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‘Aggressive’ new market entrants reverse Comair’s revenue growth in H2

14th September 2015

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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The entry of two “aggressive” competitors in the second half of the 2015 financial year has dragged on aviation group Comair’s second-half earnings, reversing the revenue growth experienced in the first half of the year, as the airline returned savings on the price of fuel to its customers by way of “significantly” reduced ticket prices, it said on Monday.

Noting that the unprecedented collapse in the oil price in the first half of the year ended June 30, had resulted in a drop in the price of jet fuel from R9.50/l to R6.50/l by year-end, the company reported a “very strong” profit in the first half and a 5% revenue rise, followed by a more “mundane” six months.

“The second half of the year saw two new competitors enter the market with very aggressive, but, more than likely unsustainable, pricing. Comair was, out of  necessity, drawn into the fray to retain its slice of a market that had still not recovered to 2008 volumes.

“As a result of this, any savings achieved  on the price of fuel were returned to our customers by way of significantly reduced ticket prices, with a consequent reversal of the revenue growth experienced in the first six months,” Comair noted in a results statement.

Despite the new capacity in the market, the company succeeded in maintaining its passenger volumes, largely owing to what it described as the strength of the kulula.com and British Airways (BA) brands and ongoing attention to service. 

“We continued to focus on our customers through the application of service  metrics, feedback surveys, customer journey mapping and extensive investment  in training programmes for front-line staff.

“Operating performance, therefore, remained good, with on-time performance exceeding our threshold target of 85% across both the BA and kulula.com brands,” it held. 

The year closed with flat revenue of R5.89-billion and a 1% saving in operating costs to R5.15-billion.

Despite an increase in operating profit to R733.17-million, overall profit for the year of R218.78-million reflected a drop of 17%, resulting in earnings a share falling from 58.4c in the prior year to 47.8c in the period under review.

Cash of R147-million was invested in the acquisition of three previously leased Boeing 737-400 aircraft and two pre-owned Boeing 737-400s, all for operation in the BA fleet. These aircraft replaced the 737-300 fleet, which would be fully retired by December.

In August, the company also took delivery of the first of the next four new 737-800s from Boeing, the remaining three of which would be delivered later this year and into next year.

The delivery of the eight Boeing 737-8 MAX aircraft was scheduled for between 2019 and 2021.

“The ongoing upgrades to the fleet will continue to improve operating efficiency, while at the same time enhancing the revenue potential per flight.  

“The newer aircraft afford improved fuel efficiency and reduced maintenance demands, while at the same time improving passenger comfort,” said the airline.

Early settlement was also concluded on aircraft and simulator funding amounting to R115-million, leaving cash on hand at year-end of R849-million – much in line with the prior year’s balance of R868-million. 

Meanwhile, owing to hedging 26% of demand during the early decline in the fuel price, Comair reported that it was not able to achieve the full benefit of the lower cost of fuel.

“At year-end, there remain 160 000 barrels hedged at an average of $82/bl, representing 10% of our fuel demand for the 2016 financial year. The last of these hedges will expire in December,” it held.

Meanwhile, a 2007 black economic-empowerment transaction concluded by Comair and the Thelo Consortium matured in September 2014 and created realised value of R152-million for the participants.

The ‘A’ shares arising from the transaction were converted to 29.07-million ordinary shares on April 21. The weighted effect of the additional shares was a reduction in the 2015 earnings a share of 3c.

Comair declared a divided of 10c a share for the year.

Noting that it remained concerned with the weak economic growth and the consequent impact of overcapacity in the domestic aviation market, Comair said fundamentals dictated that a correction in market capacity was very likely.

On the other hand, new visa regulations applicable to South Africans travelling with children, as well as to foreign tourists, had impacted negatively on the country’s cross-border tourist destinations and Comair was actively participating in achieving a more favourable dispensation in this regard.

The weakness of the rand, meanwhile, was expected to continue to impact negatively on all dollar-based operating costs.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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