Government’s plan to encourage private sector participation at some components of national carrier South African Airways (SAA) presents Comair with “interesting opportunities,” company CEO Erik Venter told a Forum at the Gordon Institute of Business Science (GIBS).
Venter said his company would consider investing in two of SAA’s divisions, namely aircraft maintenance arm SAA Technical and catering service Air Chefs, should the prospect arise.
However, he said the approach of the public and private sector towards corporate governance was still very different, and that government’s search for minority partners to invest in the airline would not be an easy one: “State owned enterprises and the private sector are held to different standards. There is a lot of ground to be covered.”
“Much of the South African aviation industry continues to revolve around the antics at SAA,” Venter said. He argued that the numerous bailouts and guarantees provided to the airline amounted to funding that bypassed Parliamentary input and processes.
“The protection of SAA is at the cost of the South African consumer. We need a bigger picture view of what is in the best interest of the country, and it’s not in our best interest to protect SAA,” he said.
Venter said the collapse of governance and experience at the Civil Aviation Authority (CAA) was a concern for the aviation industry. He called the lack of experience at the CAA “nerve wracking” and said the organisation takes a ‘tick box’ approach and fails to understand the broader implications of this methodology. As a result, he said many airlines had begun to move towards self-regulation.
Surviving the aviation industry
While a number of SAA’s competitors had gone out of business due to what Venter termed the national carrier’s “anticompetitive behavior” since the local industry was deregulated in 1990, Comair has managed to survive.
Venter said safety, innovation, improving efficiencies and customer service were all “survival requirements” for any airline that wanted to prosper in the tough operating environment. “Culture is the real differentiator,” Venter said.
Airlines had to foster a culture of safety among staff, as this was inherent to their sustainability: “An airline has to rely on its entire staff for the safety of its operations. It can’t merely be a specialised role in an office.”
Innovation and ways to improve efficiency also have to be integrated into an airline’s culture. “Aviation is a survival industry. You cannot have special interventions to cut costs, it is an inherent requirement,” Venter said.
The next big innovation phase for Comair would be around customer service. Venter said the group would focus on further customer base segmentation in order to understand their purchase behavior and create personalised offerings that would carefully target customers without “swamping them with information.”
The future of African aviation and tourism
Venter said the main driver of growth in Africa is the middle class, and while it had increased substantially, this was off a very low base. It could take twenty to thirty years for the middle class in Africa to grow to the size that would support extensive aviation operations and services within the continent.
“The only way to grow aviation in Africa will be through the subsidisation of airline tickets, or airports, or simply waiting for economic growth to fuel demand, which will take a long time.”
He said foreign carriers are responsible for 80% of passenger air traffic in and out of Africa. Ethiopian Air, the only African airline to have achieved a measure of success internationally, had done so by successfully connecting traffic through its hub in Addis Ababa, not by selling tickets within Africa. “The money is just not there. Selling tickets within Africa on a point-to-point is very difficult,” Venter said.
In terms of the international aviation landscape, South Africa’s poor geographic location meant any locally operated airline trying to run an international route would not be able to achieve economies of scale: “South Africa is a difficult destination to get to as it is a long haul flight from everywhere.”
While there is enormous opportunity for South Africa to continue to grow as a tourism destination, Venter concluded that there has to be a compelling value proposition to entice people to visit the country.
Top five points
• Government’s search for minority partners to invest in SAA would not be an easy one as the approach of the public and private sector towards corporate governance was still very different.
• The numerous bailouts and guarantees provided to SAA by government amounted to funding that bypassed Parliamentary input and processes.
• Venter said safety, innovation, improving efficiencies and customer service were all “survival requirements” for any airline that wanted to prosper in the tough operating environment.
• It could take twenty to thirty years for the middle class in Africa to grow to the size that would support extensive aviation operations and services within the continent.
• South Africa’s poor geographic location meant any locally operated airline trying to run an international route would not be able to achieve economies of scale.