Miles vd Molen: Existential threat to rules-breaking Safair coming to a head

Irish-owned Safair, which dominates South Africa's domestic airline sector with a 60% market share, is facing a life-threatening challenge. Cemair founder and CEO Miles vd Molen explains in this interview that after being found guilty on the same charge a decade ago, Safair is once again accused of breaking SA's local ownership rules. International regulators, which recently found Safair guilty, will deliver a sanction before the end of next week, opening the way for the local authorities to follow suit. Van der Molen spoke to BizNews editor Alec Hogg..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..The seventh BizNews Conference, BNC#7, is to be held in Hermanus from March 11 to 13, 2025. The 2025 BizNews Conference is designed to provide an excellent opportunity for members of the BizNews community to interact directly with the keynote speakers, old (and new) friends from previous BNC events – and to interact with members of the BizNews team. Register for BNC#7 here. .Watch here.Listen here.Extended transcript of the interview ___STEADY_PAYWALL___.Alec Hogg (00:10.86)Miles Van Der Molen is the founder and chief executive of CemAir. It's been a while since we last caught up on the local aviation industry. A lot has been happening, and we'll find out from Miles today what the most important developments are..Alec Hogg (00:31.64)Well, Miles, let's start with what most South African flyers want to know about: the holiday season is almost here. I saw some research by MyBroadband recently on flight pricing, and it looks like South African Airways is back in the market in a big way, undercutting everyone else. I'm not sure how accurate those numbers are, as mystery shopping always depends on the time of day, week, or other factors. From your perspective, is South African Airways back in a significant way?.Miles Van Der Molen (01:12.439)Yes, it's been a while, Alec. They've certainly added capacity. They have an arrangement to lease aircraft from Turkey during the European winter season. I see they're back in operation, though I'm not sure how many planes they have or how much capacity they've added. Between their own fleet and this wet-lease solution, they've increased capacity. Most of this is deployed domestically, as it's all narrow-body aircraft, which are effective for local and regional routes..Alec Hogg (01:44.662)That's interesting—leasing airplanes during the high season and then presumably returning them afterward..Miles Van Der Molen (01:56.855)Yes, it's not uncommon. In fact, it has become more common in the aviation industry over the last decade. It works for us too. The European winter season is very slow, so there's spare capacity that can be used here during our busier summer season..Alec Hogg (02:17.846)And what about Cemair? Do you also hire planes for peak periods?.Miles Van Der Molen (02:22.647)No, we mostly redeploy our aircraft that assist other operators with capacity during slower times. For the December peak, we try to bring some of that capacity back home. Everyone has to manage their resources carefully, as you can't run an entire operation based only on the December peak. It's about balancing priorities..Alec Hogg (02:46.006)Before we move on from South African Airways, what's their current status? We know there was a private sector group interested in acquiring control, but that fell apart. Is the government now back to funding SAA, as in the past?.Miles Van Der Molen (03:03.287)We don't know much beyond what's in the public domain. Things have gone quiet. The Takatso deal was officially cancelled some time ago, and I'm unaware of any new deals in the pipeline. As far as I know, they're just continuing operations, but their internal funding situation remains opaque..Alec Hogg (03:27.138)At least, are they operating in a way that taxpayers won't have to bail them out again? That's something voters—and politicians—would be concerned about..Miles Van Der Molen (03:42.807)Their current financial situation is entirely unclear. They produced five years' worth of financials at once, likely about a year ago. Beyond that, I have no information about their status..Alec Hogg (04:00.138)Are they taking market share from existing operators by being more active?.Miles Van Der Molen (04:07.233)Yes, they likely are. They serve a limited number of domestic destinations—Cape Town, Johannesburg, Durban, and Port Elizabeth. They also have a strong regional network and are increasing capacity to destinations like Harare..Alec Hogg (04:30.378)And what about their flights to Perth? Are those doing well?.Miles Van Der Molen (04:36.144)I'm unsure of the specifics, but it's a natural route given the large South African community in Perth. Re-routing through the Middle East or Sydney is inconvenient, so direct flights make sense and should attract demand. There's also talk of SAA returning to the US and possibly Europe, but these are just rumors at this stage..Alec Hogg (05:21.354)If they have landing rights at major airports like Heathrow or JFK, it would seem smart to leverage those. But at what cost?.Miles Van Der Molen (05:39.297)Exactly. These are expensive routes that require high passenger loads. Perth has strong point-to-point traffic, and there's significant direct traffic between South Africa and the UK. However, for the US, SAA faces stiff competition from major American carriers like Delta and United, which operate from their hubs and offer convenient onward connections. That puts SAA at a disadvantage compared to routes like London, where there's heavy point-to-point demand..Alec Hogg (06:42.69)The oil price has fallen, and the Rand has been fluctuating against the US dollar. Has cheaper fuel had a positive impact on your business and the local aviation sector?.Miles Van Der Molen (07:03.767)Yes, lower fuel prices help. The Rand price of fuel is down about 10% compared to last year. A weaker US dollar also helps because many of our costs—like parts and insurance—are dollar-based..Alec Hogg (07:36.12)Last time we spoke, we discussed Safair and its ownership structure. Any updates on that?.Miles Van Der Molen (07:48.491)Yes, there's progress. The International Air Services Licensing Council recently sent Safair a letter stating that their ownership structure isn't compliant with the law. They plan to issue sanctions within 10 days. The domestic licensing council is still reviewing the matter, and there's also a competition commission case pending..Alec Hogg (08:35.128)What's the core issue here?.Miles Van Der Molen (08:40.887)South African law requires airlines to be locally controlled. Safair is controlled by an Irish company, which claims majority ownership. This impacts capital structure and local compliance, creating an uneven playing field..Alec Hogg (09:26.168)What sanctions could they face?.Miles Van Der Molen (09:29.399)The council has several options: suspension, cancellation of their license, or directives to comply within a set period. They could also impose fines or, in extreme cases, bring criminal charges..Alec Hogg (09:55.704)So that seems like a huge risk to take if there are such heavy penalties for breaking the regulations or laws in this regard. Their argument is that they aren't breaking the law, and that's, I suppose, why there are court cases here..Miles Van Der Molen (10:21.503)Yeah, look, the stakes are extremely high, and the rewards are great. Safair has access to Irish funding..ASL is well-capitalized. If you look at their financials, they have large credit lines at first-world interest rates. To have access to cheap money in a very capital-intensive industry like aviation is hugely advantageous. This isn't Safair's first time around this matter. Before they started operating in 2013, various operators, such as Comair and Skywise, took them to task on the same issue. It went to the High Court for an interdict, which was awarded. The court used strong language about Safair's concealment of their shareholding and their approach. At that time, Safair made some changes. Then, in 2019, they made another wave of changes, which, it's alleged, are now outside of compliance..These issues came to light last year, and a formal complaint was raised..Alec Hogg (11:27.404)This is really serious because if you're operating in a country with specific laws and you don't comply with those laws, then you don't really have a license to operate in that country. Do you think it's possible that, given Safair's dominant position in the South African market, their license could be at risk?.Miles Van Der Molen (11:52.992)They do have a dominant position in the market. I believe they claim to have 60% of the market. Their license should be at risk. If you've had this problem before and once again fall out of compliance with the same regulation, it must be viewed differently from a first-time offense..The allegation is that between 75% and 100% of Safair is foreign-controlled, depending on how you look at it. It's not a situation where a listed company has a silent overseas shareholder. Instead, these are people who have direct influence over Safair's day-to-day operations. This is very significant in the aviation industry, probably the most significant event post-COVID for the South African airline industry..Alec Hogg (12:47.512)So when is this all going to come to a head?.Miles Van Der Molen (12:50.295)The International Council has undertaken to provide their sanction by the 28th. Safair's exposure on the international side is limited since they only operate a few international routes. However, this will be the canary in the coal mine for their larger problem—their domestic license..There will likely be rounds and rounds of appeals. I don't think there's any option but to take it to the highest level, likely the Supreme Court of Appeal. This could stretch out for a significant period of time. Once the domestic council makes its decision, the process will really start on that front. The International Council is just the first step in what promises to be a very interesting process..Alec Hogg (13:33.073)So that's coming up next week. If the International Council rules that the ownership structure contravenes South African regulations, am I correct in understanding….Miles Van Der Molen (13:36.439)Correct..Miles Van Der Molen (13:46.859)Actually, they've already ruled on that. Their decision has been made. Next week, they will only announce the sanction for the transgression. Safair has already received a letter stating that, in the council's view, they are not compliant..Alec Hogg (13:51.114)Mm-hmm. Okay..Alec Hogg (14:04.716)But if they've already ruled that way, why isn't the local situation moving forward?.Miles Van Der Molen (14:14.959)In time, the domestic council will make its determination. It's not impossible for them to take a different view, although it's unlikely given how straightforward the issue is. Once the domestic council makes its decision, sanctions will follow..Alec Hogg (14:39.034)Well, I guess the question here, and it might be unfair to ask you as a competitor, is there any chance that people buying Safair tickets now won't be able to use them in the future?.Miles Van Der Molen (14:53.291)People need to understand the risks associated with buying tickets from Safair right now. The situation they're facing is very serious. I believe their approach has been irresponsible—they're telling everyone there's nothing to see here and blaming competitors for making up stories..However, once you've been found non-compliant, you shouldn't dismiss it like this. They seem to believe they can continue business as usual while the appeals process drags on, but their situation is dire…. Safair's approach is very similar to what they did in the 2013 case, where they claimed everyone else was wrong. In that case, they ultimately lost..We've seen many of the documents related to this matter, and I personally believe that Safair has enormous exposure here..Alec Hogg (15:50.850)But if they managed to muddle through in 2013, even though they lost, isn't that the thinking of those running the airline now? If you were in charge, might you think, "We'll take a bit of bad publicity, maybe pay a fine, but we'll muddle through and keep operating"?.Miles Van Der Molen (16:13.643)To comply with the regulations, Safair would have to change the capital structure of the business. They would need to change shareholders, adjust who controls what, and reorganize the company's financial backbone. These changes would be massive..It seems like they took the previous case somewhat casually. In 2019, they made adjustments that are now being scrutinized again. If they do survive this, I think they'll need to ensure they are never accused of any compliance issues in the future..Alec Hogg (16:58.328)You're saying, "If they survive." So it's that serious?.Miles Van Der Molen (17:02.439)Absolutely. It's a mortal threat—no doubt about it..Alec Hogg (17:06.004)An existential threat. Safair claims that competitors like Seme and Lyft are attacking them because you're struggling to survive..Miles Van Der Molen (17:16.523)We aren't actually part of the complaint itself. We're involved in a separate complaint before the Competition Commission. My understanding is that Airlink and Global Airways (Lyft's parent company) are the ones pursuing the council complaint. Safair's response is essentially to dismiss the claims as jealousy from competitors..Alec Hogg (17:34.282)And obviously, you would deny that..Miles Van Der Molen (17:39.091)We just want a level playing field. When you look at Safair's own holding companies' financials, they acknowledge controlling interest. It's irresponsible to dismiss legitimate concerns about compliance by saying there's nothing to see here..Alec Hogg (18:02.178)From your own perspective, Miles, you've opened up a route to George. Will this continue after the holidays, or was it just a seasonal offering? Also, there's been news about Plettenberg Bay. Can you provide an update?.Miles Van Der Molen (18:21.377)We've been operating the George route for some time, and yes, it's a year-round route for us..Regarding Plettenberg Bay, there's an airport issue unrelated to us. The municipality, which owns and operates the airport, entered into a deal with a third party to manage it. During this process, the airport's license was downgraded below the level required for us to fly there..It's been about four months now with no change. Communication has been poor, and there's no resolution in sight. The situation is tied up in legal disputes involving hangar owners. This could take a long time to resolve..Alec Hogg (19:15.082)Is anyone else operating at Plettenberg Bay Airport?.Miles Van Der Molen (19:17.559)Only private aircraft are allowed to land there now. For a while, the airport was completely closed to all traffic. They've since managed to obtain a license for private and small commercial aircraft, but larger commercial flights, like ours, remain unviable. For all practical purposes, it's now a privately used airport..Alec Hogg (19:43.522)That's significant because many people live in Plettenberg Bay or commute there for business. Are they now driving to the nearest airport?.Miles Van Der Molen (20:03.211)Yes, absolutely. They're either driving or staying put. The nearest options are George or Gqeberha (Port Elizabeth). However, roadworks on the N2 make the drive even more challenging than it already was..This has been a major blow to the local economy. For ten years, we operated this route, and it made a tangible difference. The housing market benefited, and many people chose a coastal lifestyle because they could commute easily. All of that has now come to a halt, which is very disappointing..Alec Hogg (21:00.424)Another big development in the aviation industry is Qatar Airways acquiring 25% of Airlink. Given our discussions about foreign ownership and control, wouldn't this give Airlink a significant advantage?.Miles Van Der Molen (21:27.861)Yes, I don't think there's any question about that. From what I've seen, this transaction is compliant with the regulations, and I wish them luck. Qatar is a strong global partner, and having their backing is undoubtedly advantageous..Alec Hogg (21:58.069)Has Seme considered a similar move?.Miles Van Der Molen (22:02.932)If the right opportunity came up, we would consider it. But any decision would depend on the specifics of the deal..Alec Hogg (22:11.338)Looking beyond the summer season, if there's an adverse finding against Safair and they're forced to reduce operations or even stop flying, how would the industry cope?.Miles Van Der Molen (22:36.991)The aviation market has weathered many shocks over the years. We've seen Comair collapse, Mango fail, and SAA withdraw capacity before COVID. Each time, the market adjusted..If SAFE were to cease operations, there would be short-term pain, but the capacity would eventually be replaced. Alternatively, Safair could downsize or reconfigure its operations. Either way, the industry would adapt..Alec Hogg (23:39.564)Why does the aviation sector seem so controversial? From Comair's collapse to SAA's bailouts and now Safair's compliance issues, it seems like a highly volatile industry..Miles Van Der Molen (24:10.207)Aviation has always struggled with compliance and stability. When one operator has access to artificial funding, it distorts the market and makes it difficult for others to compete..For the industry to stabilize, we need a level playing field with rules applied evenly to all players. Unfortunately, when issues like Safair's drag on, it only increases the strain on compliant operators..Alec Hogg (25:25.388)South African Airways proved it wasn't too big to fail despite its dominant position. Do you believe the same applies to Safair?.Miles Van Der Molen (25:45.975)Absolutely. Non-compliance, no matter how large the operator, cannot be tolerated. Otherwise, it sets a dangerous precedent—essentially saying if you benefit enough from breaking the rules, you become indispensable. That logic is flawed..Alec Hogg (26:26.424)Miles van der Molen, CEO of CemAir, thank you for your insights. I'm Alec Hogg from BizNews.com.Read also:.Miles vd Molen of CemAir, SA's #3, shares insight on BP divesting, pricing tips and managing during turbulenceAirfares stabilise as post-COVID travel boom eases, challenging airlinesTurbulence tragedy: Death and injuries on Singapore Airlines flight

Miles vd Molen: Existential threat to rules-breaking Safair coming to a head

Related Stories

Historic win for DA in ANC stronghold township - Electoral Roadshow with Wayne Sussman

Solly Moeng: Impeachment drama — Cyril fights, Mashatile waits, and SA is watching the DA…

Francois Rossouw - “Lying” Steenhuisen faces big damage claims from farmers

Shirley de Villiers: Joburg's last rites