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SOUTH AFRICA

Comair is a rare success story in South Africa’s troubled aviation market. Chief executive Erik Venter talks to Martin Rivers about his strategy for staying one step ahead of the competition.

COMAIR STAYS ON THE FLIGHT SIDE OF THE LAW

T he decision by FastJet to postpone its domestic launch in South Africa – originally slated for July last year –

gave Comair breathing space to consolidate its network and prepare for the arrival of four aircraft in 2015. Chief executive Erik Venter remains sceptical that the low-cost model can been rolled out across Africa, so he is resisting the urge to deploy low-cost unit Kulula in neighbouring countries. But Comair will have to keep on its toes in the fast-evolving competitive landscape. Flag-carrier South African Airways (SAA) has embarked on a long- term turnaround plan – likely to involve elevating the role of low-cost subsidiary Mango – while FastJet is set to become a regular fixture in the country with its Dar es Salaam-Johannesburg route. Venter argues that both carriers have fallen foul of South African law – either on anti-competitive or foreign ownership grounds – and he has no qualms about proving his point in court. SAA’s 5 billion rand ($490 million) government guarantee has already been the subject of legal action by Comair. “We just have to wait for a court date,” Venter said, reiterating his long-standing belief that state support allows the flag-carrier to undercut fair market prices. Pouring cold water on SAA’s 20-year- turnaround plan, he warned that recently appointed chief executive Monwabisi Kalawe will have his work cut out at the state-owned entity. “He’s going to be immensely challenged. If you’re coming into a company that’s already running reasonably well, then it’s ok to come from an external industry and just pick up the reins,” Venter said in reference to his counterpart’s lack of airline experience.

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“But coming into a company in such disarray, and not having industry knowledge, is going to be a monumental challenge.” Nor does FastJet escape his criticism, despite the initial postponement of its entry to the

domestic market. Complaining about the structure of its upcoming South African subsidiary – which will be 75% owned by a consortium linked to Edward Zuma, the son of the country’s president – Venter said the deal almost certainly falls foul of South Africa’s strict foreign ownership laws. “If the South African Civil Aviation Authority does its homework and says that FastJet’s structure is not compliant with the Civil Aviation Act, then we won’t need to do anything,” he said. “But if the Civil Aviation Authority doesn’t taken adequate action, then we might have to get involved.”

“Reform would have to be applied across the continent before we could accept any changes in South Africa. We’d need a reciprocal change on the other end of the routes,” he insisted. “This would have to be a global initiative. It can’t be changed one country at a time. We can’t open ourselves up to foreign carriers taking over [in South Africa] if we don’t have the same advantages.” With flag-carriers across the continent still “trying to protect their home turf”, such reform is a distant prospect. In its absence, Comair will continue challenging perceived breaches of the law. Beyond preparing for litigation, however, Venter is busy pushing ahead with his airline’s fleet renewal. Comair currently operates a fleet of nine Boeing 737-800s, 10 737-400s and seven 737- 300s across its low-cost Kulula and full- service British Airways brands. Four of the -800s were delivered last year, with the final instalment of four more units scheduled for 2015. Once they have arrived, Venter said he would gradually phase out the -300s. “They have reached the end of their rational economic life,” he explained. “We will end up with a fleet of all -800s and - 400s. And slowly but surely we’ll migrate to all -800s. But it will take a while.” Venter has no interest in switching type, insisting that Comair has had “fantastic service” from Boeing and describing its products as “the right aircraft for Africa”. With Comair’s loyalty to Boeing affirmed, he said that re- engined MAX aircraft are now in his sights. “The next step is to start looking at the next tranche of new -800s beyond 2015,” Venter noted. Highlighting Comair’s

“We can’t open ourselves up to foreign carriers taking over in South Africa if we
“We can’t open
ourselves up to
foreign carriers taking
over in South Africa if we
don’t have the same
advantages.”
ERIK VENTER

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His objection stems from foreign ownership regulations that oblige the holders of domestic air operator’s certificates (AOCs) to be in “active and effective control” of their airline. “At the end of the day it all boils down to who’s ultimately in control,” the chief executive said. Venter believes that London-based FastJet PLC – as opposed to its local AOC partner, Federal Air – would be calling the shots behind the scenes. Although he accepted that liberalising foreign ownership could be a positive step for the continent, he stressed that changing the law only makes sense for South Africa if done in tandem with other countries.

DOMESTIC “Trying to operate a low-cost model in Africa is virtually impossible. All the distinguishing

DOMESTIC

“Trying to operate a low-cost model in Africa is virtually impossible. All the distinguishing marks of low-cost carriers around the world just don’t work in Africa.”

ERIK VENTER

options for eight more -800s, he continued: “We will be having some talks with Boeing… I suspect they will probably become 737-800 MAXs. What we’ve typically done is had options on a number of aircraft beyond our immediate order, so that we can flex to whatever the market does.” Although the fleet is being renewed, Venter is wary of plotting regional expansion for Kulula’s domestic network. His scepticism about the pan-African low-cost model contrasts not only with FastJet but also SAA, whose Mango subsidiary launched charter flights from Johannesburg to Zanzibar in March

2013.

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“There’s a few projects we’re looking at,” he said cautiously. “But trying to operate a low-cost model in Africa is virtually impossible. All the distinguishing marks of low-cost carriers around the world just don’t work in Africa.” Closer to home, SAA’s strengthened codeshare partnerships could take market share away from Comair. Venter has responded by holding “very high-level” talks with International Airlines Group (IAG), the parent company of franchise partner British Airways. “We’re watching what IAG is doing,” he confirmed. “But at the moment we’re still very much in the franchise camp.” Having been profitable for 67 consecutive years, Venter said Comair’s foremost strength is stability in its boardroom and workforce. “We’ve only had four CEOs, and many employees have been here for 20 years,” he noted. Continuity in the wider marketplace, however, may prove elusive.

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