The demise of Skywise

WHEN SKYWISE ceased operations on 2 December 2015, it led to a panic as many customers had already paid for their tickets. This reminded me of a Premier Soccer League coach who once said, “I have seen this movie before”.

I have seen this movie before with the demise of 1Time. In my journal article, The demise of 1Time Airline and the reaction of various interest groups, I detailed the history of the demise of this low cost airline, which shut down on 2 November 2012.

The airline industry is very competitive and 2015 was possibly one of the most difficult trading years in South Africa, due to the rand’s depreciation, the hike in interest rates, and a general poor trading environment. Furthermore, the costs of operating an airline were higher because of the dollar/rand exchange rate.

I found it quite interesting that Skywise wrote an open letter to President Jacob Zuma to rescue them, because business has always advocated for a minimalistic state where its only role is to provide a conducive business environment.

Skywise was fully aware of the obligations that it had when it chose to operate. The fact that it is still grounded means that it could likely be liquidated. The Airports Company of SA (Acsa) and Air Traffic and Navigation Services (ATNS) would probably also lose the accumulated R8m that Skywise owes them.  

There is much public discourse in South Africa regarding state-owned entities facing challenges due to poor management and low standards of governance. Acsa and ATNS are properly managed public entities and are shining examples of excellence.

It would have been irresponsible and reckless of Acsa to allow Skywise to operate while it was accumulating debt it seemingly is not able to repay. Acsa is funded by taxpayers and any deviation from prudent financial management would be regarded as fruitless and wasteful expenditure. Acsa knows the difficulty of trying to get what you are owed when a company is liquidated.

There is something wrong with the business model of Skywise, because it only operates between Johannesburg and Cape Town. This route is over-serviced by airlines, leading to low margins.

Competing airlines use other routes to cross subsidise the low margins on the Johannesburg-Cape Town route. Johannesburg to Bloemfontein and Johannesburg to East London are some of the more expensive routes, where airlines charge higher prices because of lower competition.

The demise of Skywise is not the fault of government, because other private airlines follow the same rules of the game. Comair is able to declare a profit each year even if the trading environment is tough.

A low cost carrier airline such as FlySafair is a stable business that will not suffer a similar fate such as 1Time and Skywise. My only fear is that their brand could be negatively affected by the demise of Skywise, as there might be fear that it is another low cost carrier that may go bust sooner or later.

It would be wise for FlySafair to be proactive and communicate that it is a sustainable business that has more than 20 years’ experience to re-assure customers.

The biggest beneficiary of the demise of Skywise will be the shareholders in Comair, which operates British Airways and Kulula.

The price of airline tickets could increase immediately, because there will be a reduction in airline capacity. The fact that Skywise’s grounding took place in December could limit the number of tourists visiting the Western Cape.

The demise of Skywise might be good in that it may allow airlines to reconsider the existing price war that is occurring. Charging the lowest fares must be sustainable and starting a price war is not always a strategic move, especially for a new airline.

There are other avenues to get the attention of customers, such as exceptional quality service and friendly staff that go beyond the call of duty to impress customers.

My heart is heavy as I think about the multitudes of employees, whose festive season is now characterised by the doom and gloom of this reality.

* This guest post is from Unathi Sonwabile Henama, who teaches tourism at the Tshwane University of Technology and writes in his personal capacity.