1time: Consumer protection questioned
2012-11-06 10:00
South African aviation is, yet again, in crisis.
A total of ten airlines launched in South Africa since 1991 have failed, most recently 1time and Velvet Sky.
The
Airline Association of Southern Africa (AASA) CEO, Chris Zweigenthal
says he wants a meeting with new Transport Minister Ben Martins to
ensure he understands the problems facing local airlines and to discuss
the strategies ahead.
1time lodged a R1.6 million consumer
guarantee with the Airline Services Licensing Council (ASLC) in Pretoria
before being granted its license back in 2007.
Good news for
the consumer since it is likely to be used to refund cash purchases, but
it obviously won’t go very far. The Council is consulting with the
airline’s liquidators on how creditors will be reimbursed.
The
consumer guarantee was introduced after a lack of passenger protection
against a string of airline failures in the 90’s caused public outcry,
amongst them Phoenix, Avia, Flitestar and Sun Air.
Question is: Could passengers have been better protected this time round?
When
1time’s financial situation declined, why didn’t the ASLC intervene or
even suspend its licence in the interest of protecting the public? Both
the domestic and international licensing councils have the power to
demand additional financial guarantees if there is cause for concern
about an airline’s viability, so why wasn’t this done in 1time’s case?
International
Air Services Licensing Council chairman, KC Marobela, says they were in
constant communication with the airline’s prospective rescuers, but the
business rescue process ran out before the Council could intervene.
“If we were to have taken the license away we would have denied the airline the opportunity to save itself,” he says.
Questions also have to be asked about the sustainability of low-cost carriers in the current environment.
The
remaining no-frills carriers, Mango and Kulula, are poised to benefit
from 1time’s demise by mopping up 1time’s passengers and capacity.
Competition on South Africa’s busiest trunk routes is now confined to
the SAA/Mango camp on the one hand, versus Comair’s BA and Kulula on the
other.
History tells us that less choice always results in higher airfares, bad news for consumers.
Fly
Go-Air wants to launch on secondary routes later this month but will
meet tough competition from SAA feeders Airlink and SA Express, while
Santaco – the taxi industry’s initiative – appears to have been put on
the back burner.
Comair – quite rightly in my opinion - has long
been beating the drum about the unequal playing field that exists in the
South African aviation industry with taxpayers time after time having
bailed out an effectively bankrupt SAA. As a private airline, 1time
didn’t have access to such backing.
Comair CEO, Erik Venter,
blames Mango for undercutting 1time and so preventing it from making
enough money to buy less fuel-guzzling aircraft.
However, he
glosses over the fact that Kulula and BA were also fierce rivals of
1time. Venter criticises Mango’s failure to disclose its financial
statements, implies cross-subsidisation by SAA, questions its role in
the local market and accuses Government of thwarting its own transport
policy that is supposed to promote deregulation.
Venter has a
point and the questions he poses are valid, yet Comair also refuses to
disclose Kulula’s financials. This is surprising for a JSE-listed
company whose shareholders surely would need some reassurance following
the recent airline failures.
The truth about 1time’s demise is
probably more complex than Venter likes to admit; and subject to factors
affecting all carriers operating in South Africa.
In order to
survive, airlines nowadays have to be cost efficient and adaptable to
change. They face a raft of cost factors, including rising airport and
navigation charges, various taxes and a weakened Rand (they earn revenue
in Rand but pay for fuel and aircraft in US dollars).
By far
the biggest cost is jet fuel. With a price currently topping
US$130/barrel, old technology aircraft like those flown by 1time just
don’t cut it anymore. Savvy airlines worldwide are investing in new,
fuel-efficient aircraft. The savings made in operating and maintaining
them offsets their price. Comair itself continuously manages to upgrade
its fleet, having just brought in two new Boeing 737-800, despite facing
the same competitive pressure from Mango. Similarly, SAA is
modernising its fleet.
The costs seem here to stay and will no
doubt rise, making for a challenging environment all round – with the
unprotected consumer remaining the ultimate fall guy.
Hilka Birns is a travel industry journalist; Opinions expressed here are personal.
