South Africa’s airline industry returning to a new normal

With the move to Level Three lockdown restrictions from 1 June, several South African airlines are slowly returning to the skies. Meanwhile, there are glimmers of hope for the future of beleaguered South African Airways and South African Express, which have been struggling for their very survival.

The government allowed domestic air travel for business and essential travel from 1 June. Valid reasons for travel include moving to a new place of residence, caring for family, travelling to school, attending a funeral, or obtaining medical treatment. Under the previous Level Four restrictions only essential services flights were allowed.

The resumption of domestic flights is being rolled out in three phases, starting with South Africa’s primary airports of Johannesburg OR Tambo, Cape Town, Durban King Shaka and Lanseria. If infection rates remain low, phase two will see aircraft movements at Nelspruit, Polokwane and Bloemfontein. Under phase three, movements will be allowed at Kimberley, Upington, East London, Mthatha and Port Elizabeth. Multiple health and safety measures, including temperature checks and social distancing, are being implemented at airports and on board aircraft.

Small independent carrier CemAir was the first airline to resume domestic business flights, starting on 5 June with flights between Johannesburg and Cape Town. The initial flight to Cape Town was 73% full, indicating a good start to the resumption of scheduled commercial passenger flights – CemAir had previously carried out a number of repatriation flights and will continue to do so.

Regional airline South African Airlink kicked off flights on 8 June between Johannesburg, Cape Town, and Durban – the airline has also been carrying out repatriation flights to places like Madagascar. The airline was showing some positive growth before the coronavirus pandemic grounded flights in March, and had seen a 16% increase in passenger traffic in 2019 compared with the previous year.

Budget carrier FlySafair is another airline to resume flights, although it was somewhat hesitant due to the anticipated weaker demand, and is taking to the skies from 15 June.

Likewise, Mango announced the resumption of flights from 15 June between the ‘golden triangle’ route of Johannesburg, Durban and Cape Town.

Mango, along with FlySafair, SA Airlink and CemAir have led the way with the resumption of flights. Unfortunately the outlook for South Africa’s three other main airlines is not good for a quick return to normal operations.

Troubled flag carrier South African Airways (SAA) is selling tickets for mid-June buts its business rescue practitioners have said there is no certainty it will be able to fly. The airline needs a capital injection from the state before it can resume flights and if it does not get this, it will accommodate passenger on other airlines. SAA is meanwhile continuing with repatriation and cargo flights. By the beginning of June the carrier had operated 56 repatriation flights to six continents and safely reunited 11 367 passengers with their families and loved ones.

SAA entered business rescue in December 2019 but its business rescue practitioners have repeatedly delayed publishing a draft rescue plan, especially as the state and unions have been exerting pressure to keep the bankrupt carrier afloat. A draft plan from late May proposed a restructuring funded by more bailouts amounting to billions of rands. It also suggested cutting the airline’s workforce and aircraft fleet roughly in half. The final business rescue plan is expected later in June, with the government to make a decision on additional funding towards the end of the month.

In the meantime, SAA has returned 17 aircraft to lessors, which have chosen to terminate their leases. This includes four Airbus A319s, three A340-300s, three A340-600s, five A330-200s and two Boeing 737s. The loss off the A340s is not particularly bad news as these are older and less efficient than later models. The carrier is left with three A319s, ten A320s, one A330-200, five A330-300s and four A350-900s, giving it plenty of capacity should it resume operations.

Although there have been many that have called for the liquidation of SAA, such as opposition political parties, the state is reluctant to get rid of the national carrier and has set aside more money for it over the next five-year medium-term, amounting to a total of R9.9 billion, including R4.3 billion in 2021/22, and R1.77 billion for 2022/23. SAA has not turned a profit in a decade and has received government bailouts worth nearly R20 billion in the last three years alone. The group’s accounts show a pre-tax loss of R5.09 billion for the year ending 31 March 2019, on revenues of R27 billion.

South Africa’s other state-owned airline, SA Express, is also in dire straits, having entered bankruptcy protection in February and suspended operations in March due to the coronavirus pandemic. It was placed under provisional liquidation in April after its administrators said they could not secure funding for turnaround efforts.

The Pretoria High Court in early June delayed liquidation proceedings until 9 September following union pressure, giving the government time to come up with solutions to save SA Express. The Department of Public Enterprises is reluctant to see the airline disappear and previously allocated it R164 million rand.

The South African Cabin Crew Association (SACCA) and the National Union of Metalworkers of South Africa (NUMSA) have opposed liquidating SA Express, and said they had secured an unidentified possible investor from the United Arab Emirates, which has expressed an interest in the airline. The liquidation extension will give the investor time to meet with the Department of Public Enterprises.

There is also some uncertainty over the resumption of flights by Comair, which operates a British Airways franchise and the low-cost Kulula Air brand. The company entered voluntary business rescue in May and reported a R564 million loss for the first half of 2020 in the wake of the coronavirus pandemic. Nevertheless, Comair indicated it will resume operations at the beginning of November.

In order to help with restructuring Comair to be a sustainable business, its business rescue practitioners said they are in discussions with more than 30 prospective funders to recapitalise the company. Certain assets may be sold to pay creditors, with this having a target date of 31 October. Its business rescue practitioners in early June said the company will cut its fleet in half (to 13 Boeing 737-800s and three spare 737-400s) from 23 737-800s and five 737-400s (as well as one grounded 737 MAX 8. This reduction is in line with reduced demand anticipated due to the coronavirus pandemic.

The business rescue practitioners have said they aim to have implemented most of their turnaround plan by 31 March 2021, at which point the company will be handed back to the board of directors and management. Their business rescue plan will be published in late June, which the practitioners hope will be in time to return the airline to the sky in November.

Most experts agree that it will take two to three years for the commercial aviation industry to recover from the coronavirus pandemic. Ratings agency Moody’s expects a significant recovery by 2023 only, as passenger demand is expected to remain severely depressed even after the pandemic no longer poses a threat.

However, there is some good news on the horizon as airlines across the world resume flights as countries ease their lockdown restrictions. The African Airlines Association (AFRAA) expects recovery to begin from the third quarter of 2020 with domestic flights, followed by regional and intercontinental flights.

The International Air Transport Association (IATA) has said that global demand for air services is beginning to recover after hitting bottom in April. Passenger demand in April plunged 94.3% compared to April 2019, but daily flight totals rose 30% between the low point on 21 April and 27 May. “The industry has seen the bottom of the crisis…it is the very first signal of aviation beginning the likely long process of re-establishing connectivity,” the Association said.

IATA warned that airlines are expected to lose $84.3 billion in 2020, with revenues falling 50% to $419 billion from $838 billion in 2019. African airlines are likely to incur a $2 billion combined loss this year on the back of a 58.5% fall in demand for air travel compared with 2019. However, recovery is expected in 2021, when global airline losses are expected to be cut to $15.8 billion as revenues rise to $598 billion.

“Provided there is not a second and more damaging wave of COVID-19, the worst of the collapse in traffic is likely behind us,” said Alexandre de Juniac, IATA’s Director General and CEO. Recovery will be aided by reduced fuel costs and the continuation of cargo flights.

South Africa is seeing the beginning of the recovery, although capacity is limited and flights are about a third more expensive than before the lockdown, but this could change depending on demand. South Africa will allow full domestic air travel at Level Two lockdown restrictions and regional and international air travel at Level One, but with the rapid increase in coronavirus cases (more than 60 000 by mid-June), it is unlikely the situation will improve rapidly and the aviation industry will most likely have to endure the current restrictions for some time yet.