A new airline FlySafair will soon start flying in SA.   For the consumer, this should mean more affordable fares, as it is offering attractive prices at its launch.   To find out more, ZA Confidential spoke to the CEO of FlySafair Dave Andrew.

DAVE ANDREW

 

ZAC: What impact do you think your arrival on the scene will have on the air travel market?

DA:  While FlySafair is committed to offering the lowest fares possible to make air travel more accessible to a greater proportion of the South African population, we anticipate that our entry into the market will help in driving airfares down in general. Either way, the traveling public benefits.

 

ZAC:   Why has it take you so long to get going? 

DA:  The unfortunate delay in launching our service last year gave us the opportunity to further evaluate the best possible way to structure our fares.  In keeping with the best current international thinking on low cost airlines, the unbundled approach not only achieves this but also allows our customers more choice and hence our motivation to implement. We also needed to assess the market to ensure our brand was successfully launched.

 

ZAC:  You are offering attractive fares of around R500 each way on the JHB to CT route, but at what cost?  Is safety being compromised?  Will passengers be crammed in like sardines?  And what extra charges will there be for food, luggage and so on?

DA: While a great deal of our flights are offered at these low prices, it is important to note that not all our tickets are sold at those prices. Since establishing Safair almost 50 years ago, safety has always been our top priority. We would never comprise the safety or maintenance standards of our operations, passengers, crew or aircraft – no matter what the cost. Our low-fare prices will have no impact on any of our internal services, including the maintenance and safety of our aircraft.  Aside from not compromising on safety, we are also committed to ensuring our travellers experience comfort at all times. We will be flying a Boeing 737-400 aircraft with165 comfortable seats. Aside from our competitive prices we are also offering passengers the option to purchase a bag at a cost of R150, an extra bag at R250, Sport equipment at R280 and a ticket alert SMS at R5, preselected seats R40 and also Extra Room seats R100, and catering will be sold on board.

 

ZAC:   What numbers will you be carrying at the launch?   And how do you hope to grow?   Within ZA and beyond?

DA:   Online booking thus far have been good and we are expecting these to continue until the launch and beyond. We are continuously investigating the possibilities regarding expanding our routes and fleet. To date we have had numerous requests already for flying to various other destinations – indicating that the room for growth is promising.

 

ZAC:   How easy is it to book with you?   Are you offering or planning to offer a package of services including accommodation and car hire?

DA:  You can find us online at http://www.flysafair.co.za or phone our call centre at 087 135 1351. We can even take care of your vehicle rental needs as we have partnered with First Car Rental and together we are offering FlySafair passengers really competitive prices on both flights and car rental.

 

ZAC:   One frustration for passengers is the time it can take from the plane landing to the baggage carousel if the plane is not docked alongside the terminal and people need to be bussed to and from the terminal.   As a latecomer have you been given the worst slots?

DA: We have been allocated bays according to the Airports Company Policy and they have a schedule where they try and accommodate all airlines fairly.

 

ZAC:    Are you mainly targeting the leisure traveller or business folk as well?

DA: With competitive prices we are hoping to target everyone who would like to fly.

 

ZAC:    What have been the challenges in recruiting pilots, cabin staff and check-in people?

DA:   We have been very fortunate that we have been able to employ skilled people that have previous airline experience.

 

ZAC:  Do you expect more new entrants?

ZA: Yes, the industry will always be competitive, with a many companies out there wanting to start an airline.

 

ZAC:  We have seen a number of airlines come and go.   It is a challenging business here in ZA and internationally.   How confident are you that you are here to stay?

DA: Yes, it is a challenging business indeed. We are confident that we can successfully manage the challenges that operating a scheduled airline in South Africa entails. Our commitment extends to providing exceptional service as we have been doing for the past 49 years.

 

Conclusion: 

Competition is always a good thing, and as long as this new airline offers good value and efficient flights, it has a good chance of grabbing a share of the market, or expanding it.  The proof of this pudding will be in the flying……

 

Tweets of the Day:

The QI Elves (@qikipedia):  In 2012 a hamster named Smurf stored a magnet in his cheek and was later found stuck to the bars of his cage. qi.com/infocloud/hams…

Funny Tweets (@Funny_TweetsQ): HAVE SOME FUN WITH YOUR LIFE: Call in sick to places you don’t even work at.

Steve Stifler (@SteveStfler):  I’ve found that jogging is much more fun when you never do it.

 

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Data out today show that in the second quarter of this year, the economy expanded slightly – by 0.6% quarter on quarter, seasonally adjusted, annualised, compared to a fall of -0.6% in the first quarter.  This is feeble growth, but it does mean that technically a recession has been avoided, as this would have required a fall in growth for two consecutive quarters.   What do our experts make of it?

 

Mike Schussler from economists.co.za:

Manufacturing and Mining are in recession. Private construction according to the buildings completed statistics declined with 50.7% in the 2nd quarter so all construction growth in the GDP numbers is from government and State Owned Enterprises, which means that overall this is a state-led growth which will not be sustainable as prices for power rush up and tax revenue declines radically.  Four sectors recorded declines in the 2nd quarter.  We may not be in recession but we are certainly not out of trouble by a long way. SA is dead in the water when it comes to job growth. Trade and Electricity joined mining and manufacturing in declining in the 2nd quarter. (As did private sector construction). Without government expenditure increases and construction by State Owned Enterprises and agencies we would have recorded 0% growth. Taking the private construction sector decline into account it is probably now the 2nd quarter in a row that the private sector declined. The tax revenues are going to decline and the government deficit as a percentage of GDP is likely to stay above 4% for the next two or three years.  Moreover SA GDP growth has averaged less than 2% over the last five years and this year will not be better – probably worse, at under 1.5% for 2014. We expect to compete with other countries as an investment destination as our growth may be better than Europe, but not anyone else.

 

Prof Raymond Parsons from NW University:

While we should be pleased to have escaped a ‘technical recession’ by the skin of our teeth in the 1H2014, it is true that there is nothing to be complacent about as we drift along at the bottom of the business cycle. Unpacking the negative economic sectors is not a pretty picture. While there will obviously some welcome ‘bounce back’ in some of business sectors in the next few months I agree that SA will be lucky to enjoy a growth rate of about 1.5% for 2014 as a whole. It has all the makings of a ‘low growth trap’, unless….? As we now embark on another bout of economic self-flagellation, I would also counsel that – given the poor growth outlook, and with inflation easing slightly, as well as the Fed’s Janet Yellen still being very cautious – we forget about any further interest rate increases in SA for the time being. 

 

Annabel Bishop of Investec:

The manufacturing sector contracted by 2.1% and the mining sector by 9.4% as work stoppages caused by strike action and electricity constraints caused a GDP outcome close to 0% qqsaa.  On a year on year basis the economy saw weak growth of 1.0% in Q2.14 and 1.3% y/y in the first half of 2014, which does not bode well for 2014. Over the past few years South Africa’s economic growth has been deteriorating substantially, and GDP growth is at risk of approaching the 1.0% y/y mark this year after recording 1.9% y/y in 2013, 2.5% y/y in 2012 and 3.6% y/y in 2011. Strike action and reduced supply of electricity has slowed production, while real household consumption expenditure growth has deteriorated on weakened financial health, waning demand, and flagging manufacturing production.

 

Nedbank Economic Unit:

The outlook remains murky.  Recent economic indicators suggest that the weakness continued into the third quarter, with the NAAMSA strike disrupting manufacturing output throughout July.  Consumers are generally expected to remain cautious given pressure on household income, rising debt service costs and a deteriorating job market.  However, the mining and manufacturing sectors should fare better off a low base, supported by some improvement in global demand.   Although South Africa avoided recession, underlying conditions remains generally weak and confidence is still very fragile.  The risk to the growth outlook therefore remains firmly on the downside.  At the same time, inflation has turned the corner, helped by a slightly firmer rand and falling food prices.  Although encouraging, the inflation outlook is still uncertain given that the rand remains vulnerable due to the country’s relatively large budget and current account deficits and possibility of further sovereign ratings downgrades at a time when global risk appetites may change abruptly in response to changes in US monetary policy.  The MPC will probably continue to move cautiously.  We still expect interest rates to increase by another 25 basis point in November, with further tightening in the second half of 2015.

 

 Conclusion:

South Africa is within a small statistical error from being in recession.  The feeble current growth rate is not going to create the jobs we need.  The crisis deepens.  

 

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We were struck by the introduction to a recent Frontier Advisory conference by its CEO Martyn Davies, who pinpointed the way in which the ZA manufacturing sector has been in relative decline as a share of the total economy. So we asked him for a few details…. 

ZAC: You speak of de-industrialisation in ZA. When did it start and how far has it gone?

MD: The de-industrialisation trend has really accelerated since the political-economic opening of the country after 1994. To an extent this was to be expected, as the economy was exposed to increased competition. But arguably de-industrialisation has been exacerbated by poor policy choices, lack of direct/indirect support for the manufacturing sector, and increasingly belligerent unionised labour.

 

ZAC:   It seems we are not alone.   You are suggesting that this happens elsewhere in the developing world?

MD: Whilst other emerging countries (in Asia) have also experienced similar pressures, their economies have been able to “graduate” into services, whilst maintaining very low unemployment levels. Examples would be Singapore, Malaysia, Taiwan, Korea – amongst others. South Africa has not been able to relocate labour out of manufacturing into other productive economic activity.

 

ZAC: How is it a problem?   Surely if high-skill industries such as financial services are replacing manufacturing in the economy that is a good thing?

MD: It is a problem if the workforce is not adequately skilled to move into financial services and unemployment becomes “structural” –i.e. almost a permanent fixture in the economy. Reinforcing this trend, the bureaucratic state has stifled the growth of small business through over-regulation thus preventing new areas of employment opening up.

 

ZAC:   Government in ZA seems determined to see re-industrialisation through incentive schemes, targeting support for industries such as the auto sector, film making and so on.   Is de-industrialisation a trend which can be reversed?

MD: Government needs to enable and support parts of the economy to spur manufacturing growth. It is primarily skills and liberalisation driven – not intervention and subsidy – although that latter can assist in building and promoting sectors. But much more needs to be done when it comes to labour reform and skills development, which is sorely lacking.

 

ZAC:   Waves of industrial action seem to be encouraging employers in manufacturing, and other sectors, to favour more automation.   Do you worry that if we can achieve re-industrialisation in SA it might be with far less employment?

MD: This is the undoubted trend. Militant unions with political complicity are contributing to this trend. If not mechanization, manufacturing will simply take place somewhere else.

 

ZAC:   What opportunities might there be for ZA in China’s expected de-industrialisation?

MD: There is enormous opportunity to attract jobs away from China – especially in low value manufacturing – to Africa. One would expect SA to have a leading position to leverage toward this end but rigid and unionized labour alongside unfavourable legislation means that we are unlikely to benefit from this significant shift in manufacturing employment in China….despite the unprecedented opportunity that it presents.

 

Conclusion:

This is very important but worrying analysis in the context of this country’s crying need for more jobs and greater economic growth.  

Tweets of the Day:

Steve Stifler (@SteveStfler): Gym Instructor: So what’s your favourite machine to use here at the gym? Me: The Vending Machine

Ellen DeGeneres (@TheEllenShow): Why wasn’t the cow worried when her spare tire burst? She had an udder. #ClassicJokeWednesday

Nein. (@NeinQuarterly): Somewhere Alfred, Lord Tennyson is ordering yet another drink. Charging it to the light brigade.

Funny Tweets (@Funny_TweetsQ): If I got a dollar for every time I thought about you, I would start thinking about you.

 

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 A new survey by the Manufacturing Circle, a lobby group of ZA manufacturers, warns that the short term outlook for the sector is bleak.

Some 74% of manufacturing companies surveyed said job cuts are likely over the next 12 months.

Pan African economist Iraj Abedian, who presented the findings, said reasons for the pessimistic outlook include labour market uncertainty – particularly the platinum strike – elevated wage and input costs, competition from imports, low labour productivity, a lack of skills and faltering consumer spending.

Some 67% of respondents said conditions were “weak” or “poor” in the second quarter of the year, compared to 52% in the corresponding quarter in 2003.

Abedian said the short term outlook is negative as well, and the outlook for the next two years is also not favorable. So there is a declining optimism in the sector. This is a national issue that has to be dealt with. This erosion of optimism comes from many segments of the cabinet.

Abedian said that the background is a patchiness in the global economy, with a surge in geopolitical factors. Within ZA, confidence has been shattered in the business sector, with the side-lining of the business role in economic revival.

Since 2012/13, the emerging economies began to falter. There is a structural divergence between the two blocs – with developed countries pulling ahead. Since 2008, there was a collapse in SA, the knock-on effect of the recession in the OECD, particularly the US. But we did not bounce back. More recently, from 2011 onwards structurally the economy is getting to a performance mode that is deviating downwards from its trend line.

In Q2 the platinum strike was a major blow to the economy. The likelihood of a further downgrade is real. The chances are the next move will be down, not up. Unless the national treasury comes up with a credible macroeconomic and fiscal strategy, the country will experience another downgrade.

In the last quarter, we had a further quarter of job losses. The currency did not help. We have had a momentum for depreciation. This has some mixed blessings for the sector. This leads ultimately to price increases, and affects inflation. Most manufacturers have reported increases in input costs, and there have been raw material shortages as well as water and electricity disruptions.

On the positive side, demand for exports from Africa and the US is more robust, although the local market remains the mainstay of our manufacturing performance.

Our comparative position compared to other trading partners has deteriorated.

Automation in manufacturing remains the top strategic concern, with machines replacing less-skilled labour. Skills availability remains an issue.

In terms of the hoped for increase in procurement by government, 82% of manufacturers say they are not benefiting from it! And policy makers need to see why this is so and how the blockages can be unlocked.

To conclude: there is a downbeat feeling in the manufacturing sector.

What of the NDP? It’s a structural developmental plan. The impact is in 10 years and beyond. One element nobody talks about is the professionalisation of the public sector, as an example.

That process itself is a five year process, and bears fruit in another 3-5 years.

On energy policy or education, it will also take time.

There is confusion at government level, with the NDP branded as the solution, but there is very little faithful adherence to its spirit and it has become a deterrent to the reality that the economy requires a short-term economic solution.

Conclusion:

Manufacturers are worried. And if the latest survey is to believed, there is not a lot of joy on the horizon.

Tweets of the Day:

Ellen DeGeneres (@TheEllenShow): Why did the cross country skier retire? His career started to go downhill. #ClassicJokeWednesday

Fake Dispatch (@Fake_Dispatch): Somewhere out there, there is a kid named Pepsi who cannot find his name on a Coke bottle.

 

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South African Trade and Industry Minister Rob Davies has just returned from a trip to the US, where he visited Hollywood to encourage more American filmmaking in SA. He told a news conference in Pretoria that one step he is taking to boost the number of foreign productions will be by lowering the threshold to qualify for the existing film industry investment incentive. The incentive provides a rebate of 20% to 25% percent of the eligible spend in SA on a film production.

Davies said that in 2012 the film industry was employing 25 000 people – compared to 4 000 in 1995 – and it contributes R3.5bn a year to GDP. The rebate scheme operated by the dti has led to increased numbers of foreign films being made in SA, as well as co-productions. Davies said the feedback he received is that the incentive is generally competitive compared to those paid by rival locations.   Efforts are underway to expand local studio facilities, and Davies wants to see a SA mission to Hollywood to demonstrate the capacities we have in SA, including animation technology.  He said he would also look again at the way in which SA visa rules may be hampering efforts to bring film stars and others to work in SA.

Few can argue that South Africa is a wonderful place in which to film. The dti has clearly identified this as a growth industry, and Davies seems to believe it is worth his time and effort to work on ways to attract more film makers to this country.   He seems to be showing a flexibility and a willingness to listen and to react to the concerns of the Hollywood studios.      

Tweets of the Day:

Joel Jeffrey (@joeljeffrey): No one likes you when you correct other people’s grammar… My grade 10 english teacher always did that and it annoyed everyone.

Rodney Trotter (@RodneyTIT): I remember the first time I saw a universal remote control. I thought to myself “Well this changes everything!”

Mark Twain (@MarkTwainQuote): The only way to keep your health is to eat what you don’t want, drink what you don’t like, and do what you’d rather not.

 

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