South African airline group Comair’s strategy of countering the weak local air passenger market by diversifying its business is proving successful, reports company CEO Erik Venter.

“It’s working very well. About 20% of our profits are coming from our nonairline businesses and we’re hoping to get this to 50%, probably over the next five years.

“Fundamentally, the airline business will remain our core business,” he stresses. “If or when we see the economy recover, . . . I think we will see the airline profits taking off again!” The airline business is still, despite the state of the economy, making a profit, as is the entire group. “Both are still doing well,” he assured.

Apart from the airline business, operated under the Kulula.com low-cost and British Airways (in South Africa) brands, the company now also embraces airline catering business Food Directions, the Comair Training Centre, Kulula Travel (a travel agency, which itself operates a number of brands) and Slow Lounges (airport lounges at various South African airports, five of which are for domestic travellers and one, at OR Tambo International Airport, is for international passengers). These all operate as separate business units, although not all are subsidiary companies.

A constraint on the company is that it has invested a lot in new aircraft, but the airline business needs higher returns to sustain the originally planned pace of the fleet renewal strategy. “Our profits are still there – we’re making a reasonable margin, but not enough to upgrade the fleet according to our original delivery schedule. We’ve slowed up our new acquisition programme,” he reports.

Comair has eight fourth-generation Boeing 737MAX single-aisle airliners on order. Originally, they were going to be delivered over the three-year period 2019 to 2021; now, they are planned to be delivered over a four-year period (2019 to 2022). But that could change. The company is going to have to monitor the state of the national economy, the country’s grading by the international ratings agencies, interest rates, and so on, to determine if the new delivery schedule can be maintained or whether it will have to be modified again.

In the past few years, its airline business took delivery of nine improved efficiency next-generation Boeing 737-800 aircraft (and it leases another seven), making this third-generation version the mainstay of its fleet and leaving only ten older, second-generation ‘Classic’ 737-400s in service. “For us, it’s ‘thank goodness we got the new [737-800] aircraft’,” states Venter. “Without their efficiencies, we’d be in quite a lot of financial stress right now.”

South Africa’s domestic air passenger market has seen no effective growth since 2008, a period of nine years. There were about 13-million passengers a year then and there are still 13-million a year now. This situation he describes as “astonishing”. Comair’s planes also fly to regional destinations – Harare and Victoria Falls, in Zimbabwe; Livingstone, in Zambia; Windhoek, in Namibia; as well as to Mauritius. “Mauritius is becoming very expensive for South Africans now,” he observes. Increasing numbers of tourists are flying into the island State from Europe, the Middle East and elsewhere on major international carriers.

The company would like to expand further into Africa, but many African markets are not big enough to sustain the larger single-aisle airliners that Comair operates.