Aviation may face another economic squeeze

Following a period of equity market losses and global fears of a renewed economic slowdown, some analysts have raised the probability of a second recession from 25 percent to 40 percent last week. Aviation remains one of the industries most vulnerable to volatility.

"Aviation growth, or decline, provides a good indication of the state of the real economy," said Bezuidenhout, who noted that the sector's growth broadly tracks GDP growth. "The reverse is also true, with aviation indicating economic challenges quickly." IATA's adjusted global forecast (July) anticipates global industry profits of USD4 billion for 2011, a staggering 78 percent decline from 2010 profits of USD18 billion. "Increased capacity in the domestic market, along with escalating operational costs, has placed margins under great pressure; an increasing volatile economy adds to airline challenges."

Under pressure until late 2012

Bezuidenhout believes that local airlines will remain under pressure until late 2012 should there be no substantial recovery in world markets. "The key for airlines is effective management under economic duress," he said. Aviation is traditionally a low-margin business with global averages pegged at 2.7 percent. "Mango's prudent approach to the market served the business well during the oil price spike (to USD147) in 2008 and the 2009 recession. GDP growth showed indications of recovery post the global financial crisis, but again is under threat in current circumstances. I believe that Mango is well positioned to manage a possible second wave of recessionary pressures." He anticipates the oil price to reach an aggregate of USD120 a barrel later this year after reaching highs of USD126 in April.

Leisure travel continues to be the most affected by recessionary conditions while some business travel sifted to low-cost carriers in a budget-conscious economy. "The corporate market is becoming increasingly important to low-cost carriers; this as we see a current migration of business travel to budget-friendly options."

Growth in the business sector

Declines in leisure travel were somewhat mitigated by increases in business travel. The airline's business products Mango Plus and Mango Flex experienced growth of between 12 to 25 percent over the past three years.

Mango continues to operate with the lowest cost base in domestic skies. New-generation aircraft, efficient operations and a continued focus on innovation form part of the airline's strategic approach. "Value proposition and affordability will dictate the success of any business over the next 24 months and, in aviation, market share in a depressed environment becomes critical." Presently the carrier's overall domestic market share on routes that it operates stands at 16 percent, while among low-cost peers Mango has increased its market share on routes operated from 30 to 33 percent. Mango remains the most on time airline across a three-year average.

"Now is the time to travel," he continued. "Ticket pricing is more competitive than ever before as airlines compete for travellers. Today, there are more channels available to consumers to purchase and pay for Mango flights. Mango guests are able to purchase their flights from Shoprite, Checkers and Checkers Hyper Money Market Counters, online, through our call centre and travel agents while Internet and call centre bookings may be paid for with Edgars or Jet charge cards."