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Sep 11, 2012

Comair posts small profit in ‘toughest’ financial year

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JSE-listed domestic and regional airline operator Comair has retained its unbroken profit history for 67 years, with a small headline profit of R18-million, significantly lower than the R77-million from the prior year.

Revenue grew by 16% to R4.16-billion in the financial year ended June 30.

But Comair, which operates British Airways flights in Southern Africa and low-cost domestic airline kulula.com, said 2012 was the “toughest” financial period in the group’s history, with the average jet fuel price surging 29% to an all-time high.

“The sustained high fuel price and weak global economy created pressure from which few airlines could escape unharmed, as evidenced by the failure of such notable carriers as Malev, Spanair and Air Australia, and the filing for Chapter 11 protection by American Airlines,” the company stated.

In South Africa, new Velvet Sky closed down, while JSE-listed 1time filed for a business rescue application.

Comair said competitor response to the cost increase, and consumer acceptance of higher ticket prices, was slow in the first half, but improved.

Seat occupancy remained strong, supported by the exit of Velvet Sky and reduced competition on routes from Lanseria Airport, while costs were negatively impacted by the October increase in the Airports Company of South Africa (ACSA) tariffs of 70%, and by the effect on maintenance and lease costs of the 11% average weakening of the rand.

A number of individual cost-saving initiatives were launched during the year, the most significant being the opening of its in-house flight catering units in Johannesburg and Cape Town, and the opening of a new crew base in Cape Town.

Employment costs were kept stable by applying a salary and headcount freeze for the 2012 calendar year, thereby avoiding any retrenchments.

After suffering the impact of the rampant fuel price on the Nelspruit and Maputo routes, Comair and Solenta Aviation, by mutual agreement, terminated the turboprop operation joint venture launched in the previous year. Comair said that it had resulted in termination costs, but that the company would not have been able recover the higher fuel bill any time soon considering the relatively small number of seats on these aircraft.

Of the four Boeing 737-200s retired in December of the prior year, Comair sold three and impaired the fourth to nil value, resulting in a combined capital loss of R14.7-million. Comair's affiliated businesses in flight training, travel distribution and airport lounges continued to perform well, in line with the previous year, and made a meaningful contribution to profits.

During the year, a fourth flight simulator, for the training of ATR-turboprop pilots, was placed in a leased bay in the Comair flight training building by ATR Industries, thereby further broadening the offering of this facility.

Meanwhile, the company noted that by December the entire kulula.com fleet would have been upgraded to 737-800s, where the high seating capacity, lower operating cost and extended potential daily use would be most productive.

“During the year we made substantial investments towards the acquisition of a new fleet of Boeing 737-800 aircraft and a new information technology platform, totalling R216-million. The first new Boeing arrived just after year end, in July, and a further two will be delivered in October and November to join the five 737-800s currently on lease,” the company noted.

Four more were on order for delivery in 2015 and 2016. A programme was also under way to refurbish the interiors of the British Airways fleet.

The company added that it was still somewhat cautious as to the state of the global and South African economic circumstances, and expected consumers to remain under pressure for the foreseeable future. “While there is much talk about the growth of aviation in Africa, this is off a very small base, and we will, therefore, continue to take a pragmatic approach to our expansion on the continent,” it said.
 

Edited by: Mariaan Webb
Creamer Media Senior Researcher and Deputy Editor Online
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