There has been much activity in the local airline space with new carriers taking to the skies and the reduced oil, and other aspects, like xenophobia, affecting air travel. Rodger Foster, CEO of Airlink gives his thoughts on the state of the industry.
Q: What are your thoughts on the current state of the South African airline industry?
A: Evidently the industry is not in great shape. Both SAA and SA Express have underperformed and have required Treasury intervention. Our economy is weak and people are travelling less. ACSA has noted a year-on-year decline in passenger traffic. Inbound tourism is down. The Ebola threat caused tourists to avoid Africa, there have been ongoing labour issues pursuant to Marikana that have discouraged foreign investors, and the recent renewal of xenophobic violence are all deterrents to inbound tourism and economic growth. The latest saga involving Home Affairs regarding changed regulations and the requirement for additional complicated travel documentation will further negatively impact passenger volumes.
Q: What effect will the launch of the new low-cost carriers have on the industry?
A: We welcome competition. However, given that the market has contracted, there are more participants sharing the same pie, which is smaller than it was a year ago. The take-up of market share will have to be given up by the incumbents, resulting in further pressures on volumes and yields and thereby revenues. The introduction of new participants and capacity will destabilise the market for a period.
Q: Do you see a potential impact on the way Airlink does business?
A: One of the newcomers has chosen to compete on one of Airlink’s ‘thin’ routes. Competition is fierce on this route and the travelling public are benefitting from the tussle for market share, which has resulted in abundant capacity and significantly reduced fares. Of course, selling seats at fares below the variable unit cost is unsustainable. Most of Airlink’s routes are too thin to sustain competition.
Q: CemAir is going after SA regional routes. Your thoughts on their emergence and routes?
A: CemAir has taken on some routes previously operated by Airlink including Margate and Plettenberg Bay, and it seems that the travelling public on these routes may have become more averse to the road transfer, and the premium fare over the low-cost carrier offerings at King Shaka and George. CemAir and Airlink are competitors, for example on the Sishen route. It is clear that CemAir is eyeing the regional airline thinner route space – exactly where Airlink is positioned. The two company’s compete for new market opportunities and are likely to take each other on, on several more frontiers in the future.
Q: What are the most important considerations for an airline when starting a new route?
A: There must be market reasons underpinning the travel requirement, sufficient volumes, and the travellers must be able to afford air travel. Air services must be offered at the right time with suitable availability of seats and with adequate frequency of service, implying the right gauge fit of aircraft to market. Suitability and supportability of airport infrastructure is important.
Q: Beyond SA, what are your thoughts on the airline playing field in the rest of sub-Saharan Africa?
A: The playing field is not level. There is no commonality of Civil Aviation Regulations and Technical Standards, and no equal consideration of the Chicago Convention and the local ownership and control rule. There is no uniformity of the implementation of the Yamoussoukro Decision and the liberalisation that follows from it. There is no policing agency to ensure compliance and no competition authority with Intra Africa jurisdiction. Consequently, new virtual airlines are becoming entrenched and are expanding into the markets, without compliance with licensing requirements and designation, without the requisite Air Operating Certification, and they are escaping the rigours of Civil Aviation Operational Safety Oversight. Other airlines, including Airlink, are fully compliant with all regulatory requirements, are duly licensed and designated, have the appropriate AOC, and are fully IATA Operational Safety Audit accredited – all of which comes with significant investment.
Q: How did the drop in the global oil price affect Airlink’s business?
A: The price softening came at a good time and assisted in cost reduction necessary to counter the weaker revenue trend that we find ourselves in. However, we were not able to fully cash in on the opportunity; much of the dollar price reduction was forfeited in the Rand weakening, and Airlink passed most of the benefit back to our customers by way of a fuel levy reduction. With the oil price gradually creeping upward, considering the weaker Rand, given that passenger volumes have declined, and having regard for the increased competition and excess capacity in the market, the airline business is set to become much tougher in the foreseeable future.
Q: Do you anticipate the recent xenophobic attacks in South Africa having an effect on your business?
A: These attacks have undoubtedly adversely affected South Africa’s image and have contributed to a decline in tourism and business. I am pleased to note that the Ministry of Tourism went to pains at the recent Tourism Indaba to convince the world that South Africa shuns xenophobia and our government has done not tolerated the attacks.
Q: Are there specific characteristics or needs that you have to meet, as an airline, for regional business travellers?
A: We need to service specific markets at certain times and deliver appropriate levels of service, including on-time performance and reliability. Above all, we need to be customer centric.
Q: Is on-board product less important than on-time record and reliability for this market?
A: All aspects of service delivery are important. However, business travellers place high importance on reliability and on-time performance.
Q: Have you picked up any current global airline trends that are worth noting?
A: Travel patterns between Africa and the rest of the world are very different than before and are constantly changing. O.R. Tambo International Airport has become less significant as the prominent Southern African hub because of the inclusion of key African by Middle Eastern carriers in their global network systems.
Q: Where would you like Airlink to be in 10 years’ time?
A: A strong well-established Intra Africa Regional Feeder System, as a component of a large Intra Africa composite Airline Network System, operating a simplified standardised business based on a large number of aircraft (more than 50) comprising no more than two aircraft types, with each fleet having a large number of identical aircraft, with a happy and gratified staff and shareholders, and a delighted clientele fully satisfied with Airlink’s service offering.