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- Passengers are benefiting from lower airfares over the next few weeks.
- But some in the industry are accusing others of uncompetitive pricing.
- LIFT wants the competition watchdog to investigate whether some ticket prices are below the cost of operating flights.
- For more financial news, go to the News24 Business front page.
Travellers are benefiting from lower airfares over the winter period as local airlines accuse each other of uncompetitive pricing – with one operator wanting the competition watchdog to investigate whether some ticket prices are below the cost of operating flights.
In July 2022, a return domestic airline ticket between Johannesburg and Cape Town could cost up to R3 500. This July, the most expensive tickets are below R2 800.
Some airlines say there is an oversupply of seats at the moment. South African Airways (SAA) estimates that the overall capacity among domestic airlines in SA increased by about 25% between June to August of this year, compared to last year.
"The average fares then decreased due to the oversupply of capacity in the market, especially in the economy class cabin where we have had to implement decreases in fares in order to remain competitive," SAA responded to News24.
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There is no doubt an over-supply of capacity on trunk routes, in the view of Miles van der Molen, CEO of CemAir.
"We are seeing pricing well below the levels before Comair's exit [in 2022]. I am expecting a further market correction," says Van der Molen.
In his view, some airlines are behaving uncompetitively by underpricing.
"The SA airline industry needs to end the era of value destruction by undercharging for ticket prices," says Van der Molen.
"Passenger volumes in SA have been flat over the last 12 months at about 80% of pre-Covid-19 levels. The issue we have is that the dominant airlines are still adding flights and seat capacity. By doing so, they drive down the price of air tickets to unsustainably low levels," says Jonathan Ayache, CEO of LIFT.
"We believe the current air ticket prices charged by dominant airlines are below the cost of operating flights and should be investigated by the Competition Commission."
In his view, some airlines have opted for "overly optimistic and aggressive growth strategies" over the past 12 months. The slow recovery in passenger volumes and demand levels is now putting them - and all domestic airlines - under pressure.
"The impact of this behaviour has been to drive down pricing of tickets to unsustainably low levels. In the short term this may seem like a good thing, especially for the public. It's actually very detrimental in the medium to long term as we learned less than 12 months ago after Comair's exit," says Ayache.
"Thankfully, we have built our business on a demand-driven model with flexible capacity, which we believe is a far more responsible way of operating."
Kirby Gordon, spokesperson of FlySafair, explains that prices go down when demand is low and supply stays constant - like in any commodity market.
"That's great for consumers. Great deals to be had in low season, but it won't be that way in high season of course - it can't," he says.
After Comair's kulula.com and British Airways domestic flights were halted last year, and Mango in 2021, the local market went through a period of constrained supply. This led to airlines adding capacity where possible in order to make use of the opportunity to grow.
"At some point though, supply started to meet the demand. Everyone was adding more aircraft so there's every chance that there will be an over-correction. which the market will correct with either a rise in demand (hopefully) or the need for players to rationalise," says Gordon.
"Airlines will start to feel their operating cost per seat. This is about how the business is fundamentally set up. When the prices you can get are low, you become far more aware of your costs and if they've not been managed, a squeeze will set in."
He explains that full-service airline models have higher costs, because they offer all the freebies and perks like loyalty schemes. As a result, they have higher costs per seat and need to charge higher prices - for which consumers get more.
Alternately, low-cost airlines, like FlySafair, offer a basic service, which means the prices can - and should - be lower.
In Gordon's view, there's not currently an over-supply in the SA domestic market.
"We think supply and demand are back in a healthy state. We feel the pain in low season currently underway, but that's how our industry is in 'normal' circumstances," he says. "It's tough now in the low season but it will be better in the high season again."
Rodger Foster, CEO of private airline Airlink, has said in the past that there is a surplus of capacity at some times and days of the week and a shortage at others.
As a result, airlines are taking a very cautious approach to adding capacity. They are increasing aircraft utilisation and optimising staff productivity by adding more flights as well as either adding aircraft or replacing smaller planes with larger planes.
