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It was the chance of a free flight that first brought Erik Venter to Comair’s door.
“A friend of my father’s suggested I apply for a job at this company, Comair ... but I was taking a bus to visit a friend in Harare,” says Venter.
“But since the job application involved a free air ticket, the accountant inside me decided it was a good idea.”
That was some 23 years ago.
After graduating from the University of Cape Town, Venter went on to complete his articles at KPMG.
When he took a job at Comair, it was as finance manager.
He then moved around the group in various capacities before being appointed CEO in 2013.
Naturally, the world has moved on since the mid-1990s when Venter first joined the company.
Perhaps the single largest development has been the fact that Comair as an investment proposition can’t rely solely on its long-standing aviation business.
That’s why three years ago Venter introduced a diversification strategy which, in essence, seeks to capitalise on consumer services pre- and post-air travel.
Brands such as the SLOW and SLOW in The City lounges, and Kulula.holidays, are well-known, front-facing consumer experiences.
But the company also has a food business that supplies both its terminal lounges and, increasingly, those of other airlines.
Venter wants these to grow, especially on the continent.
But it’s in the technology-driven space that new opportunity beckons.
A new online platform will start trading mid-year and will intend to tap into the high-net-worth inbound luxury travel sector, a vertical in the tourism industry that Venter & Co have identified as high growth.
So far, Comair has allocated R26m over the last three years developing the initiative.
“The idea would be to get the platform on your phone where you can organise your travel details and get recommendations of places to stay,” says Venter.
Previously, Comair was reliant on the business network of, in the case of Germany, a single travel agent.
That approach can’t pass muster today, and while Venter is doubtful SA has the infrastructure to support a broad tourist inflow as New Zealand has achieved (aided by the myth-seeking Lord of the Rings cohort) posh safari, for instance, is perhaps a good start.
Identified three years ago as a five-year plan, the strategy is to develop non-aviation business to the point where it represents half of the overall Comair offering compared to about 23% of the total today.
There’s an added difficulty, though, in that this target has to be achieved without compromising aviation, which is being positioned for when growth can occur again.
The law of the jungle in the aviation business is that growth in passenger numbers only occurs when gross domestic product grows at 2% or more.
It must have been sobering business, therefore, to hear SA finance minister Tito Mboweni tone down this year’s GDP growth to 1.5% (from 1.7% as per previous estimates).
As for 2% GDP growth, that’s only expected from 2021 at the earliest.
“As soon as GDP growth drops below 2%, we just see that there is complete stagnation in air travel growth,” says Venter.
“We have seen for a while now there's been extremely limited growth in the SA market.
Over the last eight years there’s been about 4.5% growth whereas in the global market there’s been 5% per year.
So, we’re virtually sitting in a stagnant domestic market at the moment and that’s really what triggered us a while ago already to start looking at diversification.
“We’re almost holding ground at the moment in the airline space, to say: ‘Well, we've just got to tread water until we see some economic growth again’. So, if that’s the case, we've got to find more appealing growth elsewhere than just in the airline space,” he says.
That’s not to say there’s been no ‘growth’ in the airline business.
Comair has upgraded its fleet and bought more efficient aircraft, enabling the aviation division to move forward in terms of efficiencies, if not revenue.
“But that can’t carry on forever,” he warns.
“That is really why we’re trying to ensure that the other businesses’ growth actually achieves a sort of hockey-stick effect fast enough to compensate for the fact that we can’t continuously just make progress on efficiencies.
“We don’t know when we’re going to get to any kind of meaningful economic growth again. We’re hoping that in another 24 months we might get to 2%, but that’s anyone’s guess right now.
It depends, I guess, on how positive government comes out in terms of investor-friendly policies in the future.
“But in the meantime, we’ve sort of got to take the worst-case scenario and be prepared for treading water for a bit longer.”
There are some crumbs of comfort for the likes of Kulula.One is seeing how quickly consumer confidence can return to the passenger market.
When former president Jacob Zuma stepped down in February 2018, there was a surge in domestic travel for the month – a development Venter said was related to corporate clients deciding to pick up on projects that had been on the back-burner.
“We even saw the leisure market: people just had the kind of confidence to spend the money. So, there was a bit of a surge of people going to play golf at Fancourt, and these little things. We were quite astounded at just how quickly the market responded. The first-hand stories from our corporate clients were that they were going to push forward on stuff that’s been warehoused for five years or six years. So, I think there is pent-up demand, but it has to have that confidence.”
Comair has long prided itself on never having reported an operating loss and the group’s recent interim performance suggested the record would be maintained.
Cash fell quite heavily, but investors were relatively sanguine.
In fact, shares in the company nipped up more than a quarter in February following a Supreme Court judgement awarding Comair R1.1bn in damages from state-owned SAA, related to an earlier High Court ruling on anti-competitive behaviour.
The fact is, though, the cash is payable over three years and tax has to be paid first.
It’s not the windfall it at first looks. SAA, and its long-standing operating problems, grates Venter no end.
Asked if perhaps government’s pledge to improve the running of state-owned enterprises could result in structural changes to the benefit of all, he is dismissive.
“I think the biggest challenge that they’re facing is a massive skillset deficit. Aviation skills aren’t even readily available globally despite the fact that we've had a lot of European airlines shutting down recently,” he says.
He’s not referring to pilots and ground staff, positions he considers “generic” and relatively easy to train, albeit expensive.
Rather, it’s the specialist finance and commercial functions that manage pricing, seating and scheduling; in essence, revenue optimisation and integrity as well as lease and maintenance specialisation.
“There are so many areas that you can’t just take a generic person and put them in there and expect them to float even,” he says.
Venter reckons there’s probably 200 to 300 positions in SAA that need specialist skills that aren’t there anymore.
“Now how do you overcome that? There isn’t a single consulting firm in the world that can give them an entire pool of people to deal with that. And that’s the challenge. It doesn’t help to have a few senior executives and nothing in middle management that has got the skillset.”
This article originally appeared in the 21 March edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.
