Changing the model

It’s been another challenging year for the airline industry, yet Comair – owners of the low-cost kulula.com brand and operators of British Airways in Southern Africa – continues to thrive, largely due to a diversified business model that has reduced its reliance on airline profits. So, it was a good time for editor Dylan Rogers to pick the brain of Comair CEO Erik Venter, over coffee at the SLOW Lounge in Sandton.

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It’s no mean feat – in the current climate – to say that you’re an airline that can boast a track record of turning an operating profit every year of your existence for roughly 70 years.

But Comair can.

And it’s built a reputation as a well-run business that is constantly looking at innovative ways to remain ahead of the game.

According to Venter, Comair doesn’t have a choice.

“Very few airlines around the world are making money out of carrying passengers anymore,” he says. “Our entire profit is made out of ancillaries, such as ticket changes, seating, excess baggage etc. So, if you’re an extremely efficient passenger who books online and never changes your ticket, for example, we’re effectively flying you at break-even.”

No surprise, then, that airlines are looking at different models and diversifying their businesses just to remain afloat, never mind turn a decent profit.

“It is a very tight industry and it just gets squeezed continuously,” says Venter, citing a fluctuating oil price and exchange rate, with many of Comair’s costs in dollars. “So, one has to have a back-up plan all the time.”

That back-up plan has also had to deal with other issues out of the control of Comair, such as the lack of economic growth in South Africa and a flat domestic travel market for the past 10 years.

“That’s the biggest issue we’re facing and therefore the lack of air travel growth,” says Venter.

Then there’s the aircraft maintenance service – or lack thereof – provided by SAA Technical, the entity engaged by Comair to service its planes. It compelled Venter to put out a statement in November, explaining to the flying public why kulula flights were so often delayed.

“Aircraft are not coming out of maintenance when they’re required, so we’re having to lease additional capacity to make up for those aircraft that are just sitting on the ground,” says Venter. “We predict this impact to be in the region of R100 million ($7.2m) for the year, which is probably going to be about a third of our profits.”

Comair has had to take the extraordinary step of flying its aircraft to Europe to be serviced, leaving Venter to suggest that the lack of technical capacity in South Africa has now become a crisis.

All of this just strengthens the case for further diversification of the Comair business model and that’s exactly what Venter and his team have done.

They’ve been involved in pilot training for some time now and are extending that, having acquired a ground school training company. Comair has also ventured into the leadership training and coaching space, and will be broadening that into a much larger aviation academy in the next year or so.

Comair has also been in the tourism and hospitality space for a while now, through its SLOW lounges, its catering business, kulula Holidays, kulula Work, and mtbeds.

Further to that, more recently, Comair entered into a joint venture with a company called Infinia, with the end result an IT entity called Nacelle.

“The airline industry is in a bit of a crisis around technology, because it’s sitting with legacy systems that are absolutely archaic and none of the new, more agile applications can plug into,” says Venter.

That’s why Comair’s CEO sees an opportunity in this space.

“It’s early days, but things are moving at a pretty aggressive pace,” says Venter. “We’re hoping to get to a point where we have a fairly good suite of products – almost like an ‘airline-in-a-box’ solution for medium-sized airlines that don’t want to go and spend millions of dollars on a legacy airline mega-system.”

So, just how diversified does Venter want Comair to be?

According to him, with regards profit, it’s currently 75% in favour of the airline division, but with the goal to reduce that split to about 50-50 by around 2023, whilst still seeing substantial airline growth.

A lofty goal, but Venter clearly likes a challenge.

“When things are tough, you’ve just got to pedal harder,” he says.