Business Maverick

Business Maverick

Skywise: ready to launch

Velvet Sky was a flop. 1time crashed out of the industry. Domestic airfare ticket prices have soared. Still, the founders of 1time are back and planning to launch Skywise, their new domestic carrier, later this year. GREG NICOLSON talks to three of the team about their new airline and their plan to cut air-ticket prices by 25%.

Wayne Duvenage sits behind a counter in the office of a Midrand photography studio, the temporary Johannesburg office of Skywise. In a striped blue shirt, no tie and jeans, he finishes his emails while waiting for Michael Kaminski and Rodney James. Together with Cape Town-based Glenn Orsmond and Johan Borstlap, the five men form the core of Skywise, a low-cost domestic airline set to launch in the third quarter of 2013, starting with the Joburg-Cape Town route.

Kaminski, the “world class geek on the team” according to Duvenage, wears a suit with no tie or jacket. The two talk about the air service licence recently granted to Skywise and the operator certificate they need before they put planes in the air.

James, who will head the new airline, walks in from the studio where he’s been giving a phone interview. Perhaps unsurprisingly, every question was about 1time. James, Orsmond and Kaminski were all founding members of 1time, which was placed under provisional liquidation in November 2012 after launching in 2004 on the Joburg-Cape Town route and expanding domestically and across Southern Africa. Kaminski, who was head of IT at 1time, says watching the fall of airline he helped start was heartbreaking.

“We weren’t there when it shut down. We lost management control two years prior to that, March 2010,” says James after his phone interview. “What happened there was we just disagreed with the new guys on everything – strategy, operations. We just disagreed on everything and we lost control so in the end we were just making up the numbers. We were just pitching up,” says James. “It’s not a good space to be in.” The board wasn’t left with a single member with aviation industry experience, he says, changing tone. “Anyway, I don’t want to talk about 1time too much.”

Blacky Komani, who was CEO of 1time from October 2011 until it stopped operating, declined to comment on Skywise. Komani put up his own house as collateral for the stake he got in the airline, and was the public face of attempts to rescue it right up until it was placed under provisional liquidation. In 2012, Alec Hogg from SAfm’s Market Update asked Komani: “Blacky, don’t you feel like you’ve been given a bit of a hospital pass here? The people who started 1time cashed in their chips just recently, not long ago, and they’ve left the stage. And you are the man who’s now got to pick up this very difficult situation and turn it around.” Komani remained positive (“We believe in our dream”) and mentioned efficiency improvements. He didn’t blame anyone.

Guy Leitch, editor of SA Flyer, says over the phone that there is “a lot of resentment about how it was handled and how (the 1time founders) sold their shares, but I don’t think it will affect them.” With British-owned Fastjet’s attempt to assume 1time’s operations looking unlikely, says Leitch, Skywise is well poised to fill the gap in the market, and they come with a highly skilled team. “Simply try to book a flight these days on Comair (Kulula) or Mango. Prices are significantly higher and many are running full.” He says airlines like 1time and Velvet Sky fell because they were not properly capitalised and were running inefficient equipment and could not weather higher fuel prices and a weaker rand.

There’s “certainly” room for a low-cost carrier, says Leitch.

To get an air service licence, you need to prove you can run a sustainable and safe airline. With 1time’s record under their belt, safety was no problem for the Skywise team. But tainted by the airline’s demise, it was harder to prove the new venture would be sustainable. “We had to prove our worth there,” says Duvenage. They have 90% of the necessary funding (it costs tens of millions of rands, they say) and will launch with two second-hand Boeing 737-300s.

“What we did right at 1time was we launched South Africa’s first and only low-cost airline,” says James. “We started with a clean slate. Everything was low-cost. Everything was about efficiency and low-cost because at the end of the day that’s what a low-cost airline is. You have to have the lowest prices in the business.”

James continues, pausing briefly while some customers come to look at his daughter’s photography studio. “Right now there is no low-cost airline in South Africa,” he says. “There are airlines which are divisions of premium airlines. They call them low-cost. They paint the aeroplanes bright colours and call themselves low-cost but look at where the prices are now,” he points out, remembering when he used to pay around R1,800 return from Joburg to Cape Town, compared to almost R3,000 now. “When we enter the market we will drive prices down again and that will grow the market again. I guarantee the market is shrinking at the moment.”

In a 2012 study on customer choice in SA’s aviation industry, B. Campbell and D. Vigar-Ellis start with the stats. “Air travel in South Africa grew by about 14% per year over the three years prior to 2007 and by 70% over the period 2003 to 2007,” they write. “This was due mainly to the proliferation of low-cost airlines following the deregulation of the industry in the early 1990s.”

An insider with close knowledge of the sector, who didn’t want to be named, says prices have risen as much as 30% since the loss of two competitors and there is clearly a space for a “small, cost-efficient airline that is adequately capitalised.”

Kaminski’s work will be key to Skywise’s attempt to filling that vacancy. He says 1time has put about 2 million seats back into the market and Skywise aims to take some of that while reducing fares by about 25%. In charge of the IT work, where technology can be employed to cut costs, Kaminski says the back-end work on the systems have been mostly completed with just the front-end left to get done. “We will be very pro-technology, leading edge in terms of what we’re offering to passengers,” says Kaminski. “Skywise is exactly that: we want to get the technology out there, we want to make people’s lives easier and we want to enhance the actual user experience.”

Productivity is what makes an airline low-cost. James offers a simple example from 1time. Some carriers have large cabin attendant expenses because they pay a high basic salary and then need to pay a high amount for replacements when staff call in sick. By keeping basic salaries low and linking pay to turning up for work, James says there are fewer absentees and costs stay low. “They had to fly to earn their money; wherever possible we need to incentivise,” he says. “You just have to drive efficiency and control costs everywhere.”

But can Skywise compete against, and especially the SAA-backed Mango, whose parent turns loss after loss but is supported by repeated bailouts? Ironically, South African Airways and Mango formerly objected this year to Fastjet taking over 1time, claiming that the market was already stretched and the new competitor would put all SA airlines at risk. There would be a “high probability of other domestic airlines‚ with capital commitments on replacement and new aircraft‚ defaulting” said Mango in an affidavit. “Two low-cost carriers already exited the market due to commercial and cash-flow constraints brought about by the competitive pricing in a relatively small market driven by price and demand disparities,” said Mango, which is a subsidiary of SAA, relying on an enormous cash injections from the state to stay in the air.

Duvenage, former CEO of Avis but at Skywise as customer service director, is better known for his role as chair of the Opposition to Urban Tolling Alliance. He says he supports Comair’s decision to take the government to court for distorting the market by continuing to bailout SAA. “If you’re going to use taxpayers’ money to prop up something that is going to impede on local investment and local development on best pricing for customers and job creation and all those things in the airline travel space, it’s a dangerous place for government to play,” says Duvenage. “For too long this industry’s been plagued by that type of interference and the playing field’s not levelled … Having said that, it doesn’t deter us from launching the airline.”

With airlines being liquidated, the state effectively driving competition out of the industry, and the Skywise team certain to draw questions on their involvement in 1time, why get back into the industry? To some, it doesn’t make for an attractive proposition.

Before walking into the studio for a group picture, James says he toyed with the idea of pursuing photography further, a passion of his, but when Orsmond came with a new business plan (months before the demise of 1time but after they had left the company) the numbers were right and the idea stuck.

“Am I mad? I probably am mad,” James says, with Kaminski laughing next to him. “That’s just my genetic makeup, I guess. But I often say to people, ‘That’s what I do.’ I’ve been in the airline aviation business for 33 years now. If you sit next to a brain surgeon and say ‘How do you that? How do you open people’s heads?’ That’s what he’s trained to do, what he does. The airline business is a very intense logistical business, but if that’s what you do every day, that’s what you do.

“We were part of the fastest growing airline for seven of the seven years we were in control, and that was a great experience, and profitable for six out of those seven years. So why are we doing this? I guess it’s just what we do.” DM

Photo: Skywise’s Wayne Duvenage, Michael Kaminski and Rodney James. (Greg Nicolson)