Comair liquidation could see domestic travellers paying up to four times more

With Comair’s Kulula and British Airways aircraft out of the skies, domestic air travellers should be prepared to pay three to four times more for their flight tickets. This is as airline capacity has reportedly dropped 40% since Comair’s business rescue practitioners announced plans to liquidate the airline.

Speaking to Moneyweb, SA Flyer editor Guy Leitch says Comair’s exit, coupled with the type of market structure the industry operates in as well as spiralling operational costs, could have an enormous impact on ticket prices.

“Airlines operate on what are called dynamic seat pricing or yield management systems and they structure their prices according to the demand, and obviously, on a particular flight they can vary the prices literally minute by minute,” Leitch says.

“So that’s going to force the prices up a huge amount and on top of that, we’ve had enormous price increases because of the fuel price increases, so although there’s going to be a removal of 40% of the supply, the demand is virtually going to drop off while a new equilibrium is established.

“A few years ago, you could buy a seat to Cape Town from Joburg for about R800, now it’s costing up to three times that much, four times that much, even right now, this weekend,” he adds.

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“So it’s going to price a lot of the travellers out of the market.”

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Holiday peak

FlySafair chief marketing officer Kirby Gordon tells Moneyweb that since news of Comair’s permanent grounding went public, the airline has seen an uptick in flight prices, adding that this is expected to be more pronounced during the approaching holiday season.

“We are price takers, so pricing is always as a result of supply and demand forces in the market and when one [is] approached with a situation like we are at the moment where supply is being constrained relative to the demand that is out there, we are going to see increases in prices, that is only natural,” Gordon says.

“We may well see some higher prices come the end of the month when we are looking at school holidays … and very constrained availability on those flights.”

On Thursday, Comair’s business rescue practitioners (BRPs) announced in a media release that they had lodged a court application to liquidate the 76-year-old airline, citing a failure to raise the necessary funding to save the airline.

The BRPs attributed the airline’s failure to various reasons, including Covd-19-related lockdown regulations which restricted air travel as well as the upshoot in operational costs – due primarily to spiralling fuel and oil prices – and the decision by SA aviation authorities to suspend the airline’s aircraft operating certificate earlier this year.

On Thursday, Simple Flying reported that Comair’s liquidation will see the industry lose 19 000 domestic flights, about a quarter of the industry’s capacity, leaving much of the market to competitors FlySafair and Airlink.

Prices to normalise in 2023

According to Leitch, domestic air travellers may have to stomach these price increases at least until 2023, when the aviation industry is expected to start settling down from this most recent crisis.

“It’s going to be quite a slow process because you can’t just buy a new aeroplane and you can’t just expand [by] finding new pilots and air crew. So I am not expecting to see much stability before the end of the year – and then of course we’ll be in the end-of-the-year rush – so I think the knock-on effects are going to continue at least until 2023,” says Leitch.

He adds that given the kind of market structure the aviation industry operates in, there is not much the Competition Commission can do to regulate price movements. Much like the rest of us, the commission will be forced to wait for the market to reach its new equilibrium.

“The Competition Commission says it’s going to keep an eye on prices, but they can’t because the market has to find its own equilibrium and that means that prices will be very expensive until the other airlines can take up the slack,” says Leitch.

Growth to service demand

Comair’s abrupt exit from the market has placed huge pressure on existing airlines to fill the gap left by the Kulula and British Airways fleets. To do that, remaining players such as FlySafair will have to ramp up their capacity.

Gordon says that doing so will not be a quick process, but that FlySafair is looking to grow its capacity.

“These are long-term plans, but we have been planning growth. We have another aircraft entering our fleet next month, so the timing for that is quite good,” he says.

“We’ve obviously been recruiting to accommodate that, and we actually still have an additional two [aircraft] that will come into our fleet this year. So there are growth plans on the horizon, which will help to a certain extent to alleviate this situation.”

In a statement to Moneyweb, Airports Company South Africa (Acsa) acknowledged the gap left by Comair’s exit but expressed confidence that the aviation industry will recover.

“There are several players in keeping any one airline operational and the ripple effects of one airline ceasing to operate is most likely going to be felt along the entire value chain, including Acsa,” says Acsa acting group manager of communications Gopolang Peme.

“While Acsa will most certainly feel the absence of Comair, we are confident in the recovery of the overall aviation ecosystem and are encouraged by the early signs of recovery.”

This article was republished from Moneyweb with permission