No sunny skies for SA’s aviation industry in 2017
Low-cost carrier Mango said on Tuesday it expected 2017 to be challenging for the South African aviation industry, with the airline expected to focus on cost control and improving its market share.
"Little positive movement in traveller volumes, price competition and an expected rise in commodity prices will add growing pressure on already squeezed airline margins," Mango acting CEO Nic Vlok said in a statement.
SA’s low economic growth rate and forecasts that crude oil prices were expected to recover from recent lows were expected to put pressure on domestic carriers. These factors also required increased operational efficiencies, productivity growth and more efficient aircraft, Vlok said.
Mango’s results for the year-ended March 2016 indicated a R37m loss despite a 21% increase in passengers and 14% lower fuel costs during the period.
Mango expected to perform well in 2017 despite predictions of less than 1% sustainable growth in the industry, it said, and was being "positive and proactive rather than cynical".
"Load factors are up, revenue is looking solid and as a mitigation to current market conditions [our strategy] is paying substantial dividends. It is to be expected that domestic growth across the industry will follow the same path next year," Vlok said.
There could also be an announcement in 2017 of a rationalisation of multiple state owned airlines and competition of routes.
The Treasury has appointed Bain Capital and Abacus Consulting to advise on restructuring state owned airlines — Mango, South African Airways and SA Express — until January 2017 when SAA is also expected to announce revisions to its turnaround plan.
Low-cost airline FlySafair has repeatedly offered to buy Mango at "the right price", although indications have been what is more likely is the creation of a holding company, and the possible inclusion of strategic equity prices.
In an interview with Business Day recently FlySafair CEO Elmar Conradie said the low-budget carrier was also looking to consolidate in 2017, after two years of rapid growth since its launch. The airline has received acknowledgements from the Treasury and the Department of Public Enterprises of its offers.
Despite higher load factors than in 2014 when FlySafair launched, airlines were keeping prices low to fill seats. The acquisition of Mango would allow for additional economies of scale and allow for sustained depressed prices, Conradie said.