Competition is rife among airlines offering domestic flights in South Africa. Few have found the balance between healthy operating profits and high passenger numbers.
Comair is the parent company for British Airways South Africa together with Kulula Airlines.
With their financial results just released, it seems that Comair has managed to find the happy medium, continuing its 71-year long record of operating profits.
Overall, the company reported an increase of profits to R297 million after taxation. This is a 54% increase in gains and 28% more cash generated than the previous period. The cash balance at year end was R935 million, compared to last year’s R1.12 billion.
The report also indicates that 20% of earnings are now generated by non-airline brands.
Good News for Investors
These results have yielded an increase of 22.2 cents per share, ending at 63.7 cents and headline earnings of 67 cents per share.
According to CEO, Erik Venter, the results confirm the airline’s strategic focus. Their target for on-time performance and service delivery of 85% was also exceeded with an average of 89% for the last two quarters. Venter expressed satisfaction that the airline’s costs remained contained with only a 1% increase, despite inflationary pressure and a 5% increase in the price of fuel.
Venter attributes the positive performance of Comair as partly due to the recent addition of new fuel-efficient, low-maintenance Boeing 737-800 aircraft to their fleet. He highlights the role of ongoing upgrades in helping to mitigate the impact of fuel hikes, while improving the airline’s customer offering at the same time.
The previous financial year saw Comair take delivery of one 737-800 aircraft. This completes the original order of 8 New Generation aircraft ordered from Boeing. Another 8 Boeing 737-8 Max aircraft will be added to the fleet from 2019 to 2022.
Venter expects these continued upgrades to continue enhancing Comair’s operating efficiency and improve the revenue potential per flight.
Why the focus on Non-airline business?
Airlines in South Africa struggle under a lack of meaningful GDP growth. This means that the airline-passenger market operates well below its optimum. Despite this, Comair managed to increase passenger numbers by over 2% on domestic flights compared to last year.
While IATA reports global seat occupancy to be at 80.6%, Comair’s current occupancy levels are around 75%. Although this is positive, the group is working towards meeting and exceeding international levels in all its operations.
A weak economy and narrow profit margins have increased the airline’s focus on other areas. These include travel business such as Kulula holidays, SLOW lounges, Food Directions catering services and the Comair Training Centre (CTC).
Venter is positive about the performance of these non-airline businesses. He highlighted the following success stories:
Comair Training Centre
- The acquisition of a flight simulator for training of Boeing 737-800 pilots at the CTC
- The construction of a third training facility with the capacity for another 4 flight simulators
- Student numbers are at an all-time high. Comair now provides training for pilots from 34 civilian airlines and military institutions.
- These customer-centric venues have undergone considerable expansion at OR Tambo International Airport’s Domestic terminal and at Lanseria International Airport
- A handful of smaller airports have been earmarked for future SLOW lounges
- The groups’ catering outlets have outgrown their facilities at the Anchor Park Industrial area
- The airline has bought further industrial land for expansion and growth in this area
- New offices, storage and catering facilities have been set up at Cape Town International Airport
In the light of these positive developments, Comair will continue with further investment in these areas.
Recognising and harnessing the talents of its employees is a core focus of the group according to Venter. Talent is highly valued and Comair places a high emphasis on investing in its employees and on the management of its skills base.
By encouraging decision-making and access to information that supports their job functions, Comair ensures that personnel are poised to thrive and grow with the group.
The SAA Outcome
Venter also touched on the well-publicised claim against SAA by the group for anti-competitive conduct. The court case resulted in a victory for Comair. A total of R1.16 billion in damages and costs were awarded to Comair in the High Court during August 2016.
SAA has since lodged an appeal against this judgement which will be heard during 2018.
According to Venter, Comair is in a good position to weather the continued pressure on consumer spending margins due to a weak economy. Decreased spending is bound to lead to reduced passenger numbers, but the airline is well-prepared for any difficult times ahead.
Backed by dedicated staff, the latest equipment, strong cash reserves and an efficient costing system all working together to maintain the airline’s powerful brand, they are ready to face the challenges ahead.
At this rate, we can look forward to many more years of competitive domestic flights in South Africa from this operator.