Budget airlines send prices plummeting

Two low-cost airlines, FlySafair and Skywise, entered the market in October last year and March this year, respectively.

Research by the booking site Travelstart last month on 18 domestic routes showed that ticket prices on only four routes had risen year on year in January-February this year, compared with January-February last year.

Prices on some routes had decreased nearly 39%.

There was no newcomer on the four routes on which prices had increased, which includes Johannesburg-Bloemfontein.

Ticket prices on popular routes such as Johannesburg-Cape Town have fallen, with traffic numbers increasing.

FlySafair and Fastjet, a regional low-cost carrier, said ticket prices on the domestic market had increased nearly 40% since the demise of 1time in 2012.

FlySafair entered the domestic market offering JohannesburgCape Town flights at a base rate of R499, with extra charges for checkin luggage and catering.

According to FlySafair, 40% of its passengers did not check in any luggage.

The airline also estimated that 14%-16% of its passengers were first-time flyers.

The entry of the airline has caused its competitors to lower prices and produce counteroffers, with Mango offering FlySafair passengers R200 vouchers for having to pay extra for check-in luggage.

"What we do educate our clients on is that although (FlySafair) is cheaper in terms of prices of seats, they do charge extra for luggage," said Travelstart head of communications Russell Jarvis.

"This is because they operate with a true low-cost carrier model," Mr Jarvis said.

Transport economist and aviation expert Joachim Vermooten said while new entrants in the market could drive prices down, air ticket prices also depended on their cost structures.

When 1time failed, fuel prices were high, but had since fallen significantly, creating an "atmosphere of softness", Mr Vermooten said. However, the rand had weakened, pushing up other airline costs such as maintenance.

"It is difficult. Airlines import things and the cost effect is immediate," he said.

"We need competition because competition brings more management teams to view the trends, and the public trust competition," said Mr Vermooten. A significant increase in capacity by state-owned airlines South African Airways (SAA) and Mango since 1time's demise had made much-needed competition difficult, he said.

"There is no reason to crowd out the private sector from the domestic market because there is funding available from the private sector. SAA keeps expanding even though it has funding problems," said Mr Vermooten.

FlySafair vice-president of marketing Kirby Gordon said the airline used a "true low-cost carrier" model and managed costs such as fuel, which accounted for 40% of expenses.

"It's all about how you manage the rand-dollar exchange rate," said Mr Gordon.

"The exchange rate is also important because of the way we finance aircraft. These are the big things to consider to keep operational costs down."

Mango spokesman Hein Kaiser said the airline had been the most affordable in the country even though "there is a lot more competition this time".

Mr Kaiser said airlines priced their tickets differently and had different revenue models.

"When the oil price is down and the rand is showing more strength, we lowered our prices.

"Our prices are market related and we pass the benefit on to the consumer.

"The converse of that is also true," he said.

Source: Business Day