Liquidation of Comair could result in cost of domestic travel up to four times higher

With Comair’s Kulula and British Airways planes out of the sky, domestic air travelers should be prepared to pay three to four times as much for airfare. Indeed, airline capacity has reportedly fallen by 40% since Comair’s business rescue practitioners announced their intention to liquidate the airline.

Speaking to Moneyweb, SA Flyer editor Guy Leitch said Comair’s exit, coupled with the type of market structure the industry operates in as well as soaring costs of operation, could have a huge impact on ticket prices.

“Airlines operate on what are called dynamic seat pricing or yield management systems and they structure their prices based on demand, and obviously on a particular flight they can vary prices literally by the minute. per minute,” says Leitch.

“So that’s going to drive up the prices tremendously and on top of that we’ve had huge price increases because of the fuel price increases so although there’s a 40 per cent cut in supply , demand is going to practically fall while a new equilibrium is established.

“A few years ago you could buy a seat to Cape Town from Joburg for around R800, now it costs up to three times as much, four times as much, even now this weekend,” he adds. -he.

“So it’s going to cost a lot of travelers out of the market.”

holiday peak

FlySafair marketing director Kirby Gordon told Moneyweb that since news of Comair’s permanent grounding became public, the airline has seen an increase in flight prices, adding that this is expected to be more pronounced in the future. end of the year celebrations are approaching.

“We are price takers, so pricing is always a result of the forces of supply and demand in the market and when we [is] approached with a situation like ours at the time when the supply is constrained relative to the demand that exists, we are going to see price increases, it is only natural,” says Gordon.

“We may well see higher prices at the end of the month when we look at school holidays…and very limited availability on these flights.”

On Thursday, Comair’s Business Rescue Practitioners (BRPs) announced in a press release that they had filed a legal petition to liquidate the 76-year-old airline, citing failure to raise the necessary funds to save the company. airline company.

Read: Liquidation for Kulula owner Comair as company bailout fails

BRPs attributed the airline’s failure to a variety of reasons, including Covd-19-related lockdown regulations that restricted air travel as well as increased operational costs – mainly due to soaring fuel and air prices. oil – and the decision by the South African aviation authorities to suspend the airline’s aircraft operating certificate earlier this year.

On Thursday, Simple Flying reported that the liquidation of Comair will see the industry lose 19,000 domestic flights, around a quarter of industry capacity, leaving much of the market to competitors FlySafair and Airlink.

Prices will normalize in 2023

According to Leitch, domestic air travelers may have to endure these price increases at least until 2023, when the aviation industry should begin to cool down after this latest crisis.

“It’s going to be quite a slow process because you can’t just buy a new plane and you can’t just expand [by] find new pilots and crew members. So I don’t expect to see a lot of stability until the end of the year – and then of course we’ll be in the rush towards the end of the year – so I think the ripple effects will continue at least until 2023,” says Leitch.

He adds that given the type of market structure in which the aviation industry operates, there is little the Competition Commission can do to regulate price movements. Like all of us, the commission will be forced to wait for the market to reach its new equilibrium.

“The Competition Commission says it will keep an eye on prices, but it can’t because the market has to find its own balance and that means prices will be very expensive until other airlines can take over,” says Leitch. .

Growth in demand for services

Comair’s abrupt exit from the market has put enormous pressure on existing airlines to fill the void left by the Kulula and British Airways fleets. To do this, the remaining players such as FlySafair will have to increase their capacity.

Gordon says it won’t be a quick process, but FlySafair is looking to increase capacity.

“These are long-term plans, but we have planned for growth. We have another plane coming into our fleet next month, so the timing is pretty good,” he says.

“We obviously recruited to respond to that, and we actually have two more [aircraft] which will enter our fleet this year. So there are growth plans on the horizon, which will go some way to mitigating this situation.

In a statement to Moneyweb, Airports Company South Africa (Acsa) acknowledged the vacuum left by Comair’s exit but said it was confident the aviation industry will recover.

“There are multiple players to keep an airline operational and the ripple effects of an airline will most likely cease to be felt throughout the value chain, including Acsa,” said Gopolang Peme, Director from Acsa’s interim communication group.

“While Acsa will most certainly feel the absence of Comair, we are confident in the recovery of the global aviation ecosystem and are encouraged by the first signs of recovery.”