The world is changing fast and to keep up you need local knowledge with global context.
For Cemair founder Miles van der Molen, today’s reality was unthinkable when the independent airline launched 15 years ago. In addition to numerous other routes, the company now has five flights daily from Johannesburg to Cape Town – and is the country’s third largest airline, moving more passengers than (slimmed down) SAA. With the end of subsidies that benefited the SA aviation market’s two biggest players, Van der Molen’s entrepreneurial approach positions his airline for strong growth. He explains why in this interview with Alec Hogg of BizNews.com. For more information on Cemair click here.
Cemair founder Miles van der Molen on whether he imagined Cemair would become the third biggest airline in South Africa
These are absolutely unprecedented times, and so many things over the last three years I couldn’t have imagined. We did have an idea that the industry previously was on an unstable and unsustainable footing. There’s a lot of artificial funding and the trouble that we’ve seen with some of the major competitors in the market does peak with Covid. Comair was restructuring before the pandemic, SAA was in Business Rescue, SA Express had stopped operations and Mango was rumoured to be in distress. So it’s from the solid days before Covid that these situations arose. But, of course, the weight of Covid was too much for them to bear.
We always took the view that eventually there would have to be a big correction in the market. We didn’t expect it to change so fundamentally within a couple of years, but change was coming.
On whether the price of air tickets is reaching a more economic level
Absolutely. Effectively, every seat was subsidised by the taxpayer, with continual bailouts being provided to the state carriers. And that did have a very negative effect on the industry in general because everybody else was effectively funding your competitor and there was a lot of downward pressure on fares. So the market loved it because you could fly for less than the cost, effectively, but ultimately it wasn’t going to be sustainable and had to unwind at some point. So I do agree with it.
On whether the fares have risen to a level where it is sustainable to run an airline in SA
I believe there’s probably a need to increase a little more. We have a huge cost base increase with record high fuel prices and various other costs have increased. So the fares have risen, but I think there’s probably more room for them to increase before you have a properly sustainable and investible airline industry, which is really where we need to get to.
At the moment, the shock of Comair’s closure is still very much at the forefront of everybody’s mind. We certainly aren’t seeing that right now. I think in six months to a year, some ease will return and some confidence. And then hopefully we will see some investment opportunities presenting themselves.
On the circumstances surrounding Comair’s demise
Just from a market perception that had a lot of capacity in the market at very low prices, they continued with their strategy from when they returned to the market after the initial Covid lockdown grounding, and kept at it effectively with too much capacity in a rising cost base. So we were foreseeing a big issue there. We thought it might be a major downsize in the fleet, but we had started acquiring equipment late last year and early this year for the next phase, which we believed was coming.
On acquiring new equipment and adding to the Cemair fleet
We took on four large regional class airplanes that have now joined our fleet in the north, now operational in anticipation of a further significant adjustment in market capacity. So we have 25 aircrafts and around 350 employees at the station.
On how that compares to South African Airways
It’s not quite a fair comparison because the aircraft are larger than ours. We have a smaller gauge. I think they have 750 employees. So we have about half the number of employees. But we do have more passengers than SAA in the most recent stats that I’ve seen.
On how Cemair has managed to hold despite the struggles of Comair and SAA
We’ve always been very conservative. We’ve had multiple income streams, so we had to work outside of South Africa, which was high yield, where we would do dedicated operations for oil and gas and humanitarian organisations in some of the harshest spots in the world. We’ve always been very conservative with our gearing, and we have had to push people harder than I think those corporations needed to in order to stay in the game. But it has certainly been quite tight. If we had only relied on the domestic schedule market, we wouldn’t have been able to survive, there’s no doubt about it.
And through Covid as well, we found ways of keeping income streams or developing new income streams that we were never involved in before, for example, repatriation flights, that sort of thing. To survive, you have to be quite wild in this environment.
On the market shares of the airline industry now, compared with five years ago
It’s completely different. Safair, I think, started operations around six years ago and it’s been an enormous success story as they’ve grown consistently. And now it’s the largest airline by passenger movements in South Africa by some measure, and the withdrawal of the capacity of Mango and all of Comair was faster and more brutal than anybody expected. So it’s a totally different marketplace, whereas before the state carriers were large and in charge, and they are really being replaced by private carriers, primarily ourselves, Airlink and Safair carrying that load now.
On whether the airline industry is returning to health
There are two aspects. There’s load and then there’s yield. So ultimately, you multiply the number of people you have by the average fair price and that needs to cover the costs. The model, Safair for example, uses that price to fill it up. So regardless of how fair their recovery, they do manage to fill aircraft by dropping the price and developing similar demand so the flight can be full, but it may not be a profitable flight. And then there are peak flights. Obviously the yield is higher and that averages out over time. So pricing models have also changed. It’s not quite as simple as that, but yes, we see the market stabilising, fares going up, airlines being able to move to a more predictable phase than we’ve seen in the last two years.
On now looking ahead for Cemair
We’re on an aggressive growth path. We’ve taken on four aircrafts so far this year. We have at least another two arriving within the year. We intend to cement our position both domestically and regionally and we will be a significant force in the next phase of South African aviation.
On expanding in the Golden Triangle
We have taken on CRJ990 seat regional aircraft, and we’re using those mostly on the Joburg to Cape Town and Durban legs. And recently, since Comair’s closure, we’ve increased to five times a day between Joburg and Durban, and we’ll continue to develop those markets. We are looking at larger gauge aircraft to cement our position. Large gauge aircraft have better economics per passenger as long as you have the passenger numbers to fill them. And in the Golden Triangle, that’s definitely present. And then we will deploy the small regional class aircraft to the smaller cities and regional destinations.
On what kind of person flies Cemair
We have a very broad passenger collection of passengers. So destinations such as Mumbai are primarily a leisure market in the commuting market. People that live here for lifestyle reasons and need to travel to the economic node on the Cape Town would be, you know, a broad spectrum. So everybody from business people to connecting passengers from overseas to government, you know, travel and aircraft, you pretty much have to touch every market. And that’s what we try to do through our distribution strategy.
On the availability of staff in the industry
You know, sadly a lot of people may have lost work in the industry, but we have grown significantly in the last year. We’ve taken on approximately 200 people as we saw the post-COVID growth. That is only a drop in the ocean of the number of people that entered the job market. But over time, we know we will stabilise and we’re going to be continuing to hire at pretty much at this rate for the balance of this year. So there are new opportunities being created and there’s some really skilled people out there that probably would have remained in their job for the balance of their career if it wasn’t for the change of fortunes of their employer. It’s an opportunity for us to employ people that otherwise wouldn’t have been available to us.
On whether the issues of insurance affect Cemair
We have been around for 15 years and we’ve weathered the storm. So, we always say to people, you can book with confidence. It’s not size that keeps you in the game, it’s making sure that you run a sustainable operation and I think we’ve proven that. Insurance against your airline closing – I have seen that. I think in the next phase moving forward, the remaining players in South Africa probably have the ability for passengers to book with confidence and theoretically, the structure of the aviation industry should protect passenger fares. You’re supposed to ring fence them and not spend prepaid fares, although obviously we have seen that done. But theoretically, with that and through the credit card chargeback system, passengers should see a fair amount of protection for their purchase.
For more information on Cemair click here.
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