‘Airfares won’t come down’ – Comair

DOMESTIC travellers
aren’t likely to see
airfares come down,
even if new carriers should
enter the market.
This is the word from Erik
Venter, ce of Comair, who
says a drop in airfares would
not be sustainable.
Comair is expecting its
prots to double when it
announces its nancial
results this week. The
airline indicated last week
that earnings per share and
headline earnings per share
for the six months ended
December 31, 2013 were
expected to be between
32 and 35 cents per share.
Comair’s EPS for the same
period in the previous year
was 16,4 cents, when the
company generated
R262 million.
Fastjet has vowed to bring
down domestic fares if the
airline succeeds in entering
the South African market.
Ceo, Ed Winter, says the
current duopoly created by
SAA and Comair is keeping
airfares at an all-time high.
“Prices went up by 35% after
1time fell. Fares are higher
than they need to be and, in
peak season, capacity is not
there. For the South African
consumer, a third airline
would be a huge benet.”
However, Erik strongly
disagrees: “Of course every
start-up airline makes a lot
of fuss about how it will
sell cheaper tickets but the
reality is that it is just not
possible.”
He says there is an 8%
excess capacity in the
market, partly created by
the fact that domestic travel
has shrunk by 5%. “There is
already strong competition
for passengers between
kulula and Mango, keeping
prices as low as they can
realistically be. The only way
to get prices lower is to go
bankrupt.”
Erik says that in the
last nancial year, Comair
made a prot of R46 per
passenger. “Talk of reducing
fares by 20% with the
entrance of a new airline is
nonsense. On an average
fare of around R750, this
would mean a reduction
of R150 or, put differently,
a loss of R104 per
passenger.”
“Mango was protable
during the period in review
(year to March 2013),
recording just under R40
million prot. However,
Mango and its competitors’
successes are not
dependent on the demise
of another airline. In fact,
Mango has been protable
for ve out of its six full
scals. Actual traveller gains
off the demise of 1time are
estimated at only 4% of our
actual volume,” says Mango
spokesperson, Hein Kaiser.
Although the local travel
industry has seen the
crippling effect of high fares
on the domestic travel
market, industry players
are also doubtful that a
signicant drop in airfares
would be feasible. They are
wary of yet another fare war
that might result in bankrupt
airlines and stranded
passengers.
Avis ce, Keith Rankin,
agrees that lowering airfares
is not feasible for domestic
carriers, especially when
one takes into consideration
the weak rate of exchange
and increasing fuel costs.
“The airline industry is
under pressure. More
competition is great but
airlines still need to make
money. Another player in the
domestic airspace would
undoubtedly benet the
consumer but is it viable in
the long run?”
Chris Zweigenthal, ce
of Aasa, says the ROE is
indeed the main culprit
for the soaring airfares.
He says South Africa has
seen a deterioration of
about 15% of its currency.
This has affected jet
fuel, maintenance and
distribution costs. Chris
says a new entrant in the
market would undoubtedly
create a competitive market
and bring fares down in the
short term. Keeping fares
down would, however, not be
sustainable in the long run.
Meanwhile, the domestic
travel market is under
tremendous nancial
pressure, which has resulted
in a drop in domestic
bookings, especially to
destinations such as George
and Port Elizabeth, says
Keith. Even Cape Town has
seen a drop in domestic carrental
bookings, he says. A
long weekend to Cape Town
from Johannesburg for a
family of four will easily set
travellers back R20 000.
“How many people in
South Africa can afford
that?” he asks.