Almost all of SA’s large airlines are formally objecting to the threat posed by UK-based fastjet’s attempts to enter the local market by taking over the operations of 1time Airline, which is in provisional liquidation.
Attempts to rescue 1time have come to the attention of t he Air Services Licensing Council, a state regulator that will meet next month to hear arguments for and against the transfer of 1time’s licence to fastjet, which is building a low-cost pan-African carrier.
State-owned airline Mango said in its affidavit to the council, objecting to the transfer of the licence, that a "high probability (existed) of other domestic airlines, with capital commitments on replacement and new aircraft, defaulting" if fastjet entered the market.
This would lead to " an increase in the general credit risk for South African-based and state-owned airlines as a whole", which would make obtaining financing difficult, Mango’s affidavit said.
Mango is a subsidiary of South African Airways (SAA), which is relying on a R5bn state guarantee to continue operating, and plans to acquire 20 new Airbus A320s.
Mango said SA’s aviation sector had had periods of overcapacity "to the extent that two low-cost carriers already exited the market due to commercial and cash-flow constraints brought about by the competitive pricing in a relatively small market driven by price/demand disparity".
SAA acting CEO Vuyisile Kona also lodged an objection with the council to the transfer of 1time’s licence. He did not provide detail, but asked for an opportunity to supplement the objection pending the outcome of an exemption application lodged by fastjet.
To win regulatory approval for its acquisition of 1time, fastjet has applied to Transport Minister Ben Martins for an exemption to the Air Services Act, which requires that 75% of the shareholding of the licence holder is held by South African residents. The act gives the minister the power to exempt operators from this requirement.
1time’s provisional liquidator, Aviwe Ndyamara, confirmed other airlines had objected to the application, but declined to comment. "I am not at liberty to discuss these matters under advice from our attorneys," he said.
Comair CEO Erik Venter said on Tuesday that the airline, which operates British Airways flights and low-cost operator kulula.com, had also filed objections at the Air Services Licensing Council to fastjet’s licence application.
Despite the fears that Mango raised in its affidavit to the council, the airline yesterday issued a statement congratulating itself for filling the gap left by 1time’s demise, which gave it "the best year-end holiday season since inception".
Mango also provided details of its intentions to expand routes this year — mirroring fastjet’s plans.
The "real growth for South African airlines, in particular low-cost carriers, lies in seizing the Continental Opportunity (sic)," Mango CE Nico Bezuidenhout said in the statement.
"This could be the silver lining in 2013, a year anticipated to show better growth overall. African growth, at a forecast 5%, is well above the global average, and the progressive realisation of the Yamoussoukro declaration (for open skies) in the near future sets the stage for accelerated growth outside our borders," he said.
Mango said it was pursuing "several new routes" with a particular focus on the East African seaboard, with a planned roll-out of 18 months.
Mr Bezuidenhout said he expected Mango’s competitors to also seek out the "Continental Opportunity" with hub development further north.