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Planned SAA route cuts: Consumers could end up paying more to fly

Feb 07 2020 21:45
Carin Smith

SAA's plan to cancel a number of routes and reduce some frequencies at the end of February will leave a gap in supply, which in turn could lead to increased airfares for consumers, according to an aviation expert.

The expert, who prefers to remain anonymous, told Fin24 on Friday the argument that "market forces" of supply and demand would come into play to fill any gap was not as simple as it sounded.

"Don't just assume international carriers will come in to provide additional capacity. They will rather maximise the use of their aircraft in other, more lucrative routes in the world," said the expert.

Bilateral agreements

"What could also happen is that those airlines who continue flying on the routes [in question] might increase their fares instead of coming in with providing increased capacity."

Furthermore, the number of frequencies allocated to international carriers are determined by bilateral air service agreements. These would have to be renegotiated before these carriers could provide extra services into and from SA.

"This will likely not happen soon, as the SA government has already indicated that it will not renegotiate any of these bilateral air service contracts before it knows what the eventual fate of SAA is," says the expert.

As for the impact on domestic routes, the expert said a key question would be whether Mango, SAA's low-cost subsidiary, would be increasing its network to "take over" some of the aircraft SAA might not be needing anymore due to reducing its routes and frequencies.

Fin24 asked Mango about these possibilities and was told by spokesperson Sergio Santos-Van Vuuren that, at this stage, there are no immediate plans to increase flights or expand into new routes.

"We are watching the developments at SAA very carefully and will be evaluating opportunities and options. Similarly, there are no plans currently in place to purchase some of SAA's aircraft," said Santos-Van Vuuren.

Ramaphosa not happy

President Cyril Ramaphosa said on Friday he is not happy with the decision of SAA's business rescue practitioners to cancel certain routes as from the end of the month.

"Government is not in agreement with the BRPs about the decision to cancel certain flights. We as government are saying we need to sit down with the BRPs and discuss the matter," said Ramaphosa.

Subsequent to Ramaphosa indicating his unhappiness, the Department of Public Enterprises issued a statement saying government was concerned that "recent decisions concerning SAA have caused market and customer uncertainty that may jeopardise the long-term future of the airline".

"Government will be making representations to the BRPs in order to balance the necessity for trimming unprofitable routes with the need to ensure the future sustainability of both the airline and SA's aviation industry. This will necessitate a review of the BRPs' recent announcement," according to the statement.

Ahead of SAA going into business rescue in December last year, Fin24 reported regarding concerns in the aviation industry that government might try to interfere with the BRPs in the execution of their duties. A business rescue expert said at the time that business rescue was aimed at "rehabilitating" a company in severe distress. A business rescue practitioner is appointed who has to run and restructure the business.

SAA's BRPs announced on Thursday initiatives aimed at "supporting SAA's transformation into a sustainable and profitable business, and in line with the urgent action required to conserve cash".

This would involve SAA cancelling all of its domestic routes as from the end of February, apart from Johannesburg to Cape Town. Domestic routes operated by Mango would, however, not be affected by the changes.

Also from the end of February, SAA is set to close the regional and international services from Johannesburg to Abidjan via Accra, Entebbe, Guangzhou, Hong Kong, Luanda, Munich, Ndola, and Sao Paulo.

SAA will continue to operate all international services between Johannesburg and Frankfurt, London Heathrow, New York, Perth and Washington via Accra, according to Thursday's announcement.

Regional services to be retained include from Johannesburg to Blantyre, Livingstone, Dar es Salaam, Harare, Kinshasa, Lagos, Lilongwe, Lusaka, Maputo, Mauritius, Nairobi, Victoria Falls and Windhoek.

Fin24 attempted to contact the BRPs for comment on Ramaphosa's latest reaction and the subsequent statement by the Department of Public Enterprises, but at the time of publication had not obtained a response. This article will be update should a response be received.

saa  |  aviation  |  business rescue  |  airlines
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