[South Africa] Comair grows revenue by 12%, diversifies investments

Comair has announced a record first-half increase of 12% in revenue despite negative GDP growth for two consecutive quarters. This revenue growth was offset, however, by sharply increased fuel prices and the need for short-term aircraft leases.

Consequently, earnings per share (EPS) and headline earnings per share (HEPS) declined by 38% to 27.2 cents per share respectively compared to the prior period (EPS and HEPS of 43.6 cents respectively).

The elevated fuel-price also contributed to the increase in airline operating costs of 17%, and a decline in cash generated from operations by R187m to R436m (R623m in the comparative period). This yielded a closing cash balance of R331m (R777m in the comparative period).

Airline operating costs increased by 17% with the most significant driver being a 35% increase in the Rand price of fuel per litre amounting to an additional R263m compared to the prior period, following a sharp escalation in the Dollar price of oil combined with Rand volatility.

The translation profit of the comparative period that arose from the effect of the exchange rate on a Dollar-based aircraft loan, was reversed as the currency deteriorated from R12.36 to R14.38 against the Dollar as at 31 December 2018. This resulted in a reported loss of R11m in the current period on the loan value of USD15.7m, compared to a profit of R11m on the revaluation of the loan at 31 December 2017.

In addition, increased aircraft depreciation amounting to R46m arising from the re-assessment of depreciation on certain aircraft components as well an additional R50m in hard currency-based operational costs, resulted in a higher cost base compared to the comparative period.

Despite this, airline passenger revenue increased by 11% and average seat occupancy increased on both brands but remains below global industry standards.

Comair’s ongoing diversification into non-airline business continues to offset the narrow margins and volatility of commercial aviation. These businesses continued to perform well, with an overall contribution to Net Profit before Taxation of 27% (prior period: 19%) and sustained prospects for further growth.

These operations include the group’s ongoing investment in an extensive aviation training academy with a global customer base, as well as its SLOW lounge business, its Food Directions catering unit, its travel business and its investment in technology solutions for tourism, travel and aviation.

Comair CEO Erik Venter said, “We’re very grateful to our customers and other stakeholders for their support. Special thanks must go to our personnel in our airline operations who’ve worked hard – sometimes in difficult circumstances – to ensure our customers reach their destinations for work or a holiday.”

Venter adds that the well-documented problems with maintenance scheduling and parts inventory at SAA Technical hampered on-time departures and operations, resulting in unbudgeted, incremental costs of around R34m, which included short-term aircraft leases to sustain fleet availability. R253m was invested in heavy maintenance of aircraft, of which a large portion was performed overseas.

Comair will take delivery of two Boeing 737 MAX 8 aircraft in February and March, the first of eight MAX 8s as part of its ongoing fleet renewal strategy.

The efficiency of the new aircraft will help reduce the airline brands’ exposure to fuel-price volatility and enhance potential revenue per flight, while improving the customer experience. The new aircraft will be maintained at the newly established Lufthansa Technik at ORTIA.

“Despite these pressures, the group maintains an unbroken record of 72 years of profitability, thought to be unique globally,” says Venter.

Other investments and highlights in the reported period include:

• A R89m predelivery payment on the Boeing 737 MAX 8 aircraft order;

• Investing R8m to develop a distribution platform for luxury inbound tourism;

• A R19m acquisition of a data integration platform to seamlessly connect applications and data sources across the group’s distribution platforms.

www.comair.co.za