It is time the South African government followed the example of its global counterparts and left the aviation business to private airlines, says Gidon Novick, joint chief executive of South Africa's Comair
The civil aviation industry has evolved substantially on a global level in recent decades. Changes have seen state-owned airlines become a ghost of the past in many developing countries. Sadly this is not the case in the developing world, where in many countries, including South Africa, taxpayers are heavily burdened and obliged to support their governments' crippled airlines.
South Africa is a near perfect example. The state insists on playing a game it does not play very well and yet there are several private airlines that are more than well equipped to offer services without compromising free trade and healthy competition. National flag carrier South African Airways (SAA) has in the past five years made losses of R16 billion ($2.2 billion) and is insolvent to the tune of R9 billion, according to its latest balance sheet, making this the biggest loss in South African corporate history. The airline was given R6 billion by the state in 2004 to clear its hedge book losses and has more recently applied for a further recapitalisation of R4 billion.
Add to this the fact that SAA has a history of abusing its dominant position in the domestic market, one example being agreements that encouraged travel agents to increase their sales of SAA tickets at the expense of other airlines. In May 2006, South Africa's Competitions Tribunal ruled that these agreements entrenched and increased SAA's dominance in the domestic travel market and impeded SAA's competitors from expanding and competing fairly. Furthermore, this resulted in consumers facing a reduced choice of supplier.
The airline is an unfair player on several other counts. Not only does it have unlimited access to capital, but its owner, the government, is also the rule-maker in the industry by virtue of making the laws relating to aviation. Government is also responsible for infrastructure through the operation of the national airports through the Airports Company of South Africa and control of the airspace through Air Traffic Navigation Services.
South Africa has a civil aviation anomaly in that it has three state-owned airlines. The other two are South African Express Airlines and recently launched low-cost carrier Mango, which, incidentally, cannibalises customers and therefore market share from already floundering SAA.
Comair is the largest private airline in South Africa and has a history of success in the aviation industry. Despite SAA's presence, Comair has thrived since deregulation in 1991 and in fact has never posted an operating loss since it was established just over 60 years ago. It operates two successful brands, the local and regional British Airways franchise as well as kulula.com, South Africa's first low-fare airline. Listed on the Johannesburg Stock Exchange, the airline carries over 3 million passengers annually and has a 30% market share.
The concept of a national carrier is an outdated one. There are several examples of flag carriers privatising, including British Airways, which did so in February 1987. Ireland's Aer Lingus was privatised in October 2006, while in Africa Kenyan Airways was successfully privatised in January 1996. In the east, a decision was made to privatise Turkish Airlines in 2000 after reporting losses of roughly $53 million in the first quarter of that year.
Bowing out
The South African government would stand to make better gains by bowing out of the aviation arena. Not only would taxpayers enjoy some relief to their pockets, but the government itself would earn more tax revenue from having more private airlines operating in South African skies.
Although SAA would argue that it is within the country's national interest to have a state-owned airline, privately-owned airlines are more than capable of delivering an air travel service that is untainted by unfair competition. Government can subsidise private airlines to operate the strategic routes it requires.
South Africa is a developing country with pressing social needs, such as education, healthcare and effective policing. Surely the bulk of the South African government's funding would be better utilised in addressing these critical and chronic issues rather than dabbling in an industry where private airlines can do a far better job?
Source: Airline Business
