While many global markets have returned to their pre-pandemic norms, where stronger carriers have reasserted their dominance, South Africa’s aviation landscape tells a different story.
Routes Editor In Chief David Casey and Air Transport World Europe and Africa Bureau Chief Victoria Moores discuss the changing dynamics in the country’s aviation market following the extensive restructure of South African Airways and the demise of airlines like Mango and Comair.
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Rush Transcript
David Casey:
Hello everyone, and thank you for joining us for Window Seat, our Aviation Week Transport podcast. I'm Routes editor in chief, David Casey. Welcome on board. Today I'm joined by Air Transport World, Europe and Africa bureau chief Victoria Moores. Hello Victoria and thanks for being with us.
Victoria Moores:
Hey, David, it's great to join you.
David Casey:
Today we'll be exploring the aviation market in South Africa, which is a country that's experienced a remarkable transformation in recent years. While many global markets rebounded to their pre-pandemic norms, where stronger carriers have reasserted the dominance, South Africa's aviation landscape tells a different story. There's been some real significant shifts occurring within the industry, with the demise of carriers like Mango and Comair, coupled with the extensive restructuring of flag carrier South African Airways.
And that's created an opportunity for small players to expand and for international airlines to strengthen their presence. Now Victoria, you've been taking a deep dive into the structural changes that have been happening in South Africa for a feature that you're currently writing for the September issue of ATW magazine. It really is a market that has seen a great deal of change in a relatively short period of time, isn't it? Can you perhaps just give us a bit of a recap and a flavor of some of the events that have unfolded there?
Victoria Moores:
Yeah, I can do David. I mean, honestly, summing this all up into a nutshell, there has been so much movement, it's been a real drastic reshaping of the market. So if I give you a feel for it, we've seen the airlines that would've been the household names making up like the backbone of the South African transport market just disappear from the landscape. So that happened in pretty quick succession. The first major event that we had was South African Airways, they went into this process, which is called business rescue, and that's like a transformation program. It's a bit like administration, kind of like Chapter 11 in the US. So South African Airways went into this form of administration in late 2019 and we saw this cascade of airlines going through a business rescue process and then a lot of them didn't come back from that.
So South African Airways suspended flights in March 2020, they were out of the market for 18 months. So that wasn't just a COVID suspension, that was a suspension and then a significant restructuring. Now there's another airline that was in South Africa, they were state owned, they weren't a subsidiary of South African Airways, but they were very closely allied with them. They were a regional operator called South African Express. So this was a sister company to South African. They stopped flying around about the same time in March 2020. And then we had South African Airways' low cost airline Mango, which stopped operating in July 2021. And then we had Comair, which was another privately owned airline that stopped operating in May 2022. And then we had South African Airways come back again in September '21. Now out of that lot, Mango might fly again. I imagine that we'll talk about that in a few moments perhaps. That's the low cost subsidiary of South African Airways.
But South African Express and also Comair appear to be gone for good. And for me, the most surprising one of those is Comair, because Comair was privately owned. It was a 737 operator and they'd been profitable every single quarter for 73 consecutive years. And then they had a series of incidents which just absolutely impacted their business and they disappeared from the market. And I find that one a real surprise. But what we've seen is that the predecessor to the final CEO of Comair, that's a guy called Gidon Novick, he's created a new airline. It's a virtual airline called LIFT that's a low cost operation basically.
I'm calling them a virtual airline, that's because they actually wet leasing capacity from a company called Global Aviation. They're going to come back into the picture as well because they're part of the process going on with South African Airway. So LIFT launched in December 2020. In summary, you've seen SAA suspend services for a long time, South African Express stop operations altogether not being rescued. Mango in the process of being rescued perhaps, Comair disappearing and LIFT coming into the market. And then meanwhile, some of the existing players have really jumped up in the market and become the predominant players. And I imagine that might be where we go to next.
David Casey:
Absolutely. Thanks for that, Victoria. It is really interesting to hear about those shifts. I was actually looking at some of the capacity figures and if we compare now with July 2019, three of the top five players in the South African industry have disappeared, as you said. So we had Mango and then Comair, which was operating as kulula.com and the British Airways franchisee as well. And SAA, which was the largest carrier at this time four years ago, its capacity's actually shrunk by 81% now.
But we have got new players that have come in. So there is LIFT, the virtual airline, but we've also got FlySafair, which is now I think the largest provider of capacity in South Africa, and we've got Airlink as well. And I was looking at FlySafair and that's operating almost 480,000 more seats in July '23 compared with July '19, which is a massive increase. And I know you've been speaking to Airlink's CEO, Rodger Foster, about the carrier's growth and since it ended a franchise agreement with SAA, what's been the story there and how has that been able to expand and forge its own path?
Victoria Moores:
Yeah, like you say, I mean the two real winners coming out of this are Airlink and FlySafair. FlySafair is the larger airline because they fly larger aircraft, they have more seats in the market. But if you look at the two of them by aircraft flown hours, then you can see that the two of them are flying about the same number of hours just with different sized aircraft. And I think just to put that shift in context, before the pandemic, SAA was flying around 11,000 monthly flying hours, Comair flew about half that, half the number of SAA, and then after that you've got kind of Mango, Airlink, FlySafair, they were all operating about fifth of what SAA was operating in terms of flying hours. And now in a complete turnaround, Airlink and FlySafair now operate around 5,000 monthly hours followed by SAA at about 2000 hours.
So you've got these people who are kind of ranking joint third to fifth in the market now coming up and they're leading the market and they are actually double the size of SAA in terms of flying hours. You've got LIFT and CemAir, CemAir is a regional airline kind of coming in at the bottom end of the market, but they're still significant players, they're building up their presence. But for Airlink, yeah, I spoke with Rodger Foster, he told a really interesting story about how Airlink has transformed. So a few years before the big difficulties that SAA faced, they realized that they were highly dependent on SAA, all of Airlink's tickets were sold through SAA. So it meant that they realized that if SAA was to get into the kind of situation that it ultimately did, that they would be really, really vulnerable.
So about three years before all this started, they invested in their own direct booking system and it was a gigantic amounts of money that they invested into that and they carried on flying for SAA. And then when it came to the crunch of SAA going into business rescue, SAA owed Airlink a substantial sum of money from the ticket sales, we heard that there's been a court ruling that they are not going to be a priority creditor to get that money back, they need to be as part of the business rescue process. So Airlink lost a lot of money through that and they also were clearly severely hit by COVID, because they had to stop flying anyway. That investment way back when in their own reservation system, they would not have been able to do that if they'd have invested in it at the time when SAA failed and they went into COVID and Rodger was telling me yesterday that they're now in a far better position than they've ever been.
If they compare with 2019, they've increased their frequencies by 35%, their capacity by 83% and their turnover by 94%. So you can really see that Airlink's come out of this as a really strong airline. They've just formed a partnership with British Airways. I think you mentioned back then that Comair used to be a franchise airline for British Airways. So it means that now Airlink is getting significant feed into Johannesburg and Cape Town from BA.
But what Rodger was very clear about is that he is agnostic about partnerships. He will not commit himself to one particular airline group or one particular alliance or anything like that. To feed the markets that he supplies, he wants to have an open stable of relationships with as many airlines as possible. And he's busy up gauging his aircraft size. They're going more into Embraer 195 and also he's got a venture in Namibia, which is FlyNamibia, they took a 40% strategic equity stake in the airline and they are looking to form partnerships with other smaller airlines around Africa, particularly within the Southern African region to really expand their business.
David Casey:
Okay, interesting. It does seem then that Airlink really has, as you said, forged its own path and been able to expand since ending that franchise agreement with SAA. With that in mind, let's move on then to talk about what is happening at SAA, as you said at the start, and I'm sure many of our listeners will know, it entered that business rescue period in December 2019, which it emerged from in May 2021.
But operations are considerably smaller than before the restructure. It is rebuilding its network and gradually rebuilding its fleet. But I think capacity, is about 80% down on 2019 levels. And in terms of its route network, it shrunk from about 100 nonstop routes this time four years ago to just 13 today. So it is a real decrease in operations. However, are we finally seeing some light at the end of the tunnel for SAA? There's talk about it increasing its fleet, I think the CEO John Lamola said that they made a small profit in the last full financial year. What is the latest there and are you seeing more positive signs for this airline?
Victoria Moores:
I was recently speaking with the head of a Southern African airline lobby group and he used to work for South African Airways for around about 20 years. So he spent a lot of his career there. And Aaron [Munetsi], who's the head of AASA, the Airlines Association of Southern Africa, he said that the new SAA is fundamentally different from how it was before. And one of the things that will make the new SAA fundamentally different, aside from their completely different capacity network fleet, is the fact that they're getting new owners.
And that process has moved along in this past week where we've seen a South African competition tribunal finally approve the bidders for a 51% stake in SAA. It's a consortium of companies. One of the sticking points for that, because this process has been going on for two years, is that one of the members of that consortium is the company that provides the capacity to the new South African airline LIFT, which I mentioned earlier.
So Global Aviation provides the aircraft, the AOC for this competitor to SAA. And I think there's been some tension about the idea of one of SAA's competitors being a shareholder. So the original competition commission recommendation was that there was a conflict of interest here, that the consortium would need to have global aviation and a related company divest from the consortium in order for the equity partnership to go ahead. That recommendation has just literally today been upheld by the competition tribunal. So it seems as though perhaps now after two years, we will finally see movement with this equity partnership. The question is what hurdles still need to be passed to get there?
David Casey:
Okay, so it could be sometime then before we actually see this consortium actually take that 51% stake. It's not going to be immediate. And will SAA then continue to rely on government support until that actually happens?
Victoria Moores:
I think the idea is that the government really wants to not have to support SAA anymore. I think that's one of the things that's pushing the process along. However, from the reporting that I've been doing, it really does seem as though there is quite a lot of government involvement in this process and still we saw it with this consortium, the idea that the bidders for that needed to restructure the consortium for it to go through. Also, there is a similar kind of conversation going on with Mango. Mango had a preferred bidder, this is SAA's former low-cost carrier, and SAA was insisting that they needed to know the identity of that bidder. That process has been dragging along for a really long time and meanwhile there's a risk that Mango will lose its bidder and Mango will not fly again. And again, Mango already has been grounded since July 2021. So it's a long time for an airline to have been on the ground.
David Casey:
From a network perspective, there's also good news that South African Airways plans to introduce some long-haul flights for the first time in over three years. Although as we spoke about earlier, it has rationalized its fleet. It returned I think four A350s prior to the pandemic and it's only got one A340 still in service. So it does lack long-haul aircraft capable of really restarting that long haul network. But from October it is going to establish a new route and that will link Cape Town and Sao Paulo in Brazil and it'll be the first intercontinental route from Cape Town in 11 years that it's operated since it ended a London Heathrow route back in August 2012.
And as well, we're going to see service restarting between Johannesburg and Sao Paulo for the first time since before the pandemic. So again, that's good news that long-haul network is gradually coming back. And in terms of some of the shorter international routes, I think I said at the start, it's serving 13 destinations now, but the South African government has said that by March 2024, they expect that to increase 20 destinations and there will be the one intercontinental destinations, we just said Sao Paulo, but also 16 regional international destinations and three domestic as well.
Victoria Moores:
Yeah, David, I think what we've seen from the government recently is they have approved a fleet increase for SAA. So I think that that's where the capacity is coming from to bring in those extra routes. Past what came up during the conversation with Rodger Foster from Airlink yesterday was we were talking about the history of what went on to put the market in the position that it's in now, because obviously we've seen this huge restructuring.
And he actually traced that back to the World Cup in South Africa and also to South African Airways joining the Star Alliance, which meant that then they weren't able to maintain some of the historic partnerships that they'd had, which then meant that foreign airlines were given permits to fly in because of the World Cup. That meant that companies like Emirates came in and also that their former partners that were no longer partners to SAA then started setting up their own routes like Delta coming in direct into Johannesburg. So I mean, what activity have you seen in terms of foreign airlines coming into the market and what impact has that had?
David Casey:
It's really interesting, it's a good question. Prior to the pandemic, SAA accounted for about 30% of all international capacity in and out of South Africa. Now it's down to about just 6%. And if you look at the route network that it offered, I think there were 49 nonstop routes about this time four years ago, 27 of those had direct competition, which meant 22 of those were exclusively served by SAA.
If you look at those same 49 routes now, 40 of them are in fact served by other carriers other than SAA. And I think that illustrates a little how international carriers have stepped in and filled a void that has been left by SAA. Some of those developments include Delta's expanded its presence, it's launched a triangle route between Atlanta, Johannesburg and Cape down. United's come into the market, launched a Washington-Cape Town route. And Cathay Pacific is set to resume flights in August between Johannesburg and Hong Kong. So although international capacity's about 22% down on pre-pandemic at the minute, there is a gradual restoration of that connectivity.
Victoria Moores:
Yeah, I think that there's another thing to factor in here as well, which might be playing a part in that. And that's that African Union, which is the body that unites a lot of African countries, it's a massive continent, is working on a project called the Single African Air Transport Market, which is basically trying to create within Africa the same kind of internal market as you have within Europe or within the U.S. And one of the things that Rodger said, is that South Africa has been very, very liberal with its traffic rights. So it's allowed a lot of airlines in, and I imagine that's both internationally intercontinental and within Africa. But Rodger was saying that the same reciprocity hasn't been seen with other African countries.
So he was giving examples of places where they want to fly to where foreign air carrier permits are incredibly expensive. I think he was saying it's about $25 to get a permit into South Africa for a foreign carrier, but it's thousands of Dollars for some other African countries. And also you've got the issue that the national carriers in other countries tend to be highly linked to their governments because they're state owned and they often control the handling. So the handling prices can be incredibly expensive as well. So what Rodger said is, "South Africa has given away the crown jewels and that's a very, very difficult place to be coming from because it means that you've already got a very weakened base South African market." Obviously, a lot of airlines talking about South African Express, Mango, SAA, historically Airlink, they were all dependent on SAA. So if you've got a weakened SAA, you've got a weakened air transport market and then strong foreign competition coming in.
David Casey:
SAA is trying to strengthen its partnerships. I know you mentioned what Rodger said it traced it back to joining Star Alliance, but it is now actually looking to form a JV with Kenya Airways, isn't it? What's the rationale behind that and where are we up to with it?
Victoria Moores:
Yeah, lots of African airline conferences in the past, you've had the big guys up on stage, so like Ethiopian, SAA, Kenya Airways and it's been asked, "Why can't you come together in some form?" The African market really does need some consolidation and big African airlines typically aren't big compared with what a big airline would be elsewhere.
So it came as a bit of a surprise when finally we saw Kenya Airways and SAA saying, this is something that we are going to do. We are going to form a strategic partnership together. We are going to form a holding company. We are going to create this umbrella. So that umbrella company, I guess maybe a little bit like International Airlines Group in Europe where we can have the holding company with different airlines beneath it. I think what we've seen since then is a bit of a stall.
So Kenya Airways has had its own problems. They have had their own financial difficulties, they're restructuring. SAA clearly has been through this big business rescue process. They've also struggling to finalize this equity partnership. So I think both of them are really focused on their own in-house activities more than they are on the partnership. So I think that they rolled out a codeshare on some routes. I think that there was lounge sharing as well, but it seems to have sort of stalled at that point at the moment.
And that's also what Aaron from the Airlines Association of Southern Africa said, that they're getting their own houses in order, this probably will move forward, but they need to get their own stuff sorted out first. So the timeline for that joint venture, or rather that partnership has slipped and I think the last time that I spoke to them, they said that they delayed it to 2024, which is only next year. They were originally planning to have the pan-African airline group in place by 2023. I wonder whether or not 2024 is realistic. I think there's still too much going on for both airlines for them to really pursue this.
David Casey:
And am I right in thinking as well they're still looking for another partner to join that group? We've obviously got Kenya Airlines, which has a strong network on the East Africa, SAA has got its South African network, but we still don't have that West African partner.
Victoria Moores:
Yeah, there has been that talk about the West African partnership in the past. I'm not sure whether or not that was said a little bit prematurely. They want that network strength, but I think that for the time being, their focus is more on getting the two of them together and seeing whether or not that can work before they branch that out into involving other airlines. The CEO of Kenya Airways said that what they wanted to do first of all was to prove the concept and they said it's hard enough bringing two airlines together, but once we've done that, it should be easier to incorporate others.
David Casey:
Okay, so case of watch this space and see what develops over the next 12 months or so. Before we finish today, I just wanted to gauge your final thoughts on the South African market. As we've discussed already, we've seen Airlink and FlySafair that have really continued to expand and to assert their presence. SAA seems to be on a firmer footing than perhaps it has been in many a year. Do you think there's more positive picture emerging than we've seen for a number of years?
Victoria Moores:
I certainly think that Airlink and FlySafair are really strong contenders in the market now. I mean, it's not like they've just come in yesterday, they're established operators, they know the market, they've been in there for a very, very long time and they're both privately owned and privately run. So I think that the way that they've expanded has been careful and well managed and they're now expanding on that and they've really seized the opportunities created by the opening up of the market. I think that my favourite quote in pulling together this information for the feature for ATW is one by FlySafair's chief marketing officer. So this was made back in 2020 and at that point in time, FlySafair's domestic seat market share had gone from 24% to 76%.
So they'd gone through this massive period of growth and their chief marketing officer said, "We are operating at full tilt. We really need our competition to return." And I thought, well that was a really interesting quote that you've got somebody that's leading the market saying we need a bit of help here. We need some support to cater to the demand here. And it really seems as though Airlink is the carrier that stepped up. SAA is coming back, we don't really know what's going to happen with Mango and whether or not there will be a market for Mango to come back to. And like you say, the jury's a bit out on whether or not SAA can become the airline that it was before, considering that, that market share really has been eaten up now to a large extent. So watch this space.
David Casey:
Thanks very much for that, Victoria. Thank you for joining me on Window Seat. Make sure to look out for Victoria's reports on the South African aviation market, which will feature in the September issue of ATW. Thanks also to our listeners and thanks to our producer, Cory Hitt. Meanwhile, make sure you don't miss us each week by subscribing to the Window Seat podcast on Apple Podcasts or wherever you listen. This is David Casey signing off from Window Seat.
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