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Crash landing

Nov 09 2012 07:04 *Mzwandile Jacks

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IS IT the calm before a storm?

As 1time’s decision to pull the plug on its rescue plan and file for liquidation was made public, it may be signalling that other independent budget airlines are inching closer to the same fate.

South Africa is now left with a few couple of no-frills airlines including the Comair-operated Kulula, and South African Airways (SAA)-operated Mango and SA Express.

Personally, I believe more will continue to fail for as long as taxpayers’ money is used to fend off other independent operators.

You see, the government-operated budget airlines do not face financial pressure because the state bails them out whenever they have problems.

The liquidation of 1time came shortly after another no-frills airline, Velvet Sky, closed shop earlier this year. Sun Air dropped out of the skies almost two years ago.

It is uncertain whether the British Airways (BA)-operated Comair will be able to finance its budget airline Kulula for much longer.

One analyst told me that Kulula could survive for longer because the parent company, Comair, is operated by a carrier with deep pockets, BA.

But another said BA was also facing tough operating conditions. International Airlines Group, the owner of BA and Iberia, is expecting a full-year loss thanks to Spain's growing economic problems.

The group is planning a major restructuring of its Spanish business, describing Iberia's problems as "deep and structural".

This will involve cutting back the network and job losses at a time when Spanish unemployment is soaring.

Overall the group made an operating loss of €253m for the first half, including €50m of losses from its recent acquisitions. We will have to wait and see what the future holds for Kulula.

I have also been made to understand that out of 11 budget airlines launched in South Africa, 10 have gone out of business since the industry was deregulated 11 years ago.

And this is not about to change as long as the other budget airlines receive financial favours from the government.

This is bad news for South Africa, because every time an airline goes out of business many jobs are lost.

For instance in the case of 1time, it is estimated that 500 people are now unemployed. And many more jobs were lost because of the collapse of other budget airlines before 1time folded.

But accusing fingers again point to the current government. SAA is hopelessly inept financially, staggering from one financial disaster to another.

But it is permitted to keep going despite feeble management, while other airlines that are more efficiently organised are forced to close down.

This tells me that all the rhetoric about job creation which often comes out of speeches by President Jacob Zuma and his ministers is just that – rhetoric.

These people should have been the first to worry about the lack of competition in the airline industry.

I shudder to think of a day when South Africa will be left with only government-operated budget airlines, as I am sure that service standards will drop significantly.

And budget airlines are such a great business concept.

This is because today, air travellers seem to be looking for carriers that are able to offer high service quality, on-time arrival, and low fares all in the same package.

Airline companies, therefore, have no choice but to defy traditional business strategy theory, which says trying to achieve low cost and differentiation simultaneously is a recipe for strategic disaster.

 - Fin24

*Mzwandile Jacks is a freelance journalist.

 

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