Cape Town – The airline market worldwide has changed in the past six years and the South African domestic market has changed with it. Both are growing rapidly, in spite of soaring fuel prices, high industry taxes and worries about contributions to global warming.

The International Air Transport Association (Iata) forecasts that in 2011 the industry will handle 2.75 billion passengers, 620 million more than last year, and 36 million tons of international freight, or 7.5 million tons more.

Like most other continents, Africa is registering above-average demand – growing at a 5.6 percent annual average – as a result of stronger economic ties between with the Middle East and Asia.

Total international passenger numbers in Africa are expected to increase by 18 million by 2011.

“The numbers clearly show that the world wants to fly,” Giovanni Bisignani, Iata’s director-general and chief executive, said yesterday. “And it also needs to fly.

“Air transport is critical to the fabric of the global economy, playing a critical role in wealth generation and poverty reduction,” he said. “The livelihoods of 32 million people are tied to aviation, accounting for $3.5 trillion [R23.7 trillion] in economic activity.”

But he warned that infrastructure posed a threat to the industry’s growth.

“Failure to prepare adequately to meet demand will have an environmental cost, with inefficient use of airspace and delays,” he said. “With infrastructure planning timelines measured in decades, there is no time to lose.”

Local market soars

Time is even more precious for the South African industry: the 2010 soccer World Cup is around the corner.

Latest estimates suggest that the local airline market has about 12.5 million passengers, although SAA’s low-cost unit, Mango, suggests that number is closer to 15 million.

Six years ago the domestic market was estimated at only 4 million people using three airlines. At that time, when many thought three airlines were too many, Comair launched Kulula.com in July 2001.

The domestic market has since become more competitive, with more entrants putting pressure on established carriers and forcing profits down.

Deregulation came in 1991, exposing national carrier SAA to its first real competition.

It responded ruthlessly, by starting price wars that eventually put Flitestar and the original Sun Air out of business.

SAA faces rivals

SAA has since been fined heavily by the competition commission for abusing its dominant position it to keep business away from Comair and Nationwide – both of which have nevertheless grown.

Comair, in particular, protected itself by becoming a franchise holder of BA in 1996, while Nationwide allied itself first with Belgian airline Sabena and later with Virgin Atlantic Airways.

That alliance came to an end four years ago, when Nationwide started its successful route between Johannesburg and London/Gatwick, causing Virgin to regard it as a rival.

Like Nationwide, Comair has decided to expand overseas to reduce its dependence on the local market and take advantage of growing international interest in South Africa. It has applied for air traffic rights to start a route from Johannesburg to London.

Gidon Novick, Comair’s joint chief executive, said the airline was looking for more destinations in Africa and was cutting operating costs by acquiring a more modern, fuel-efficient fleet.

1time, which listed on the JSE’s AltX index in August, reported that the launch of Mango had stimulated general interest in flying with low-cost airlines, and this interest had benefited 1time.

Its listing prospectus said it expected passenger numbers to rise by 20 percent by year-end.

Chief executive Glenn Orsmond last month raised this forecast to 30 percent.

The annual survey of the world’s top airlines by Air Transport News shows that American Airlines carried the most passengers last year, with 98 139 388, followed by the merged Air France/KLM with 73 484 000. SAA was 38th on the list, with 7 158 000 passengers.

Until July last year, SAA’s share of the market between this country and overseas destinations was protected by the government, which limited the rights of foreign airlines to fly into this country.

But this policy has been relaxed, since it was seen to limit the growth of tourism from overseas. As a result, Air France has increased its flights between Johannesburg and Paris to 14 a week, and SAA will withdraw from the route at the end of this month.

Gulf weighs in

Emirates, the first airline from the Arabian Gulf to fly to South Africa, now has three flights a day between Johannesburg and Dubai, where it offers connecting flights to many other parts of the world.

Etihad, the national airline of the United Arab Emirates, was limited to two flights a week when it started a route to Johannesburg in December 2005; it now flies daily.

And Qatar Airways, the only one of the three Arabian Gulf airlines to fly to Cape Town as well as Johannesburg, now has four flights a week to both cities.

All three airlines, owned by oil-rich governments, are expanding rapidly, ordering more modern aircraft and enlarging their route networks.

They offer indirect routes to most parts of the world, usually at lower fares than longer-established competitors, with packages that include stopovers in hotels in their home airports.

Emirates was started by the Dubai government to encourage the development of a tourism industry ahead of the time when its oil reserves run out.

As part of this policy, Dubai’s airport has been enlarged and developed into an international hub now used by most of the world’s international airlines.

The same is happening at Abu Dhabi, capital of the United Arab Emirates and home airport of Etihad; and in Doha, the home airport of Qatar Airways.

In the face of such competition, SAA – which lost R833 million in its last financial year and needs recapitalisation to renew its long-haul fleet – is restructuring itself to cut costs. According to chief executive Khaya Ngqula, it aims to reach operating profit of R695 million by next March.

Unless negotiations with the unions to save R638 million in labour costs are successful, the national carrier could, in the worst case scenario, shed just more than 2 000 workers

Part of its business plan is to withdraw from unprofitable routes – but it emphasises that it is still growing its route network, particularly in Africa, and does not intend further cutbacks on overseas routes.

SAA’s route between Johannesburg and Munich, launched in July, got off to a good start, with passenger loads of more than 80 percent.

Its newest route, to Libreville, Gabon, launched last month, is part of the strategy to link important African cities and thus do away with routes that reach some of those cities only via Europe.

Pilot seat is optimal

At least 50 SAA pilots, whose skills are highly sought after by other airlines, may leave for other jobs by the end of this month. Emirates and other rapidly expanding Middle Eastern airlines have been recruiting in this country.

While negotiations are in progress to reduce the packages of SAA pilots and possibly even implement retrenchments, between 50 and 60 pilots are known to have gone for interviews with rival airlines.

Industry sources say there is a worldwide shortage of pilots, exacerbated by the continuing growth of passenger numbers and fleet enlargement programmes.

The airline industry is far from being a luxury, although it is often thought of as part of the leisure industry. The globalisation of business would be impossible without it, and it is vital for international tourism – the biggest provider of jobs in the world, helping to uplift standards of living in undeveloped countries.

SAA is going through a process that most state-owned airlines do at some time to ensure survival.

Some, like Lufthansa and BA, have done so successfully while others, like Sabena, have disappeared. The signs are that SAA will become one of the success stories.