Potential of Comair non-airline businesses ‘unlimited’

The share price of Comair dropped by 0.88% on Tuesday following the release of its annual results that reflected a 54% increase in profit after tax to R297 million.

It closed at R5.60. In the year to date the share price has increased by 39.51%.

Headline earnings per share grew from 36.5c in the previous financial year to 67c. Cash from operations grew by 28% to R257 million, which left the group with cash balance of R935 million at year-end, down from R1.12 billion in the previous financial year.

Dividends increased by 5% to 21c per share.

During the reporting period Comair has grown its income from non-airline businesses to 20% of total earnings.

This is a delivery on its diversification strategy aimed at mitigating the low margins and depressed conditions in the airline industry.

Comair CEO Erik Venter said: “In the continued absence of meaningful GDP growth in South Africa, our domestic airline-passenger market has yet to expand into its surplus seat capacity, which constrains industry occupancy levels at below the global average. Average global seat occupancy is 80.6% as per IATA, while Comair has an average of 75%.”

He does not foresee a meaningful improvement in the airline market in the immediate future and the business will remain focused on containing costs and extracting efficiencies, Venter said.

In the reporting period, Comair limited overall cost increases to 1% despite a 5% increase in the rand price of fuel and inflationary pressure.

The group plans to grow its non-airline income to 50%. This consists of pilot training, catering, SLOW Lounges and a travel business.

According to Venter, the growth potential of these businesses is unlimited. He said it was quite possible that Comair might in a few years consist of several diversified businesses plus a smaller airline component. “We just need one contract with a big international retailer in the food business.”

Food Directions, as the business is called, caters for Comair’s own needs and supplies products, mostly with a health focus, to several retailers. It operates from the Anchor Park industrial park on the East Rand. Comair has bought the industrial park to provide capacity for expansion, and is awaiting transfer of the property. It has also constructed its own offices, catering facilities and storage at Cape Town International Airport.

Watch: Comair’s Food Directions prepares up to 10 000 meals per day

Comair currently provides pilot training to 34 airlines and air forces and is investing R67 million in doubling its capacity. It has placed an order for a static Airbus A320 simulator at a value of €1.3 million. This business has further strategic value in the fact that it earns in dollar.

Venter said Comair would later acquire more simulators after it identifies suitable anchor tenants.

The group is making substantial investments in increasing the capacity of the domestic SLOW Lounge at OR Tambo International. It recently launched its first small concept lounge at Lanseria and will roll out this concept at other small airports. “There are many airports in Africa that need lounges,” Venter Said. Most airports belong to governments and it can be a challenge to get a foot in the door, he explained.

The group’s SLOW Lounge partnership with FNB is going well and the contract still has about five years to run.

The group is investing about R30 million over four years in a new IT travel platform that Venter said will be a first for South Africa. He said it was a complex development incorporating e-commerce and will enable the international marketing of inbound tourism to South Africa in all the necessary languages. The first stage should be ready by the end of the year.

Comair was awarded R1.16 billion in damages and interest against SAA last year for the national carrier’s earlier uncompetitive conduct. SAA has taken it on appeal and Comair has lodged a cross-appeal, which if successful could result in an award of R1.9 billion. Venter expects the appeal to be heard early next year.

Read: Comair hopes to up R1.1bn SAA damages award

Asked if SAA could be saved by either government or the private sector, Venter told Moneyweb it was beyond repair. He said SAA was about 50% overstaffed and the staff were being paid at least 50% more than industry norm. He said there were middle men taking a cut in procurement adding a further layer of costs. The national carrier has further lost too many aviation skills, he said.

 

Venter said the JSE had approved Comair’s proposal to restrict the voting rights of foreign shareholders and this would be put to shareholders during a Special General Meeting before the end of the year. This should address any risk of non-compliance with the Air Services Licensing Council’s regulations and conditions, that were the subject of an earlier review application, he said. No ruling has been made in the matter yet.

Brought to you by Moneyweb