At a time when airline executives remind us virtually daily that the industry is facing a crisis of unprecedented proportions, South African airlines have been surprisingly profitable.

Several factors, including a lag in the South African economy, may have saved the local industry this year but, industry leaders warn, our airlines are far from being in rude health and face numerous challenges in the next 12 months.

"Yes, the airlines are all doing fairly well but it is not as rosy as the financial numbers suggest. There are still huge challenges ahead and the margins are as vulnerable as ever," says Gidon Novick, joint CEO of Comair.

Falling passenger volumes, volatile fuel prices and potentially large fee increases from Airports Company SA (Acsa) and Air Traffic and Navigation Services (ATNS) are all big threats to the airline's yields or margins.

From a purely financial point of view, there appears to be a stark difference between SA's airlines and those elsewhere in the world.

Airlines are fighting for survival

In most parts of the world the news has been dire. Last week, the International Air Transport Association (Iata) said that the global industry reported cumulative losses of close to $6-billion in the first half of this year. Some of the world's biggest airlines are fighting for survival, including British Airways and Air France KLM, both this year reporting huge losses.

Yet our national carrier, South African Airways (SAA), last month confounded analysts when it reported a R398-million net profit after three years of billion rand losses.

The low-cost airlines also surprised with financial numbers

Even Mango, SAA's low-cost airline, made a R10-million profit. However, without any financial detail to probe that profit, it may be difficult to analyse the sustainability of those earnings or how they were achieved in the first place.

Siza Mzimela, CEO of SA Express, points out that to some extent local carriers may have been protected by the fact that SA lags behind the rest of the world. "African carriers have performed better because the slight delay between us and other carriers worldwide has allowed contingencies to quickly be applied to adapt to the situation," he said.

Scratch below the surface

Another saving grace, sadly, was the demise of Nationwide in April last year. It came just as passenger demand began to decline and its rivals were able to pick up additional passengers.

But scratch below the surface and it still does not look all that good.

At the same time as Chris Smyth, acting CEO of SAA, announced vastly improved numbers and the fact that the airline would no longer seek state assistance, he said volumes were sharply down in the first few months of the new financial year. In the four months to the end of July, international traffic was down 11 percent year on year, while domestic traffic was down 10 percent.

"Passenger demand seems to have bottomed out, but it is also not improving. We are experiencing a long U in demand and are bumping along the bottom at the moment," says Chris Zwiegenthal, CEO of the Airlines Association of Southern Africa.

Continues on page 2...