NEW entrants in the
domestic market,
a plummeting rand
and rising operating costs
will create an unstable
environment for airfares in the
coming few months, industry
experts predict.
Increased competition in
the market has already led to
all-time low fares in the South
African market, according to
a recent study conducted by
Travelstart. Hopping on a plane
to Cape Town, Johannesburg,
George and Port Elizabeth is
cheaper now than it was in
2012.
However, these low fares
could be detrimental to growth
of the commercial aviation
industry, analysts at Travelstart
warn. “When you consider
that most airlines need to
be selling a seat for at least
R900 to R1 000 one way and
have a load factor of 70% to
80% on each flight that takes
off just to make a marginal
return, it stands to reason that
the low ticket prices available
at the moment will soon be a
thing of the past,” says Russel
Jarvis, Travelstart’s head of
communications.
The first victim of the cutthroat
competition in the
market is Comair. The airline
recently forecast an earnings
decline of between 12%
and 26% for the year ended
June 2015. This is in sharp
contrast to the previous
two years, when the airline
reported significant increases
in revenue.
“This forecast is not
surprising,” says Chris
Zweigenthal, Aasa ceo,
explaining that most airlines’
costs are dollar-based.
As the rand continues to
decline against the US dollar,
airlines face tough operating
conditions.
South Africa has also seen
three new entrants into the
domestic market – Skywise,
FlySafair and Fly Blue Crane –
during a time that the market
is relatively flat and showing
little growth, Chris says. These
new carriers have all come
with launch fares that are not
sustainable in the long-run.
However, the competition will
soon start to stabilise, he
says.
Whether airfares will drop
as a result of increased
competition or go up in an
attempt to stabilise the market
is hard to predict, Chris says.
“It will be a rollercoaster time.
All airlines will likely keep a
very close eye on what the
market is doing.”
Skywise co-chairperson,
J Malik, admits that the
current airfares in the market
are unsustainably low and
predicts they will rise soon.
“Airline operators have the
right to peg air ticket prices at
the lowest levels they deem
fit in a bid to attract a large
pool of customers, however
these prices are not viable,”
he says, urging the industry to
be bold enough to work with
sustainable pricing structures
that promote real growth
development of domestic air
travel.
FlySafair offers some of the
lowest fares in the market,
starting at around R499 for
flights between Cape Town and
Johannesburg. Kirby Gordon,
vp of sales and distribution at
FlySafair, believes these prices
are sustainable if airlines
can keep their aircraft full.
“With increased competition,
there is more capacity in the
market than ever before. If the
demand doesn’t rise, there
will probably be some airlines
falling short.”
Falling prices have stimulated
demand, Kirby says. “With
the 39% decrease in fares we
brought about, we’ve seen a
132% increase in demand on
some routes. What remains to
be seen is just how much that
demand will increase and if it
will rise enough to make the
supply sustainable.”
Airline analyst, Joachim
Vermooten, argues that the
additional capacity created by
the new entrants in the market
is relatively small compared
with the increase in seat
capacity by the combination
of SAA and Mango, with the
addition of at least 10 narrowbody
aircraft since the exit
of 1time. “This increase is
substantially in excess of
market demand and restricts
the opportunities for new
entrants and existing private
sector airlines,” he says.
