Kirby Gordon, chief marketing officer for South Africa's leading low-cost carrier FlySafair, says instead of trying to ground the airline for allegedly breaking the law on foreign ownership, their rivals should up their game.
“We don't believe that foreign ownership confers any particular competitive advantage,” he says, adding that their ownership is in full compliance with the law.
Any airline can include a 25% foreign shareholder, as FlySafair has done, he says.
“I can't see where or how we derive a specific advantage from our external or non-South African shareholder.”
He says in the past British Airways was able to give preferential connections of inbound flights to its low cost franchisee in South Africa, Comair, but FlySafair is not affiliated with another airline in that capacity.
“There's nothing we've done or utilised that's given us any kind of unfair advantage.”
In terms of access to foreign funding, “any airline can have the 25% permissible involvement from a foreigner, so that is available to anyone”.
And it's easy enough to raise capital locally. “We've seen airlines list on the JSE very successfully. There are plenty of ways to raise capital in South Africa.”
FlySafair has never needed foreign capital apart from the launch of the airline in 2013, he says.
When it applied for a licence to run a commercial passenger airline it was taken to court by Comair and Skywise, which argued that its Ireland-based owner, ASL Aviation Holdings, didn't comply with South Africa's 75% local ownership law.
It was grounded and restructured to satisfy the ownership requirements to operate, which it started doing in 2014.
Why the ownership issue has been resurrected is “a matter for question”, he says. “It's not as though anything has changed recently in our world from an ownership perspective, so it's quite intriguing as to why it has come up.”
Low-cost carrier Lift has taken them to both the domestic and international air services licensing councils of SA, while Airlink has complained to the international council.
“This complaint was made on the back of an application we'd made for additional rights to increase our frequencies between Johannesburg and Harare, a route that is doing very well for us, and one where we've brought a lot more competitive pricing into the market. So we are eager to fly more of that route, a route that Airlink is servicing.”
Pricing, being on time and negligible cancellations are among key differentiators
— SafAir's Kirby Gordon
Since launching in 2014 FlySafair has captured 60% of the South African aviation market. Those looking to have its licence suspended attribute this to an unfair market advantage derived from their allegedly illegal foreign ownership.
“No,” says Gordon. “We've done that on our own steam by providing a great service and running a good business.”
His challenge to rivals who want them grounded would be to up their game, he says.
“Aviation as an industry is incredibly difficult, incredibly capital intensive. The difference between profit and loss is hair thin in terms of the actions you can take.”
Get it wrong and the financial consequences are dire.
“It's always been a very volatile and tough industry to work in. You are totally exposed to macroeconomic factors, particularly in a South African context our exposure to the price of oil and the rand-dollar [exchange rate] which impacts on everything and is incredibly severe. So it's a very difficult business to operate, where your ability to control factors that have such a vast impact on you is quite minimal.”
The fact they succeeded while 11 competitors in the last 10 years have gone under has nothing to do with foreign ownership, he says.
“It's because we've consistently offered a great service. We've worked very carefully to keep our pricing as competitive as we can by running an incredibly efficient, low-cost operation.”
The failure of other airlines is “a complex topic and one we've obviously sought to understand as best we can to avoid where they went wrong”.
Pricing, being on time and negligible cancellations are among “key differentiators” for them, not foreign ownership.
They're the second most on-time airline in the world, according to the last two annual rankings by UK-based global travel data provider OAG, and the only South African airline in the top 20. They've had a 0.02% cancellation rate, and they're one of cheapest airlines locally.
He says offering the most basic service “means we're able to price competitively”.
Lift has complained to the competition commission that they're engaged in predatory pricing, in other words selling tickets for less than their operating costs, and the matter is under review.
“This is obviously not the case,” says Gordon. “There's a pricing threshold below which an airline needs a bailout. Unlike SAA we're not state funded, we're a private entity and we have shareholders and they need to see a return on their investment.”
Hearings at South Africa's International Air Services Council on the foreign ownership issue are under way. He's confident of a good outcome.
Two years ago, he says, the council approved 11 new frequencies on routes for FlySafair. He believes they wouldn't have done so if their foreign ownership didn't satisfy legal requirements, and checking their compliance would have been part of the council's due diligence when considering their application.
The application was open to objections from competitors for 30 days, but there were none, which he finds “surprising” in the light of their recent allegations.
“Nothing has changed since then. Our ownership is 75% local, there's nothing obscure about it, it's all open for review. It is what it is, it's very quantifiable. The question is whether that is compliant with the interpretation of the regulation. That's what the current hearings are about.”
Revoking their international licence, which he's confident won't happen, would impact on their domestic operation and have severe consequences for the economy, he says.
“Air connectivity is an incredibly important economic enabler for any country, so if six out of every 10 flights were to suddenly not happen, it would have a very severe impact.”
He says they're “not of the opinion that we're too large to fail, but there is potential harm that needs to be considered”.
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