Airline ticket prices in South Africa have spiked after Comair suspended all British Airways and Kulula.com flights.
On 1 June 2022, Comair announced the flight suspensions as it could not secure additional funding to continue operating.
At the time, the company said the process to raise the necessary capital was in progress and that there was reason to believe such funding may be secured.
However, a week later, Comair said it could not raise the funding required to continue its operations.
“Accordingly, the company’s joint business rescue practitioners give notice herewith that they no longer believe that there is a reasonable prospect that the company can be rescued,” it said.
Economist Sindile Vabaza said the primary cause of Comair’s financial distress was its debt burden, which had been growing for years because of a disastrous order of Boeing 737 Max planes.
Comair had paid $45 million in deposits for 8 of the planes but had only taken delivery of one plane before a worldwide grounding of the planes following two fatal crashes.
The company’s total operating costs ballooned, eroding its profitability and liquidity and contributing to its inability to service its debt adequately.
The Covid-19 pandemic and the subsequent lockdowns imposed by the government exacerbated Comair’s problems.
The airline has also had to contend with a significant rise in fuel prices and the suspension of all flights by the SA Civil Aviation Authority (SACAA) on 12 March 2022.
These problems have ultimately forced the hand of the Comair Rescue Consortium (CRC), which was unwilling to pump more funds into keeping the airline afloat.
Kulula.com was the largest low-cost airline operating in South Africa, while British Airways was a popular alternative to SAA for many South Africans.
After Kulula.com and British Airways stopped operating, many travellers scrambled to book tickets on competitors like Lift and FlySafair.
The increased demand and lower availability of seats have seen ticket prices on popular routes like Johannesburg to Cape Town spike.
So significant are the price increases that the Competition Commission is investigating the issue after numerous complaints.
The table below shows how ticket prices changed between September 2021 and July 2022.
|Johannesburg to Cape Town|
|Cape Town to Johannesburg|
South Africa’s era of subsidised flights under pressure – Gidon Novick
Lift founder and former Kulula.com CEO, Gidon Novick, said the traditional model of business travellers subsidising leisure travellers are under pressure.
Novick said the true seat cost for a return flight from Johannesburg to Cape Town – assuming they sell almost every seat on the plane – is about R3,000.
“If you are paying less than R3,000, you must realise somebody else is subsidising your seat in some way,” he said.
Traditionally, business class and business travellers paid more for their seats and subsidised leisure travellers.
The Covid-19 pandemic changed the business environment and obliterated business travel. Video conferencing replaced face-to-face meetings, and work-from-home became the norm.
Although business travel is returning slowly, it is nowhere near where it was pre-pandemic.
“There is a real question whether there will be enough of this cross-subsidisation between business travel and leisure travel in future,” he said.
“There are many dynamics in the industry that we are having to adjust to in a completely new environment.”
Novick added that the high oil price is also playing a big role in making air travel more expensive.
“The current oil price makes air travel unaffordable to most people. Many people who could afford to fly a year ago, cannot afford to fly now. So, the market size has reduced significantly,” he said.