JONATHAN AYACHE: The importance of a sustainable airline industry to the SA economy

It has been almost 120 years since the Wright brothers’ first flight in their Kitty Hawk Flyer, and while a lot has changed air travel remains the only true global rapid transport system and is a key driver of economic growth,  job creation and supporter of global trade and tourism.

As a country we face a crisis of stagflation (low economic growth and high inflation), record unemployment, infrastructural deficiencies and the knock-on effects of load-shedding. We’ve proved time and again that we are a resilient nation, but if we are to turn things around we need to act with urgency and implement changes that will drive economic growth and create opportunities for employment.

While addressing the causes of load-shedding and achieving a reliable energy supply remains a top priority, another crucial sector in our economy that the airline industry supports is the tourism sector. According to tourism minister Lindiwe Sisulu, in 2021 the sector contributed 3.7% to GDP, down from about 8% of GDP pre-Covid. Even at the lower levels this is still above manufacturing, agriculture and construction. 

Today the industry employs about 740,000 people directly and 1.5-million indirectly. The potential is even more evident when you consider that pre-Covid SA had only about 10-million international tourists each year. That is a fraction of the 80-million to 90-million tourists countries like Spain and France attract. These countries also directly employ almost four times as many people in their travel and tourism sectors as we do.

Data from the Airports Company SA (Acsa) shows that as of October this year domestic passenger volumes had recovered to about 75% of 2019 levels, while regional and international passenger volumes lag this slightly at 69% and 71%, respectively. 

Looking ahead

The recovery is under way, but we’re not there yet, and the global consensus is that we won’t see a full recovery until the end of 2023. A responsible approach to recovery and adding seat capacity is crucial from all airlines to avoid a repeat of what we have seen in the past 24 months, where four airline brands shut their doors. 

Failed airlines mean unemployment, and not just those directly employed by the airline. In Lift’s case that is about 200 employees, but others like cleaners and ground staff, as well as businesses, such as catering companies, are also left with unpaid bills and no future business prospects when airlines go under.

Following the closure of Comair (BA and Kulula) at the end of May this year, ticket pricing has become highly topical. The narrative created has been that airlines still in operation are taking advantage of the reduced passenger seats available and are using it as an opportunity to take advantage of increased demand.

As with most things, context is everything. It’s important to keep the following in mind when talking about the higher cost of air tickets:

• Covid: Despite its importance the “private” domestic airline industry has been left to fend for itself and received no financial support from the government during the Covid pandemic. Most airlines have been operating on the edge and the unsustainably low prices customers have been used to ultimately resulted in both Mango and Comair exiting the market.  
• Jet fuel: The prices of jet fuel and crude have been rising since their lows at the start of the pandemic (circa March 2020). Today, the price of jet fuel is almost three times higher than what it was in December 2020 when Lift launched. In SA we’ve also seen a large reduction in refinery capacity, resulting in an increase in imported jet fuel. In some cases this has resulted in international flights having to be rerouted from SA’s busiest airport, OR Tambo International.
• Seasonality: At the best of times the aviation industry is highly seasonal, and in SA it is often the case that the stronger second half of the year subsidises the weaker first half.
• Rand weakness: Three of our largest operational costs are denominated or driven by the rand-dollar exchange rate — fuel, aircraft leases and insurance. The exchange rate has weakened by about 20% since September 2021, adding further pressure and necessitating higher ticket prices.

What’s next for Lift?

Despite all of these challenges Lift has done exceptionally well, due in part to the flexibility offered to passengers, who can change and cancel without any penalties. We are also adding four aircraft to the fleet. This has been done using flexible capacity, which can easily be increased or decreased based on demand. We have expanded our route network with the launch of a Johannesburg-Durban route and, most recently, the Durban-Cape Town route. We’re on track to increase our available seat capacity to about 1.5-million seats in 2023, a huge increase from 370,000. 

As we look forward to a new year it becomes clear that even while a slow ascent to recovery is expected in 2023, putting passengers first will remain a key priority, and flexibility and market agility will be crucial.

• Ayache is cofounder and CEO of Lift Airline.