Six years ago, South Africa deregulated its domestic airline network, allowing private carriers to challenge the long-standing monopoly of South African Airways (SAA) for the first time. The market is in the process of setting down after this upheaval, but it is clear that the new competition remains a source of concern to the flag carrier and its strategic alliance partners South African Express (SAX) and SA Airlink.

SAA's worries largely centre on cost. By taking full advantage of South Africa's liberal aviation laws - no noise regulations and a free market that encouraged entry-stage operators to use older jet-powered aircraft - independent operators Comair, Sun-Air and Nationwide Air were able to offer fares that undercut the flag carrier by a considerable margin.


In a bid to safeguard its traditional network from further inroads, SAA formed a domestic alliance with SAX, which it partly owns, and the privately held SA Airlink, to provide blanket coverage and ensure seamless, integrated service throughout the domestic network, including second city feeder routes.

Rodger Foster, managing director of SA Airlink, complains that the ability of the three major independents to compete with the SAA alliance rests heavily on their use of elderly jet airliners. "Africa is a dumping ground for old aircraft whose capital acquisition costs are negligible," he says. "By using these old aircraft, South African fare levels have been forced down to a point whereby they are now 46% lower than the world average. If growth and profitability graphs are to move upward, then fares have to rise," he adds.

Critics say that by operating non-hushkitted BAC One Eleven 500s, Boeing 727-100/200s and 737-200s, the book value of which has been written down, the low cost airlines are capitalising on an immature market and selling seats at prices that would be commercially unacceptable in most parts of the world.

Such arguments are dismissed by Pieter van Hoven, managing director of Comair, which owns six 737-200s and leases another 727-200. "We are giving passengers the chance to experience the advantages of air travel at a price they can afford. Our competitive attitude is boosting the domestic trade by wooing customers from previously untapped sources such as road and rail, as well as passengers from other airlines," he says.

Even with cost advantages, new competitors have not had an easy ride in establishing themselves. Fears that SAA's dominance would overshadow the new competitors abounded in the early days of the newly deregulated market and those anxieties have continued to echo around the domestic arena.

Flitestar is a prime example. The first airline to attempt a head-on confrontation with SAA, it was hailed as the consumer's hero after gaining a 26% market share. Less than three years later, with complaints still pending with the competition authorities, it was forced to shut up shop.

Comair shored up its presence by becoming the first British Airways franchise partner outside Europe. Nationwide Air followed suit, forming a strategic alliance with Belgium's flag carrier Sabena.

Comair is now branded as BA-Comair in full BA livery, a sore point with competitors in South Africa and neighbouring countries.

In fact, Comair, does a minority of its flying as direct feed for BA, but its association with the UK flag carrier has clearly helped raise its profile. It further underwrote its position as the lead domestic challenger to SAA when it emerged as part of the winning consortium in the privatisation sale of Sun-Air, which holds a key position on the "golden triangle" of Johannesburg-Durban-Cape Town. There has been speculation that BA-Comair, which holds a 25% stake in the carrier, might seek to merge the two airline operations, but that appears to be off the agenda. A further twist will come if BA takes a stake in this year's privatisation of SAA.


Chris Zweigenthal, acting executive manager market development at SAA, believes that the market is beginning to settle down after the initial bout of all-out war on domestic routes. He points out that saturation point has been reached on all major services. "In general, with three competitors flying on prime routes, further entrants on these services would not be productive," he says, as Phoenix Airways discovered to its cost. Offering a cheap, no frills service between Johannesburg and Cape Town, the airline went out of business within weeks.

There are signs that the market is beginning to become a little more orderly. Co-operation between Comair and SAX from Johannesburg to a range of smaller cities and on Cape Town-Windhoek, for example, has ensured continued, profitable operation for both carriers.

Although the Government's decision to deregulate in 1992 looks less adventurous now than it did then, all agree that is still much work ahead before the experiment proves a success.

Source: Flight International