Comair remains positive despite challenging period

Coming financial period projected to be more positive

Despite one of the toughest periods in the history of the airline industry - which saw the collapse of both local and international carriers - SA's leading aviation company, JSE-listed Comair, grew its revenue by 16% to R4,16-billion (2011: R3,59-billion) for the 12-month period, ending June 30, 2012. This was as a result of the airline's sustained focus on product excellence, and an increase in ticket prices driven by pressure on operating costs. Despite aggressive competitor pricing, its seat occupancy remained strong.

Numerous individual cost saving initiatives were launched during the year, the most significant being the opening of in-house flight catering units in Johannesburg and Cape Town, and a new crew base in Cape Town. Employment costs were stable due to a salary and headcount freeze.

However, as a result of the highest ever average jet fuel price, which has increased by 50% since 2010, operating expenses were 20% higher at R3,97-billion (2011: R3,33-billion). ACSA tariffs increased by 70% in October 2011, and the Rand weakened by an average of 11%, impacting on maintenance and lease costs.

The rampant fuel price meant that Comair and its JV partner; Solenta Aviation had to close down the unprofitable Nelspruit and Maputo routes. Although this meant some once-off termination costs, the small number of seats on these aircraft could not support the dramatic increase in fuel prices.

In spite of the operating challenges brought about by external cost pressures, the airline retained its unbroken profit history - now in its 67th year - by declaring a small, but noteworthy headline profit of R18 million (2011: R77 million).

Says Comair CEO Erik Venter, "The sustained high fuel price and weak global economy created pressure from which few airlines could escape unscathed, as evidenced by the failure of such notable international carriers as Malev, Spanair and Air Australia, and the filing for Chapter 11 protection by American Airlines."

"And here in SA, we saw the closure of Velvet Sky, the 9th private airline to fail out of the 11 launched since the market deregulated in 1991, and recently we also saw the application for business rescue by 1Time. In the midst of these challenges, we are proud of being able to retain our unbroken profit history over more than six decades of operation."

He said that current service levels, as measured by on-board and call centre surveys, remained strong, with the new, in-house catering units raising the score for in-flight food to a new high.

"On-time departures achieved the 85% target on both kulula and BA and this will be further improved with the new fleet in the year ahead. Comair also successfully completed its bi-annual IOSA (IATA Operations Safety Audit) in February, which once again highlights its commitment to airline safety in Africa."

On another positive note, Venter added that Comair is investing for the future and it took a strategic view to upgrade its entire kulula fleet to Boeing 737-800's by end December 2012. The new fleet will ensure better comfort, lower operating cost and better daily utilisation.

Of the four Boeing 737-200's retired in December 2010, Comair sold three and wrote down the fourth plane, resulting in a combined capital loss of R14.7million.

Venter is positive that the combination of its better utilised fleet and its recent investment of R52-million in an integrated technology platform from Sabre Airline Solutions will result in improved manpower planning and aircraft scheduling. The Sabre systems will also deliver increased revenue through more dynamic pricing, better capacity management and improved revenue integrity.

He also added that their diversified business operations such as pilot training, travel distribution and airport lounges continue to perform well.

Commenting on the year ahead, Venter said, "We are still somewhat cautious as to the state of the global and South African economies and we expect consumers to remain under pressure for the foreseeable future. But we remain confident that our focus on safety, customer service and efficiency has built a sustainable foundation that will allow us to take advantage of growth opportunities as they arise. Against this background we anticipate that our financial performance in the coming year will be an improvement on the results of the past challenging year."

He concluded by raising some concerns regarding the aviation landscape in South Africa. "Our state-owned competitors and their continuous request for government funding pose a serious challenge to our capital intensive industry, where it is necessary for private airlines to build equity through retained profits. SAA's expectation of further capital injection creates a reliance that undermines rational commercial behaviour. Competition is good, but the playing fields in South Africa remain unlevel."

No dividend was declared.