Elmar Conradie is the CEO of FlySafair. As South Africa enters its ninth week of lockdown, he shares his views on the prospects for his airline and how they are responding to the Covid-19 crisis.

GL: Will FlySafair be able to survive if government does not assist you?

EC: If we do not get any assistance, we will have to be a lot more conservative about when we return to flying. We have to prevent ourselves from losing even more money when we start flying, so we cannot afford to restart gradually, with small loads. And this would be a pity because aviation connectivity is essential to enable the economy is to recover. South Africa needs the airline industry to carry trade between cities, regions and internationally. So it will take longer for African economies to recover if the airlines can’t start flying again, and as soon as possible.

The government has just announced that airlines can start flying passengers for their business purposes. Can you do that profitably?

At this stage we need to find out what the actual regulations will be once the restrictions start being lifted. We will need to know who will be allowed to travel, and where and when. If we can only get say 30 or 40 people on a flight, we will lose money operating flights only for those people who have to fly for business.

So it seems you may be in a double squeeze. On the on hand you cannot afford to continue to indefinitely not fly, but on the other hand, you may not be able to afford to start flying with the limited business-only loads you will have?

Yes. We need 85% load factors to break even, so without government assistance, we do not know if it will be feasible to fly only business people, even with higher ticket prices.

Government aid does not have to only be in the form of direct grants. What about tax and interest relief, as IATA is proposing?

Those are important as around 30% of our direct costs are taxes, levies and duties. This means that around 20% of our ticket costs are made up of some form of tax. While we accept that these are all essential services which must be paid for, we argue that these government entities are better placed to fund the recovery than private sector airlines are.

But Minister of Finance Tito Mboweni says government has no more money?

Parastatals are able to raise funds on the back of government guarantees, whereas the private sector finds it very difficult to raise funds. So we are proposing that government should look into ways to reduce those taxes and fees to the airlines. This could be achieved by waiving the fees levied by parastatals such as ACSA, ATNS, the CAA and the SA Weather Service.

If all these taxes and fees were waived, would the 30% reduction in costs enable you to operate profitably?

At this stage we would be happy with any concessions we get from government that will enable us to be viable and ultimately sustainable in the future.

If fuel is, let’s say, 33% of your variable costs and it is 33% cheaper than before the Covid crisis, then does this take a very valuable 10% out of your costs?

The lower oil price is definitely some help in the bigger scheme of things. But as is so often the case, the exchange rate has worked against us and that pushes up both fuel and lease/maintenance costs. The US Dollar is roughly 15%-20% more expensive than it was before all this. It’s not a complete offset, so the net position is a fraction stronger which will help to get operating costs down – but at the end of the day, we as Low Cost Carriers are price-takers and our yields are determined by the supply/demand dynamic in the passenger market. The concern at the moment is the weakness in that demand. In one regard it’s great to have reduced operating costs, but it doesn’t help much if you can’t even give your tickets away – you still operate at a loss.

Are you providing any special assistance for your staff?

For April we managed to pay all our staff in full. But from May, all of our employees are on unpaid leave. As a company, we have made R10 million available each month for assistance to the employees to assist with Temporary Benefit claims and Unemployment Insurance payments. This has meant that our low-income earners are still getting about 80% of their salaries. However, some of the higher-end employees are facing up to 75% salary cuts.

Are you considering retrenchments?

When we entered the lockdown, we had to make a decision as to whether this was a permanent or temporary change in the way we do business. We realised that it if it was permanent, then we would have to seriously reduce our workforce. But if it was a temporary thing, by which we mean 12 to 18 months, then we decided that we would have to stick it out and try and keep as many of our employees as possible. That meant carrying the cost now, for the sake of having them available when we start flying again.

So which option have you chosen?

I hope I am not too optimistic or naïve, but I am of the view that the current crisis is a temporary one. We believe that our staff are one of our key competitive advantages. So we are trying to hold on to all our staff as long as we can.

In the absence of passengers, have you considered doing pure cargo flights – with cabin cargo – during the lockdown?

Yes, we’ve been quoting on many opportunities as they come up, but nothing that’s borne any fruit yet.

Are you looking at any particular changes on your business model to help you through the crisis? For instance – neutralising the middle seat?

Yes. Funnily enough as early as last year we started developing a new product aimed at the business market, where we could sell the middle seat as an extra benefit. We managed to finalise that during the lockdown. We think that’s going to be well received once we start flying again, particularly in terms of the need from business travellers.

How will neutralising the middle seat work in practice?

When you book on our website you can select either a window or an aisle seat. At that time you also get the option to block the middle seat.

How much more will it cost?

An extra R750. But as a combination that will be much cheaper than a normal business class ticket on a full-service carrier.

What about other ancillary revenue streams – which have become the life blood of low cost carriers?

Additional bags, a ticket refund ability, business class lounges – these are all options which passengers can select. So we can really recreate pretty much the whole business class experience. The passenger can pick and choose which parts he wants.

Will your ‘business-class’ offering include on board food and drinks?

Yes – it’ll work off a voucher basis for you to use on the trolley. If you opt for the premium fare with the blocked seat option, you’ll get your snack allowance built into the fare. Otherwise you have the choice to build it in as an optional extra on the cheaper fares. But it’s a bit of a moot point at the moment, because during this intense infection prevention period there will be no catering on board to prevent contamination opportunities.

Being able to buy the middle seat sounds like a good option for families and not just business expense account travellers?

Very much so. The product is aimed at families which would like to keep the middle seat open so that they do not have a stranger sitting next to perhaps one of their children. Or, if you’ve just want more space or privacy.

How have you been dealing with people who had booked and paid for tickets before the lock down and have been unable to fly? Are you providing vouchers or refunds?

As a low cost carrier, refunds are not our normal business, so it is a logistical nightmare for us to try and process all the refunds. It was an enormous challenge for us to find a solution – and quickly. So when the first lockdown announcement was made, we decided that we would issue vouchers – which they were able to process through the website.

For bookings made since the lockdown started, but that we cannot fly due to the restrictions, we have cancelled all the bookings and issued vouchers to all the passengers – which they should have received via email

How long are your vouchers valid for?

For a year. And then you can book for any flight for a further 12 months. So if you wait until the twelfth month, you can book another year in advance. This essentially provides for a 24 month window to fly the ticket.

How big an administrative challenge was it?

It was huge. Just in the first week we had to process over 70,000 claims. Logistically it wasn’t possible to do it any other way than to use vouchers.

African airline travel is limited by affordability – by the small size of the middle class. What do you expect will be the net effect of the Covid-19 crisis on ticket prices?

I think the good news for consumers is that when we do start unrestricted flying, ticket prices are going to be relatively inexpensive because there will be much excess capacity. But as the industry recovers and faces its hangover of a debt burden, prices will have to increase to more than they were pre-Covid-19.


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