EDITORIAL: Comair stutters, yet government plans SAA 2.0
That Comair should be forced into such a drastic step makes public enterprises minister Pravin Gordhan’s persistence with the resurrection of SAA all the more absurd
Until last year, a plucky little SA company had managed to produce 74 years of unbroken profit. Incredibly, it was the only company, worldwide, to have done so in an industry where all the other players have, at some point, either lost money or gone belly-up.
That company is Comair, which runs low-cost airline Kulula and operates British Airways flights in Southern Africa. Its proud history makes its decision to file for business rescue this week all the more devastating.
Clearly, it is business abnormal, and if you were still clinging to the notion, however feebly, that we will quickly bounce back from the ravages of the Covid-19 pandemic, it may be time to face the bitter reality that we will not.
Comair is the latest to fold into business rescue in recent days, following one-time retail leviathan Edcon. Covid-19 has proven the final straw for frail companies, which might have been just about surviving SA’s brittle economy.
Thankfully, Comair’s decision is by no means game over for the business. It is still solvent. But its revenues have been razed while its costs have not. Business rescue will protect it from the demands of creditors, so it can restructure. The aim is that by the time the restrictions on air travel are eventually lifted, maybe within a few months, the company can soar again.
It would be naive and wrong to argue that Comair’s decision is all the government’s fault, due to the lockdown. Flights have been grounded from Wellington to New York, and aviation consultant Capa has warned that most airlines could be bankrupt by the end of the month.
Yet it is also true that Comair’s woes have been magnified by the state’s continued meddling in its much bigger rival, SAA.
SAA has, for almost 20 years, been unable to function without government handouts. This has long distorted the airline market, allowing SAA to undercut rivals, which don’t enjoy the luxury of a taxpayer-funded backstop.
And don’t forget, Comair is also owed almost R800m by SAA for previous anticompetitive behaviour. It is cash that would have come in rather useful for Comair, amid Covid-19.
That Comair should be forced into such a drastic step makes public enterprises minister Pravin Gordhan’s persistence with the resurrection of SAA all the more absurd. We are now told that the government can create a new airline that will be a catalyst for investment, job creation, economic growth, and "a mirror to the world reflecting the splendour and beauty of our great nation". If pigs could fly, maybe — then again, our government would probably be subsidising that porcine-aviation business.
But consider that one of the savviest investors of the past century, Warren Buffett, admitted over the weekend that he got it wrong on airlines, and has now sold all the shares held by his company in four US airlines: American, Delta, United and Southwest.
"It turns out I was wrong," said Buffett at the company’s AGM last weekend. "The airline business — and I may be wrong and I hope I am — I think it has changed in a very major way."
The Oracle of Omaha, as he’s known, is worried that passenger numbers are unlikely to recover to pre-pandemic levels. Too many planes are likely to slash seat prices, eating into profits.
"I don’t know if two or three years from now, as many people will fly as many passenger miles as they did last year," he said. Airlines contributed to the $49.5bn loss made by Buffett’s company.
But if he can’t make it work, what are the odds SA’s government will do better? At least Buffett, unlike our politicians, knows when to quit.