Does the SA aviation space still hold value?

If one were to describe the South African aviation market, volatility is an adjective that won’t be far from the minds of many turnaround professionals. Many will take flight to help their next financially distressed client.

But is there still value to be found in the South African market? One would have thought that with 40% of the industry’s seating capacity, Comair would have been able to weather the storm of increased fuel prices which its BRPs said was the final nail in the airlines coffin.

British Airways is looking to make a comeback in South Africa provided that it finds the right partner. What is the current situation in the market and how will it change if BA does make a comeback?

A costly exercise

As pointed out in yesterday’s special featured editorial, flying is becoming an expensive exercise.

The article points out that the main impact on ticket prices currently is the sharp increase in the price of fuel since the start of the war in Ukraine, spiking airlines’ costs.

Fin24’s sister site, Business Insider, reported in September 2019 on the cheapest prices available for a return flight between OR Tambo and Cape Town International, departing 1 November 2019 and returning 8 November 2019. It found kulula.com at R1 555.22, FlySafair at R1 998, Mango at R2 065, and South African Airways (SAA) at R2 607.72.

The article adds that a look at the lowest fares for a return flight over the same period this year shows FlySafair now at R2 262 and SAA at R3 328.92. Kulula.com and Mango are not flying at the moment.

During the pandemic, some other domestic airlines started serving the popular route between Johannesburg and Cape Town. Their cheapest return ticket price on Wednesday for 1 November and return on 8 November were Airlink at R2 115.92, CemAir at R3 509.28 and LIFT at R1 970.

Independent Consultant, Dr Joachim Vermooten believes that increased ticket prices are just in the short-term until the current operators can add more capacity. Furthermore, the last seats sold are usually full fares and not discounted at all.

“Market dynamics are at play, of course. I think the top consumer advice at this point is to book in advance, because otherwise you simply won’t get a seat and if you do it will be pricey. Similarly, don’t miss your flight because you might not get a seat on another aircraft on that day – even on routes with many departures,” advises Gordon.

The article points out that aviation expert Linden Birns of Plane Talking cautions that, when comparing ticket prices, one must compare apples with apples. Prices offered by Comair on the day before it stopped flying, for example, were sub-economic and not representative of average fares.

One must, therefore, compare prices in terms of unit costs, day of the week and time of flight, how far in advance was it booked, whether there were terms regarding a minimum stay, whether it was refundable and flexible regarding changes at no cost, whether luggage was included, and whether it was economy class or business class.

This means that fewer South Africans will take flight in future.

Two options

So with BA trying to make a comeback, a line of potential suitors may be knocking on their door. However, as a News24 article points out, only two will make the cut.

The article points out that, n the view of local industry experts and insiders, who spoke to Fin24 on condition of anonymity, this leaves BA with two options: Flysafair and Airlink.

But neither of the two airlines necessarily offer all of BA’s requirements.

“FlySafair is currently dominant in the SA domestic market, but it is low-cost only at this point. To franchise with BA, it would have to shift to a hybrid model like Comair had. Of course it would not be impossible for them to run such a business model, but they would have to re-fleet,” comments one of the industry insiders.

John Strickland, a director of JLS Consulting, an independent air transport consultancy based in the UK, told News24 that BA will have to assess to what extent a partnership with an alternate airline such as a low-cost carrier may be viable.

Rodger Foster, CEO and managing director of Airlink, says it has a long-standing commercial agreement with BA and with several others.

“It is in line with our post-SAA franchise strategy of independently establishing strong ties with leading global airlines. Each of these relationships is dynamic, constantly evolving, and vary in their depth and complexity. However, we have no appetite to enter into another franchise agreement,” says Foster.

The News24 article points out that SAA was a full-service airline before the pandemic, but an industry expert points out it currently does not have the network reach nor the frequency likely needed by BA in a franchise partner.

BA’s local options for a new franchise agreement are limited, says Strickland.

Of course, the possibility also remains of an entity or investor not currently operating domestically potentially making a deal with BA.

The article adds that BA had a franchise agreement for domestic and regional flights with Comair, which also operated its own low-cost airline, kulula.com. But Comair was put into provisional liquidation in June, and earlier this week BA cancelled their agreement. According to the provisional liquidator of Comair, BA was now looking for a new partner in the South African market.

But CemAir CEO, Miles van der Molen, doesn’t think that BA will pursue this seriously.

“I am not sure BA will necessarily replace its franchise in SA. My understanding is that this was no longer a model they were pursuing. About 25 years ago BA pursued franchises across the world, but now I believe only the Scandinavian carrier Sun Air remains. But I think BA is a brilliant brand and an iconic airline and would welcome any discussion,” says Van der Molen.

Cemair is currently in touch with BA, about a potential interline agreement, which would enable the two airlines to handle the baggage of each other’s passengers. will BA still take flight in South Africa?

A strong reputation

“I am not sure why BA would be that interested in the SA domestic market anymore. It is such a small market in the bigger scheme of things,” says another aviation insider, who wishes to remain anonymous.

“When you sell a ticket as a BA franchisee, it is not great from a cash flow perspective, though it is a benefit from having a BA brand point of view. The franchise tickets are sold on the BA reservation system and sits with BA until the ticket is flown. I do not really see the appeal.”

“BA is an airline and brand that we respect, and its participation in [the SA] market is a positive one both for passengers and the aviation industry,” an acting spokesperson of South African Airways (SAA) told Fin24.

The News24 article points out that the parent company of BA, International Consolidated Airlines Group, last week reported strong results which showed that it returned to profit for the first time since the pandemic. The company, which also owns Iberia and Vueling airlines, saw particularly strength in the Spanish domestic market and the routes to Latin America.

Growth market

At the end of the day, South Africa is still the third biggest economy in Africa and the biggest in the southern portion of the continent. There is a desperate need for a regional character and that is perhaps where BA has its sights on.

They will be cautious and cognizant of the fact that they had a long run in South Africa with Comair but got badly burned by the fact that the company could not contain the costs of rising fuel prices. Resilience is something that it will look for in its next partnership and perhaps they will find this in FlySafair and SA Airlink who have weathered the fuel price storm up to now.