FIFI PETERS: The Competition Commission says it is meeting with executives of competing airlines to discuss the implications of Comair’s decision to suspend British Airways and Kulula flights. The Competition Commission sent this message earlier this afternoon, so I imagine that meeting has already taken place.
Nonetheless, it comes after Comair announced it was suspending flights because it needed to get a little more money – probably a lot more money – to stay comfortably in the skies.
Read: Comair suspends flights until funding secured
But to learn more about the story, we are joined by Guy Leitch, the editor of SA Flyer. Guy, thank you very much for your time. Have you heard of the meeting or potential outcome of the meeting CompCom has had with competitors in the air currently?
GUY LEICH: Thanks for asking me here. No, I haven’t heard any feedback on this, but I can understand that the Competition Commission is extremely concerned about this because, if Comair does not survive the current crisis, there will only be one low-cost carrier left on the market, and that’s FlySafair. Of course, LIFT is still in business and I think LIFT is also hoping to fill the void left by Mango – but LIFT is a relatively small operator at this stage.
Meanwhile, we see the other airlines, presumably Airlink and CemAir, increasing the number of routes and the number of seats they also offer on the Golden Triangle between Johannesburg, Cape Town and Durban.
FIFI PETERS: So what are CompCom’s concerns here? Price? The fact that not enough competition will allow players who are still in the sky to charge at will?
GUY LEICH: Absolutely, one hundred percent. We have already seen accusations of price gouging from the airlines when they returned to the skies with this massive price increase. Two, three years ago, or before Covid, you could book a flight to Cape Town from Joburg for around 700 rand. Now those prices are well above R1000, and that obviously reflects the shift in demand and in particular for a highly discounted compound.
Read/listen: FlySafair responds to accusations of price gouging
FIFI PETERS: And the price of oil?
GUY LEICH: The real problem is, as you rightly pointed out, the price of oil. This is obviously of concern to the Competition Commission, but the price of oil increases the cost of airlines enormously. Airlines typically spend 30-40% of their total costs on fuel. So a small increase in fuel prices has a huge ripple effect, and unfortunately it takes a long time for the real prices to kick in, as people often book seats months in advance.
Airlines therefore have to fly at the old prices, even if they use expensive new fuel.
FIFI PETERS: I think “turbulent” is probably the best description of Comair lately. He was grounded or launched into commercial rescue at the height of the pandemic, when containment measures were in place and no one was allowed to fly. It emerged, and then it was again based on concerns about security. It emerged, and now it is anchored again.
Help us understand from your understanding how Comair got to this situation this time.
Read: Comair will temporarily suspend all flights for 3 weeks (July 2021)
Read/Listen: Comair’s compliance issues unpacked (March 14, 2022)
GUY LEICH: I would just like to correct the perception that Comair was based on safety requirements. It was more a matter of complying with the paperwork requirements associated with the maintenance they had, with most of their maintenance done by SAA Technical. There were clearly gaps in skill level, and this trickled down to Comair and the Civil Aviation Authority [was] extremely heavy to anchor them.
But the thing is, yes, it started long before the Covid crisis hit, because Comair was already very stretched, having ordered five new Boeing 737 MAXs. He had bought a bunch of other associated companies. His record was already weak, then of course Covid hit him when he was weak. This has flattened many airlines and so it was only natural, I suppose, that Comair would go into the business rescue.
Unfortunately, two years later, it is still in commercial bailout and has not had state funds to simply bail it out like SAA did.
Read: Comair needs more funding (March 2022)
FIFI PETERS: My thinking is that he came out of the corporate bailout.
GUY LEICH: No, the airline is still in commercial rescue, and it is still subject to the capital raising limits it has. What happened was that some of the original founders formed a consortium and delisted it from the Johannesburg Stock Exchange by buying it out at bargain prices. So now the ability to raise funds is arguably even more limited by the lack of shareholders. There are now far fewer shareholders.
But of course the banks are understandably extremely reluctant to provide him with additional financing. There was a 500 million rand bailout planned for any initial takeover by the former founding consortium, and that presumably got burned. So we don’t know if the airline will be able to get enough money to resume operations in the air.
FIFI PETERS: Alright, thanks for that fix. Just [although] it looked like business was business as usual because Comair was flying with Kulula again, that wasn’t necessarily the case. As you say, they are still in corporate rescue.
But my question then is that if Comair is struggling like this, what does it mean for the rest of the low cost carriers, in your opinion?
GUY LEICH: Oh, that’s a million dollar question. I would like to hope and think that FlySafair has run a very conservative operation in its balance sheet; even though it’s not as strong as it used to be, it’s still strong enough to carry them around. And indeed, they do an extraordinarily good job of pulling their flights; every ratio of loads and returns looks good. FlySafair is therefore probably making money.
LIFT is also a very smart marketing tool and it works on very cheap leased planes, if you will, from Global Airways and they will soon be integrated into SAA.
Comair still has a place in the market, but prices will continue to rise, not least because other specialty carriers like Airlink and CemAir, which normally use smaller aircraft on regional routes, are also increasingly turning to the domestic market with their comprehensive service offering.
FIFI PETERS: Guy, what do you think of what Comair was doing? As late as May 30, they were announcing discounted tickets. In fact, they ran a campaign, or Kulula ran a campaign, up to 30% off. It was a one day sale, only for May 31st. You could fly until November. What do you think of this, where a few days later, in fact a day later, they announced that they had been punished. Seems a bit dodgy to me because you don’t wake up…
GUY LEICH: I agree with you. I think it’s absolute shock and bad timing, and Comair can’t pretend to know they were launching a massively scaled-down campaign like this without knowing they were going to hit the wall on May 31, when their funding was going to be shot if they hadn’t found alternative financing. So if I was a passenger who booked a ticket through their Winter Warmer sale, I would feel hugely aggrieved.
People really don’t know if the airline will be able to fly again or when it will be able to fly again. This makes it extremely difficult for anyone to decide whether to just wait and see, or whether to spend even more money booking on another carrier.
I think Comair did themselves a huge disservice and hurt their brand tremendously by selling out and then quickly closing.
FIFI PETERS: He has financial problems. How sure should passengers who have purchased tickets be that they will get their money back?
GUY LEICH: I think they can be sure to get their money back. Nowadays, most passengers buy and pay for their tickets with credit cards. This means you can get your money back if you don’t fly. The airline has basically promised that you will also get your money back. However, the real issue is that you need to be able to rely on an airline to get you where you’re going, whether it’s for grandma’s birthday or for connecting flights. As long as the airliner is unreliable in terms of flight guarantees, obviously people will want to book elsewhere, which again hurts Comair immensely.
FIFI PETERS: What about its relations with other partners? I know they have a relationship with Discovery, for example, where you get a discounted price if you are a Discovery member and want to fly and you use Kulula, you can get that discount on your Discovery membership. I wonder what you think of the strength of those relationships going forward, given the turbulence of Comair’s business, because I can imagine being a Discovery customer who might be a little prejudiced that I don’t get reduction because Comair has its own problems, where can I go?
GUY LEICH: Absolutely. You are one hundred percent correct in that there must be massive collateral damage to the associated brands, Discovery being just one. They must now be very worried about whether they should continue the relationship with Comair, which has been very good for both parties, certainly being able to put a lot of people in seats for Comair/Kulula that they didn’t have maybe not before.
The big question for me is how long British Airways will tolerate this weakness or damage to its own brand as well because as we know Comair operates the British Airways brand in South Africa.
Fortunately, British Airways currently has its hands full in London with its own huge problems in terms of trying to get people through airports and onto its planes. So maybe he’s not examining Comair’s issues as closely as he could. But if this problem persists for much longer, I think it will be inevitable that British Airways, Discovery and associated brands will want to withdraw from their license or partnership agreements with Comair.
FIFI PETERS: Well, Guy, we’ll leave it at that for now. Thank you very much for informing us of the events that are happening in the sky, the most relevant. Guy Leitch is the editor of SA Flyer.