For those of you who do not know Cemair, I don’t blame you. Until very recently, Cemair was a small private charter airline. With a fleet of 34 planes, and owned by a former pilot. What is interesting, is that this small airline has entered the commercial space, and increased its operations by 50%. In a time, where South Africa’s largest operators like SAA and Comair (British Airways and Kulula.com) are in business rescue and still grounded.
Here are five key points:
The airline and travel industries are not dead
The norm these days for a business experiencing a sudden drop in revenues is to retrench and downscale. And we have all heard the stories of tens of thousands of pilots no longer employed. But local demand still exists. With new entrants into the commercial space like Cemair and Airlink, means that they see the opportunity.
With the demand low over the last couple of months and many of the bigger players out of commission, aeroplanes can be purchased at a significantly reduced cost. This allowed airlines like Cemair to ramp up their fleet by adding new planes.
Larger operators were just too heavy
Rightsizing your business is not wrong. And unfortunately, while everything is going well. There seems like no need for it. However, while smaller airlines have increased their cash holdings into a very healthy position, due to the overweight structures of Comair and SAA, it is the smaller airlines that are now in the healthiest positions and able to operate again.
As the smaller airlines had money to spend, lean business models and an eye on the horizon for opportunities. They were able to snatch up the opportunities as they presented themselves. Securing them a spot within the commercial industry, and a nice market share that they will not give up very easy.
The problem that the larger operators also experienced, was the size of their aeroplanes. With the majority of their planes being large (six seats per row), this meant that they had to fill up the plane or operate at a loss for a specific flight. With the smaller airlines rather focusing on smaller aeroplanes (max four seats per row). This means that their breakeven is lower, and overall they have the potential to be a much more profitable business even within a very competitive market.
More competition means more competitive pricing
Some of the smaller routes within South Africa only had three airlines operating a specific route. This meant that demand would easily exceed supply, and the airlines were able to ramp up the prices on that basis.
Well no longer.
With some of the smaller routes now estimated to have up to six airlines servicing these routes in the very near future. We should see much more competitive pricing within the industry, making travel across the country much more affordable.
International travel will start to pick up soon
International travel at the moment is still very quiet. However, Cemair has applied for licenses for six regions within Africa.
This is a good indication that they see demand and opportunities on the horizon for international travel. Which is a very good sign for the overall recovery of the global economy.