The Vodacom Group, which is transitioning from a traditional telco to a tech company, views fibre optic internet as the next frontier to be conquered ... in South Africa and the rest of the continent, says Vodacom CEO Shameel Joosub.
However, the dramatic fall into bankruptcy of Comair in June has suddenly presented Lift Airlines with a chance for greater success. Comair filed for liquidation the same month citing its failure to raise rescue funds, thus joining Mango Airlines, which bit the dust in July 2021, and former giant South Africa Airways that is hanging on for dear life with just 8 planes.
“With a 40% [market] gap left behind, we plan to fill the gaps as best we can,” Jonathan Ayache, CEO and co-founder of Lift Airlines tells The Africa Report. In June, Ayache told local media that Lift’s growth plans have been “expedited” by Comair’s sudden exit from the skies.
Lift Airlines, formed in December 2020, runs a fleet of three all-Airbus A320 planes. It plies the Johannesburg-Cape Town route, which is Africa’s fifth most lucrative route.
‘Graveyard of airlines’
South Africa is now the ‘graveyard of airlines’ following the collapse of three major providers in the last three months.
“SAA has been poorly managed for decades. [The] government has given SAA more than [$3.4bn] in bailouts. Mango Airlines was an LCC [limited liability Corp], but essentially owned by SAA,” says aviation expert Rico Merkert, a professor of transport studies at the University of Sydney Business School.
Lift Airline won’t be tempted to a tactic of simply greedily taking over routes left by defunct rivals.
“[When] Covid-19 hit both went under. Kulula, also an LCC, [was] well-run pre-Covid-19, [had] a good business model [but when] grounded by Covid-19, both went under,” he says.
The common feature of all the South African domestic airlines is that they were undercapitalised for the scope of their operations and unable to ride out unexpected circumstances.
This is due to a regulatory restriction that limits foreign direct investment to 25% of a South African domestic airline, says Joachim Vermooten, an airline competition economist at the University of Johannesburg.
Lift Airlines, which calls the collapse of its rival Comair “unfortunate”, says it hopes to bring on additional aircraft into action within the next month or two, but won’t be tempted to a tactic of simply greedily taking over routes left by defunct rivals.
“The key to our expansion is that it is demand-driven and we will be guided by the commercial viability of routes rather than for the sake of growth or market share,” says Ayache.
Of Lift, fuel, and recession
The jury is still out on whether Lift Airlines, which bills itself as a premium airline, can avoid bankruptcy that has hit its rivals.
“If fuel prices stay elevated for longer and demand deteriorates in a likely recession, any smaller airline [fleet of 3 aircraft only] without government funding will find business difficult,” says Merkert, adding that he has not analysed Lift’s financial books specifically, or the company’s access to capital markets.
Lift Airlines was accused of price-gouging South Africa’s travellers when news filtered that Comair had been grounded on safety issues in March. Lift denies this accusation.
“When Comair was grounded there was a massive influx in demand, which surpassed the available capacity in the market. As a result, the available seats were very expensive. The Lift model works on an automatic system – as flights fill up, seat prices will automatically increase,” says Ayache.
Lift Airlines is adamant that its future is bright citing the 4000+ flights it says it has conducted with 93% on-time performance; its LIFT Premium model that offers business-class inspired settings; its partnership with banks eco-systems to give customers more value for money; its ability to adjust and add flights, and its plans to enter the cross border market vacated by rivals.
“Our flights have been consistently full and ahead of the market average Load Factor. We are very optimistic about the future,” says Ayache.
The future is more
Comair’s exit from the South African market resulted in a loss of about 40% of the capacity, roughly the same amount by which the market was overtraded through excessive capacity and flights. Prices are now also influenced by the recent rise in the cost of fuel, says Vermooten.
“The key to survival would be for the airlines to balance their capacity to market demand for their service offerings to be profitable,” says Vermooten, adding that because 38 new airlines were formed globally in 2021, this is proof there is always room for entry to focussed new efficient airlines.
In the future, competition will help bring down prices for South Africa’s travellers, and for industry observers like Merkert, the market is expandable. “[South Africa] can sustain more than one large player in the domestic market,” he says.
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