats. And that’s worked well this year. So we’ll continue with those.