Last week the news broke that Fly Blue Crane had entered business rescue and Mango had made a R37m loss for the past financial year. Industry experts say the state of these companies and others that came before them suggest that SA’s airline market is oversubscribed.
“The number of participants, for me, is clearly far too many. The amount of capacity is clearly far too much,” says Rodger Foster, CEO and MD of Airlink. He says new airlines face the conundrum of whether to drop their prices to gain market share but if there are not enough passengers on the route, they cannot generate enough revenue to cover their costs.
According to Erik Venter, CEO of Comair, the South African domestic market is small and has not grown since 2008. “The entry of new airlines into the market therefore inevitably leads to excess capacity, and then it is just a matter of who has the deepest pockets and lowest operating cost.” Venter says airlines can only operate by making sure they cover their costs, however he says it’s still easy to go bankrupt with full aircraft.
FlySafair CEO Elmar Conradie, says from the consumer’s point of view, there is just the right amount of seats at the right price.
When one looks at Acsa’s load factors, passenger numbers are up, says Conradie. “It seems like the market is adjusting to the additional capacity.” According to Acsa’s latest aviation barometer figures for July through to September, domestic arrivals and departures increased by 3,8% and 3,7% respectively compared with the same period last year.
Despite this, Foster says the latest developments at Mango and Fly Blue Crane may result in some airlines reducing capacity and frequencies, but says Airlink has no plans to cut its capacity at this stage.
Venter says airlines often exit the market without having reduced capacity. “It is not easy to reduce capacity due to the obligation to carry the passengers who have bought tickets.”
Airlink, Comair and FlySafair all say they are doing their best to keep costs low so as not to increase airfares. “I think we are at a sustainable pricing point right now. If it had to go any lower, I think that would be a problem,” says Conradie.
Tourism Update approached Mango and SAA for comment, but they had not responded by time of publication.
