Rising tariffs take fun out of owning airlines
COMPANY COMMENT
Rising tariffs take fun out of owning airlines
FOR at least 18 months the aviation industry has warned that the huge tariff increases Airports Company SA (Acsa) has asked for will hurt the industry.
And Acsa, caught between a rock and an airport it didn't need or want to build (Durban's King Shaka International, for those who were wondering), has been forced to defend its request for a 191% increase in tariffs over a three-year period.
So it commissioned a study by consultants Mott MacDonald to see if the tariff hike would really damage passenger demand. The study found it would not, and so began a lengthy to-ing and fro-ing between the industry, the Department of Transport, the regulator and the courts.
Meanwhile, tariffs rose 24% in the first six months of this year, and from next month will jump a further 70%. High oil prices and low consumer confidence are also doing their bit to take the fun out of owning an airline.
And they're starting to feel it. South African Airways says it is steeling itself for a tough period ahead, while low-cost operator 1Time is losing money and Comair's earnings fell 28% in the year to June, despite double-digit revenue growth.
Comair says air travel will drop 10% this year as higher costs can no longer be absorbed and are being added to airfares. The low-cost sector, where all the growth has been, will contract; fewer people will fly. And the fall in air travel will mean a squeeze on catering, cleaning and maintenance services, so jobs may go in support services too.
It looks as if Acsa needs to go back to the drawing board.
IT IS early days, but it appears the merger between Momentum and Metropolitan is working. Mergers can be complicated given the often conflicting or disparate strategic objectives and contrasting cultures. But the company formed out of this merger, MMI Holdings, is making good progress in integrating two vast businesses.
A chief integration officer has been appointed and mandated with ensuring that all in the new group sing from the same hymn sheet. CEO Nicolaas Kruger says much ground has been covered, and some key decisions have been made.
For example, the Metropolitan Retail and Momentum Retail distribution channels will be kept separate because of the different market segments they target. Metropolitan has traditionally been strong in the middle to lower end of the market, while Momentum is a market leader in the more affluent segment.
Cost savings from the merger are estimated to be R500m over the next three years, which analysts say is achievable. MMI has been tinkering with its staff numbers to ensure any excess as a result of the merger is absorbed in the new integrated structure. This is after competition authorities imposed a two-year moratorium on retrenching rank and file staff. (Four hundred staff have left through natural attrition.)
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