FlySafair says the fact that national carrier SAA is no longer subsidised by the government bodes well for competition in the industry. (Gallo Images/Jacques Stander)
Low-cost airline FlySafair says the fact that national carrier SAA is no longer subsidised by the government bodes well for competition in the industry.
The Competition Tribunal said in July it had conditionally approved the proposed majority takeover of SAA by Takatso, leaving just 49% of the state airline in the hands of the government.
This was after struggling SAA became the first state-owned entity to be placed under business rescue in December 2019, a process which took almost 18 months and cost taxpayers about R250 million. Since 2009, the government has spent R16.5 billion bailing out the flag carrier.
Meanwhile, FlySafair has gained ground after taking to the skies for the first time in October 2014, sporting the airline’s striking pink and blue tail.
It now has 67% market share on seats sold, according to chief marketing officer Kirby Gordon.
Gordon told the Mail & Guardian at a media roundtable that the country had not had a strong state airline in a while and this had allowed for more even competition in the industry. SAA’s return to the market had not changed that, Gordon added.
“It’s great to have the notion that you now are really competing on a level playing field and that everything is kind of status quo,” he said.
“And that’s good for the market. It means that consumers are protected in that regard. And we can make the sort-of free market economics play off a little.”
SAA only supplies 16% of the domestic market and has seven aircraft which travel to 10 regional destinations and two domestic ones, according to the presentation the airline gave to parliament’s portfolio committee on public enterprises in May 2023.
FlySafair, which has a fleet of 37 aircraft, took advantage of the gap left while SAA was in business rescue, as well as the liquidation of Comair, the owner of budget airline Kulula.
“Realistically, if you leave the market open, and this is the whole Yamoussoukro Decision of open skies in Africa, someone is going to move into it,” Gordon said.
“The same way if you leave money on the table, someone’s going to take it. So, if there’s a viable route, and there’s not enough capacity, someone should, would and could put an aircraft on that route.”
Part of the reason why Africa is under-served in the air travel sector, according to a World Bank study, is that many of its countries restrict their air service markets to protect the share held by state-owned carriers.
Comair’s liquidation in June 2022, following a series of financial and logistical challenges, led to an “air-grab” because demand was overwhelming the available supply and airlines were buying and adding new aircraft to their fleets, Gordon said.
The market is normalising with no more air to grab and fleet growth should slow down, he added. This also applies to international airlines who would have wanted to come into South Africa’s underserviced domestic market.
“I don’t think anyone would, right now, [come into the country]. They might have taken the gap … when things were shaky after Comair’s departure from the market, but not so much now,” Gordon said.
He said one of the major restrictions for international airlines to operate domestically was that an operating licence is required and a large percentage of the airline has to be locally owned.
“When BA [British Airways] operated in South Africa it was a franchise with Comair which operated them under the franchise. So, therein lies the kind of hard blocker for that. Should the government change that legislation, then the market would be open to another player that could come in,” Gordon said.
“That could change the playing field significantly, just as it did in the textile industry, when they took off the import duties on foreign goods and this actually killed the textile industry in South Africa.”
He said FlySafair was not interested in any sort of agreement with an international player, telling the M&G: “It’s just not our thing.”
Gordon said South Africans could expect lower flight prices during the 2023 festive season as the supply-side constraints experienced last year, which pushed up the cost of flying steeply, had been resolved.
Added to that, high domestic interest rates have left many consumers cash strapped, resulting in lower demand, which should keep ticket prices contained.
But Gordon said prices might never return to their 2019 lows, due to relatively higher fuel prices and a weaker rand against the dollar. Aircraft and parts are purchased in dollars, meaning operating costs can be high.