BUSINESS NEWS
Airline price war erupts
Posted Wed, 01 Nov 2006
Two competitors of SAA's new low-cost airline are reducing their fares in reaction to Mango's cheap offers.
"We're obviously going to play their game during the launch," said 1Time airline's marketing director, Rodney James, on Tuesday.
"We did the same thing [when we launched], then you've got to settle down and run the business and make a profit. Let's see what happens after the fun and games."
Mango chief executive Nico Bezuidenhout said on Tuesday the airline's launch had seen an "unprecedented wave of enthusiasm". The airline's website had seen 15 000 availability queries during the first ten minutes after booking opened at midnight. By mid-morning on Tuesday, 11 000 confirmed reservations had been made at Mango's call-centre, which opened at 6am.
"The high call volumes, web impressions and soaring ticket sales prove that the market is hungry for a priced-right airline such as Mango," Bezuidenhout said in a statement.
Gidon
Novick, the joint chief executive of Comair, which runs Kulula, said the airline would undercut its prices for all of its eight routes, with the lowest fare at R168. This was however for a limited number of seats.
1Time's Rodney James said Mango's current prices would lose Mango between R200-million and R300-million per year.
Mango was offering one-way tickets from Johannesburg to Cape Town and Durban for R169. 1Time's offering for the same ticket ranged between R165 and R549 in January. December prices were R999. According to its website, Kulula's January prices ranged between R168 and R248. December one-way tickets cost between R859 and R1399.
James said there was some concern that Mango had been given a R100-million loan from SAA, since 1Time had been profitable from day one. "If we had that kind of money we could probably start three or four airlines," he said.
There were also concerns over SAA's anti-competitive practices. Since December 2005, the
Competition Commission had fined SAA twice, first R60-million, then R45-million, for fixing ticket prices and abusing its dominant position in the market.
Kulula complained that while it paid around R250-million in taxes each year, R100-million of taxpayers' money would now be used to subsidise Mango's losses for the first two years.
"We're not sure why they need two years to become profitable, Kulula was profitable from day one," added Novick.
He said Mango's effect on its competitors remained to be seen, but it was definitely eating into SAA's market share.
"We can give them tips if they wish on how to run an airline, if they're willing to come to us," he said.
Nationwide airline's financial director Peter Griffiths said that "at the moment" they were not looking at reducing their prices.
"We're not at that level market, it's more a Kulula and 1Time matter. We'll have to look at if we're affected [by Mango's price cuts]."
Griffiths added
that Mango's prices were "just launch fares".
"With those prices they'll get revenue of just over R90 [per ticket] after taxes, you can't fly economically for those prices."
Spokesperson for Mango, Hein Kaiser, said the airline's pricing and business model was "highly sustainable.
"The offer on the website is obviously a launch offer, but I cannot foresee that the increase in price will be substantially higher."
He said the airline's prices for Johannesburg-Cape Town flights for next year were R249 and he foresaw that they would stay at this level.
"We will be able to sustain [our low prices], absolutely... There's definitely room in the market for another player."
He said Mango was aimed largely at reaching the "unflown".
Sapa
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