Johannesburg - Low cost carrier FlySafair warned that while their prices are not due to rise in the short-term consumers should expect to see a rise in the price of domestic airfares in the coming months.
This is largely due to exchange rate volatility and an increased oil price, but also due to an industry that is distracted.
Dollar exchange rate and oil price
The two major external factors that influence the cost of any airline are the price of oil and the rand-dollar exchange rate, both of which have been experiencing unfavourable shifts in the last month. Earlier last week, Stanlib chief economist Kevin Lings, warned consumers to expect fuel prices to rise significantly at the end of this month, a trend that will also affect the airline industry.
“Almost 40 percent of the operating cost of a flight between Cape Town and Johannesburg is fuel”, confirmed Kirby Gordon, VP of Sales and Distribution at FlySafair. He went on to explain that the joint effect of a weakening Rand, will further affect the financing costs of aircraft, placing additional strain on carriers.
“Airlines will seek to recover these increasing costs in their fares”.
Uncertainty
George Glynos, chief economist and managing director at ETM Analytics made a plea for policy makers to “get their act together to start communicating with the markets”. This is to prevent the massive fluctuations of the Rand. He confirmed that “corporates can deal with a weak Rand and can deal with a stronger Rand, but what they cannot deal with is an extremely volatile Rand”.
The same goes for airlines, in terms of their ability to plan for the future. This means they are likely to be conservative when offering low-fares.
Decreased demand
The winter period is the traditional low demand period for air travel and most airlines tend to trim back their flying schedules. Market forces determine the average fare that a consumer will pay. If airlines constrict supply too much, there will be a natural upward adjustment to the average fare.
Distracted industry
The last six weeks have been a very interesting period for the domestic aviation industry. SAA is still the subject of a great deal of political negotiation and Comair has certainly faced a fair share of challenges when it comes to both industrial action and their legal struggles to retain their operating license in terms of foreign ownership rules. Maintenance process concerns also saw the grounding of SA Express two weeks ago. The net result is a largely distracted industry with players taking their eyes off the all-important cost control discipline, and racking up legal and administration bills. At some stage these businesses will need to recover these costs and it’s likely that they will be passed onto consumers as higher airfares.
Will prices improve?
At the moment the outlook unfortunately seems bleak with regard to a future improvement in the price of an average airfare. Political stability and a stronger Rand would certainly improve prospects. Oil prices have been lingering at record lows recently so an upward adjustment here is to be expected and could unfortunately offset any improvements in the Rand.
How to get the cheapest fare?
The advice to consumers remains the same. The three golden rules are to book ahead, be flexible and travel light. The first seat to sell is always the cheapest and fares rise incrementally as flights fill up, which is why booking ahead is always best.
Similarly, flights during popular flying times will naturally have a higher demand, and higher prices. Consumers should look for deals during off-peak times like Tuesday mornings rather than Friday evenings.
Adapted from a press release for IOL