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.

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