Duration of airline 'price war' uncertain

Cape Town – The price war in the South African airline industry is bound to continue until one of the players caves in, but one cannot say how long that will take, Comair CEO Erik Venter told Fin24 on Tuesday.

Comair operates under its low-fare airline brand, kulula.com, as well as under the British Airways livery, as part of its British Airways licence agreement.

Venter said due to new entrants in the market, the resultant massive discounts on air tickets means it is about 25% cheaper than a year ago.

The only problem, in his opinion, is that the current economic climate in South Africa is impacting air passenger growth.

The 6% local air passenger growth is not enough, in his opinion, to sustain all the airlines currently competing against each other and with the price war as one of the consequences.

"Everyone is now trying to fight to keep the passengers they already have from going to the new entrants," said Venter.

READ: New rivals ground Comair's profit rise

He said at the time when the new entrants to the local industry drew up their business plans about 18 months ago, the industry looked much different to the time when they launched.

"Maybe they also did not expect the existing airlines to fight back this hard," said Venter.

"We have to be competitive on price, even if it means operating on loss-making airfares. We also focus on offering good frequencies, good schedules and a good on-board product. Of course a good booking functionality and good customer service are as important."

He emphasised that the SA domestic airline industry is not very big. It has about 12 million passengers a year. So, in his view having four or five airlines in the domestic market is not sustainable.

"Yes, competition is always good, but it is not sustainable at the current level. Of course it is good for the consumer, though. We are happy to have managed to retain our passenger volumes, because when airfares go up again, you do not want to have lost your passengers," said Venter."

"We will keep on fighting. There is no alternative. We cannot just roll over and give up and we expect that airfares will eventually go back to realistic levels. That is why we continue with upgrades, for instance."

Venter said what is also helping Comair a lot in the current competitive environment, is that the company has already started to diversify into other businesses. It trains the pilots of 36 airlines, for instance, builds airport lounges and has a catering and travel business.

The profits from the non-airline business have gone up 75% and now make up about a third of the Comair profits. The aim is to have these profits make up about half of the total profits in future to offer even more protection.

Venter said Comair has no further expansion plans at the moment, but is looking at building more lounges at airports across Africa.

On Monday Comair reported a strong profit in the first half of its financial year thanks to lower oil prices. The entry of two competitors in the second half, however, had a reversal effect.

ALSO READ: No wasting time in SAA/Comair judgment


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