A pandemic, soaring fuel prices, an ambitious relaunch and a grounding due to safety management issues in March led to Comair being left with no option this week but to apply for liquidation, putting 1,200 jobs at risk.
The industry expects short-term bottlenecks in air travel with 40% of domestic capacity lost, but carriers such as Mango, which is also grounded and in business rescue, may benefit from Comair's exit.
Comair, which operates British Airways in SA and Kulula.com, was dealt a blow on Thursday when joint business rescue practitioners Richard Ferguson and Neil Hablutzel said there was no “reasonable prospect” of it being saved.
Ferguson and Hablutzel said they had lodged a court application on Thursday to convert the business rescue proceedings into liquidation proceedings.
The news came little more than a week after Comair cancelled all flights due to funding difficulties; in March the operator was grounded for five days by the South African Civil Aviation Authority (SACAA) over safety management system issues. Comair, which had gone into business rescue during lockdown in May 2020, had relaunched its operations in December.
Aviation economist Joachim Vermooten said the pandemic had been a major blow for the airline, with a “very soft market and business travel at low levels” as a result of online conferencing.
He said pre-Covid, people who travelled for business purposes were often time-sensitive travellers, which meant that tickets were often booked at short notice and consequently higher prices, allowed airlines to subsidise cheaper seats.
Vermooten said Comair restarted after its grounding with “too much capacity compared with the weak demand”; the average passenger load in SA at the moment was 91 whereas the industry’s average aircraft were 150 to 180-seaters.
Miles van der Molen, CEO of private airline CemAir, said fuel prices were soaring globally and Comair’s strategy when it relaunched in December had worked against it. Flooding the market with excess capacity at very low fares as it sought to stimulate demand had ended up being unsustainable.
But Comair said it had reduced its fleet size when it relaunched to accommodate market conditions.
Prior to restarting operations, the business rescue plan had assumed the aviation market would return to pre-Covid levels by the middle of 2022, but “based on actual numbers the forecast was revised to the market remaining at only 65% of pre-Covid levels, which informed the fleet size”, it said.
Vermooten believed the final nail in the coffin for Comair was the March safety grounding, saying SACAA's decision had serious, costly repercussions.
He expected air travel bottlenecks for the next three-six months as demand exceeded supply on peak days. But he said the seat shortage would be worked out of the system relatively quickly as local airlines had been steadily adding capacity since lockdown restrictions eased.
Van der Molen also expected occasional bottlenecks in the next few months and “peak days may run out of capacity for now”.
But these would be worked out by December, he said. Overall, because although the “volume of Comair flights is enormous”, there had been too much capacity in the market after Comair resumed operations in December.
Van der Molen said Comair's exit would hardly benefit Mango, which has been grounded since July last year, because it had too much debt and would struggle in such a fragile aviation market with high fuel costs.
But Vermooten said he believed the reduced competition would benefit Mango.
Mango declined to comment.
Van der Molen expected to see ticket prices rise because of soaring fuel costs.
Airlink CEO Rodger Foster said Comair’s collapse was "extremely sad”, but the surviving airlines “will undoubtedly move quickly to fill the gap and as this happens Comair employees will find new homes in other airlines”.
Comair’s business rescue practitioners declined to give a total value for unused tickets.
With regards to refunds, BA — which is operated by Comair in SA — said on its website it was contacting ticket holders to offer refunds or rescheduling with other carriers.
Kulula.com customers who booked tickets on its sale shortly before flights were suspended would have been refunded by the end of this week, said Comair.
The business rescue practitioners said other customers who have bookings with Kulula.com will become “concurrent creditors of the company”.
Phakamile Hlubi-Majola, spokesperson for the National Union of Metalworkers of SA, said the union, which represented 700 of Comair's staff, was “deeply concerned” and liquidation was the “worst case scenario”.
Numsa "knew salaries were not going to be paid in June, but with the liquidation there was even more uncertainty whether staff would be paid because different rules apply in this process"
Dawie van der Merwe, a business rescue practitioner and director at BDO, said the Insolvency Act set out the repayment hierarchy from the sale of assets in a liquidation. Secured creditors such as lending institutions get first preference, followed by very limited payments to staff. After this would come any payments owed to the South African Revenue Service, and last in line, concurrent creditors such as fuel suppliers.
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