Kulula responds to Mangos presence

Comair came out with a solid set of results — despite complaining that Mango's presence in the no-frills airliner market is unnecessary and means there's overcapacity in the market. Gidon Novick gives the details.

Bruce Whitfield:
Well the listed airline Comair seems determined to prove the top US investor Warren Buffet wrong, he is the guy who said, if a capitalist had been at Kitty Hawk when the Wright Brothers first flew, they would have shot down the plane and saved investors billions of dollars in subsequent years.

Well Comair today, now 20 percent owned by Bidvest of course reporting a substantial jump in profit growth. In fact, profits almost doubled, with attributable earnings, up 95 percent, to R52-million, and the joint chief executive, Gidon Novick on the line to us now, and a solid performance Gidon, especially considering, with your fuel bill ballooning $16-million during the first half of the year.

Gidon Novick:
Hi Bruce, yes, that fuel bill really did get our focus, I guess.

Bruce Whitfield:
Focus is one way of putting it. How much of a panic was there in the hallowed halls of Comair though, as the oil price went up to $78 last year?

Gidon Novick:
You know what, I think we have learned not to panic about the oil price. It has done some strange things in the past couple of years and fortunately it has come off a bit. But in terms of, I was asked a bit earlier today, what is going to happen in the future with the oil price and I gave the answer that I have absolutely no idea.

So it is something that we have just got to manage, we have got to look at all the other costs that we can control. The biggest one there is obviously the new fleet that we are bringing in, which burns a lot less fuel than the older aircraft and that is helping us along.

Bruce Whitfield:
Because your passenger volumes were up, your loads improved, you were getting more efficient aircraft into the fleet as you have just mentioned, but what percentage of your growth is due to your pricing ability? Have you been able to pass price increases on in terms of inflation in the past six months?

Gidon Novick:
Yes, there has been pricing improvement I must say and I think that has really been driven by the strength of our two brands, British Airways and kulula and there is very strong demand for the brand. The people that we have on the ground delivering the service everyday just keep exceeding our own expectations in terms of delivery and that seems to be working.

Bruce Whitfield:
There is almost a contradiction there though, because you are able to push prices up slightly, but in your results announcement, you do say that the South African market is overtraded and the launch of Mango is putting a lot of pricing pressure on as well. Just explain this.

Gidon Novick:
Yes, there is overcapacity, no doubt and I think in times like this, we have really got to be different, we have really got to stand out, we have got to have the best service, we have got to have the strongest brands, and we have got to deliver consistently.

Customers want a good price, there is no doubt about it and we have got to be competitive on both brands, but ultimately, they want consistent delivery and a safe comfortable service with us.

Bruce Whitfield:
How many aircraft have you got now? Still 23?

Gidon Novick:
That is right. Yes.

Bruce Whitfield:
How many of those are the older McDonald-Douglas aircraft, the MD-82’s and 83’s?

Gidon Novick:
We have currently got six of those and the plan is, by the end of the year, to have gotten rid of those and replace them with the Boeing 737-400.

Bruce Whitfield:
Because last year, you bought a new Boeing 737-400 for cash. Why buy an aircraft when you can just lease the things?

Gidon Novick:
You are going to be paying a premium on the leasing, so it is better to buy it. We are fortunate that we have got a very good cash balance and we continue to generate strong cash. So we will own the asset. The other interesting thing with owning the asset is the natural dollar hedge that it creates. Even though it is a much longer term hedge, we are able to get some nice hedging and the significant dollar costs that we have on an annual basis.

Bruce Whitfield:
I was reading on the African Aviation Forum today, that the McDonald Douglas aircraft is having trouble taking off from Lanseria fully loaded on hot days, and passengers are having to be bussed from Lanseria to Joburg from time to time. Is that in fact true?

Gidon Novick:
We have got one flight on a Sunday that leaves right in the middle of the day and that flight has been a bit of a problem, especially with the heat. For those listeners who don’t know, the hotter the air, the more difficult it is for the aircraft to take off and the longer the runway that it requires and it is more difficult to create lift when the air is hotter. So the bulk of our flights are early morning flights and they return late evening. And that is again why the 737-400 are going to be a much better bet for Lanseria specifically.

Bruce Whitfield:
So it does not actually impact your long term plans for Lanseria as an alternative airport?

Gidon Novick:
No, the 737-400’s are looking very good on that airport and we also are talking to them about extending that runway just to give us a better margin on operating out of there.

Bruce Whitfield:
Because it is also dependent on how many people you can get into the seats on aircrafts as to profitable each flight is.

Gidon Novick:
Yes, the kulula model is just really built on body. We cannot be sacrificing any seats with any kind of weight restriction. Most of our flights on kulula are operating on a 90 percent level. So we really need to be filling them up.

Bruce Whitfield:
You don’t disclose separately between British Airways in South Africa and kulula.com, but in terms of profit margins, are the BA profit margins significantly higher than the kulula margins?

Gidon Novick:
If you look at that on a per customer basis, that would be the case. But because kulula is driving such a good volume, we are getting a great benefit from volume on kulula. And then on the cost side, we have integrated so much, particularly over the last couple of years, and I think that is where we have got a lot of the efficiencies through.

If you go to Johannesburg airport for example, we have one single check-in facility across BA and kulula and we are just finding more and more areas to save across the brand and it is only really the marketing and the cabin crew that we are keeping separate at this stage.

Bruce Whitfield:
Have you finalised a new deal with British Airways in terms of the licence agreement between the two of you?

Gidon Novick:
Yes just about, we are finalising another long term contract. We have been going for 10 years with them and we are going to renew that for a very long term in the future.

Bruce Whitfield:
And the Bidvest arrangement, any talks there with them? They own 20 percent of you as we discovered earlier this year. Anymore movement on that?

Gidon Novick:
We do so much work with them, we do so much work with Bidvest on the ground side, and they provide a lot of airport services, a lot of which we use. And then obviously on the travel side, we have got a very strong partnership with Bidtravel, which is the Bidvest Retail Travel arm and we do a hell of a lot of business with them.

So I guess, not much unlike other companies in South Africa, you just seem to be doing business with Bidvest in totally different areas. But they are a great company to do business with and we are delighted to have them as a shareholder as well.

Bruce Whitfield:
Gidon Novick, the joint chief executive officer of Comair.