The importance of a sustainable airline industry to the SA economy

By Jonathan Ayache, Co-founder and CEO, LIFT Airline

It’s been almost 120 years since the Wright brothers’ first flight in their Kitty Hawk Flyer and while a lot has changed, air travel remains the only true global rapid transport system and is a key driver of economic growth, job creation and supporter of global trade and tourism.

As a country we face a crisis of stagflation (low economic growth and high inflation), record unemployment, infrastructural deficiencies and knock on effects of load shedding. We’ve proved time and again that we are a resilient nation but if we are to turn things around, we need to act with urgency and implement changes that will drive economic growth and create opportunities for employment.

While addressing the causes of load shedding and achieving a reliable energy supply remains a top priority, another crucial sector in our economy that the airline industry supports is the tourism sector. According to Minister Lindiwe Sisulu, in 2021 the tourism sector contributed 3.7% to GDP, down from ±8% of GDP pre-Covid. Even at the lower levels, this is still above manufacturing, agriculture and construction.

Today it employs around 740 000 people directly and 1.5 million indirectly. The potential is even more evident when you consider that pre-Covid SA had only ±10m international tourists each year. A fraction of the 80m – 90m tourists countries like Spain and France attract. These countries also directly employ almost four times as many people in the travel and tourism sector as we do.

Data from ACSA shows that as of October 2022 domestic passenger volumes had recovered to ±75% of 2019 levels while regional and international passenger volumes lag this slightly at 69% and 71% respectively.

Looking ahead

The recovery is underway but we’re not there yet and global consensus is that we won’t see a full recovery until the end of 2023. A responsible approach to recovery and adding seat capacity is crucial from all airlines to avoid a repeat of what we have seen the past 24 months where four airline brands shut their doors.

Failed airlines mean unemployment, and not just those directly employed by the airline. In LIFT’s case that is about 200 employees, but others such as cleaners and ground staff, as well as businesses, such as catering companies, are also left with unpaid bills and no future business prospects when airlines go under.

Following the closure of Comair (BA & Kulula) at the end of May 2022, ticket pricing has become very topical. The narrative created has been that airlines still in operation are taking advantage of the reduced passenger seats available and are using it as an opportunity to take advantage of increased demand.
As with most things, context is everything. It’s important to keep the following in mind when talking about the higher cost of air tickets.

Covid: Despite its importance, the ‘private’ domestic airline industry has been left to fend for itself and received no financial support from the Government during the Covid pandemic. Most airlines have been operating on the edge and the unsustainably low prices customers have been used to ultimately resulted in both Mango and Comair exiting the market.

Jet Fuel: The prices of jet fuel and crude have been rising since their lows at the start of the pandemic (circa. March 2020). Today the price of jet fuel is almost three times higher than what it was in December 2020 when LIFT launched.

In South Africa we’ve also seen a large reduction in refinery capacity resulting in an increase in imported jet fuel. In some cases this has resulted in International flights having to be re-routed from SA’s busiest airport OR Tambo International.

Seasonality: At the best of times the aviation industry is highly seasonal and in SA it’s often the case that the stronger second half of the year subsidises the weaker first half.

Rand weakness: Three of our largest operational costs are denominated or driven by the R/$ exchange rate – Fuel, Aircraft Leases and Insurance. The R/$ has weakened by ±20% in the last year since September 2021 adding further pressure and necessitating higher ticket prices.

Whats next for LIFT

Despite all of these challenges, LIFT has done exceptionally well and entrenched itself as a favourite and preferred airline for many South Africans due to its focus on the customer experience and complete flexibility allowing passengers to change and cancel without any penalties.

LIFT is also adding four aircraft to its fleet which has been done using flexible capacity, which can easily be increased or decreased based on demand. We have expanded our route network with the launch of both the Johannesburg – Durban route and most recently, the Durban – Cape Town route.

We’re on track to increase our available seat capacity to ±1.5 million seats in 2023, a huge increase from 370 000.

As we look forward to a new year, it becomes clear that even while a slow ascent to recovery is expected in 2023, putting passengers first will remain a key priority, and flexibility and market agility will be crucial.