The future for kulula?
2012-11-15 11:02
Fin24 columnist Mzwandile Jack, raised the question of whether British
Airways (BA)-operated Comair will be able to finance its budget airline
kulula for much longer.
Comair has since issued a formal statement saying it is a leading South African-listed company on the JSE, acting as the holding company for the brands kulula.com, Slow, Food directions and Comair Travel. As per it licence agreement (franchise) with British
Airways Plc it is allowed to sell under the
British Airways livery and that Britair Holdings Limited has an 11.03% shareholding in Comair; however, there is no funding from British Airways Plc.
According to Jack, British Airways is facing tough operating conditions. International Airlines Group, the
owner of BA and Iberia, is expecting a full-year loss thanks to Spain's
growing economic problems.
The group is planning a major
restructuring of its Spanish business, describing Iberia's problems as
"deep and structural". This will involve cutting back the network and
job losses at a time when Spanish unemployment is soaring.
Despite 67 consecutive years of profitability, Comair has not been immune to the effects of the global economic slump or the high fuel price and reported poor financial performance. However it quickly focused on re-engineering its
operations and returned to profitability in June 2012. This was
accompanied by a cost saving programme, which included a salary freeze
for all of its employees, and its fleet upgrade to new Boeing 737-800s. Comair will be taking delivery of a further three new
aircraft by December 2012, resulting in kulula having the most fuel
efficient fleet in the industry.
In internal communication sent out to Comair staff, CEO Erik Venter called on South African Airways to be more
transparent, tackling the spat that has developed around the national
carrier's most recent bailout and the provisional liquidation of 1time
airlines - due to be finalised on 11 December.
Venter criticized the funding of state-owned airlines with taxpayers money, reiterating it as the main
reasons for the failure of so many private airlines (10 out of 11 since deregulation in 1991), and stated that Comair is
committed to change this, in order to establish a fair and level playing
field in the domestic aviation market.
In support of claims that it receives unfair competition from SAA and Mango Venter said in the email that SAA's latest request for a R5 billion government funding for new planes is largely a result of SAA and Mango fighting for market share at the expense of generating sufficient profits for sustainability. "A private airline cannot fairly compete with a competitor who receives regular ‘bail-outs’ and does not take responsibility for covering its cost and making a profit. In addition to the state funding of SAA, it has also been found guilty of not complying with the Competition Act, and despite having been found guilty, we believe that they continue to operate illegally in terms of this Act."
He also explained that Mango’s failure to disclose its financial statements has raised questions around whether it is subsidized by SAA. "Mango is a State Owned Enterprise - a subsidiary of SAA and listed as a separate company under Schedule 2 of the Public Finance Management Act (PMFA). It is legally obliged to publish its full financial statements and submit these to parliament, and consequently to the general public. Comair has requested these financial reports a number of times, and has never succeeded in this request. "The question is not necessarily how the financial reports will help us, but a matter of adhering to legislation and having the proper controls in place. It is not only for the benefit of us as a business but also to you and me, as taxpayers who want to know how our taxes are being spent."
Comair employee were then assured that the main aim behind the company's recent actions was to protect the business, with Venter saying, "There is no doubt that we could have been a lot more successful if SAA and government had complied with the policies designed to regulate SAA, Mango and SAX. The industry is a tough one and we cannot continue to put our business at risk as a result of competitors who are not operating responsibly. We do not want to eventually end up like a Nationwide or 1Time, and I am sure that you do not want that either!".
