Flight tickets are expected to be noticeably cheaper in South Africa heading into the festive season, but the aviation industry remains vulnerable to rocky macroeconomic factors.
During a recent round table discussion, FlySafair’s Chief Marketing Officer, Kirby Gordon, said South Africans should expect lower flight prices during the 2023 festive season due to increased seating availability, reported MyBroadband.
Over the last 12 months – especially over the festive season in 2022 and Easter 2023 – South Africans had to fork out significantly more for flight tickets as a result of high fuel prices and increased demand coupled with a rapid decline in airline capacity.
Last year, the airline industry suffered various airline liquidations due to the pandemic, which virtually removed 40% of domestic airline capacity overnight. These fallaway airlines included Mango, Kulula, and British Airways.
This resulted in a massive mismatch in demand and supply, which caused notable upward pressure on ticket prices, as seat availability was severely constrained.
According to a study conducted by Discovery Bank in partnership with Visa, compounding the issue was that the cost of aviation fuel also increased by more than 80% in 2022 compared to 2021, creating a perfect trifecta that saw ticket prices skyrocket.
According to the study’s data, South Africans were paying 30% to 55% more for local flights than in 2019.
Expect cheaper air tickets
FlySafair’s Chief Marketing Officer, Kirby Gordon.
Gordon noted that since the decline in airline capacity in 2022, remaining airline brands have added a significant amount of new aircraft to their fleets – increasing the number of available seats.
A notable factor aiding the increase in seat capacity was the introduction of Lift into the market, which brought the number of airline companies back to five, he said.
He further noted that most South Africans are dealing with constrained finances due to high interest rates and inflation, resulting in lower demand.
Gordon described these factors as “pro-consumer” and, because flight prices are mainly demand-based, These two factors should help to “keep prices a bit lower”.
Macroeconomic exposures
Although South Africans can look forward to lower air rickets in the near term, Gordon added that the rand-dollar exchange rate fluctuations, crude oil prices, and a lack of skilled maintenance in the country pose a significant risk to flight prices.
While these factors are all important, the primary exposure underpinning the impact of both oil prices and maintenance on the airline industry is the strength of the rand.
Gordon explained that Operating costs can significantly increase if the rand weakens against the dollar, as aircraft and maintenance parts are purchased in dollars.
He added that killed maintenance, machining facilities, and workshops have been difficult to find locally since the pandemic – meaning the company is often forced to look overseas for technicians – which comes at a greater cost if the rand weakens.
This also applies to fuel costs, with crude oil traded in dollars. Gordon pointed out that fuel expenses make up around 50% of the operational costs of every flight, making crude oil prices and rand-dollar fluctuations some of FlySafair’s most significant risks.
