The South African market mess; Second time around for VivaAerobus IPO

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By admin April 14, 2016 20:28

The South African market mess; Second time around for VivaAerobus IPO

The markets might be yo-yoing at this time but even so VivaAerobus is drawing-up plans for a second IPO attempt in early 2017 following the pulled plans two years ago. In 2014 the IPO plan was to raise some 3bn pesos to pay for new aircraft and reduce debt with just over 20% of the stake held by the existing investors being sold off, but the timing was unlucky being as it was just as Eurozone default worries were filtering through the markets. But with 23 A320s with 40 A320Neos on order the airline must raise cash to ensure a solid foundation for planned fleet growth without taking on too much debt. Given that the airline posted a $25m profit for 2015 from a $7.6m loss in 2014 and given the rapidly improving Mexican economy and the very healthy passenger growth statistics for Mexico this does seem like a window of opportunity for VivaAerobus, which saw its passenger numbers increase 13.7% for 2015 year on year. Even so, with three low cost carriers and a flag carrier operating domestically and with the US airline market increasing capacity all the time, there is serious danger that any airline wedded solely to the Mexican market might well end up with too much capacity before the end of this decade. Could it be that we need to seriously hope for consolidation between Mexican airlines or further diversification by the same outside of the core markets?

Meanwhile, the South African government is now talking openly about complete nationalization of its airlines under one banner with SAA, SA Express and Mango Airlines all being brought under one brand. Addressing the South African select committee on public accounts before which SA Express was appearing following poor performance, Deputy Minister of Public Enterprises Bulelani Magwanishe revealed details about plans for the state-owned airlines, saying an undesirable “form of competition” had developed among them. Finance Minister Pravin Gordhan and Public Enterprises Minister Lynne Brown have already suggested a merger between SAA and SA Express is desirable but now, for the first time, Magwanishe has bunched Mango together with SAA and SA Express as part of the potential merger with a decision on the matter said to be confirmed “soon”. All three airlines are a mess, SA Express is lauded for making a profit over recent years, but it has survived on state guarantees for financing.

How will this help the South African market? The answer is clear – consolidate airlines that are competing, cease all competition on routes between the three airlines, increase prices and hope that will be enough to avoid drastic cost cutting measures including forced redundancies. National airlines will always, no matter where they are in the world, be political footballs. In this instance you see a government trying to delay the inevitable until well beyond any election. But consider this: If the South African government deletes much of the home market airline competition then it will at a stroke create a significant gap in the market for a private low-cost airline to move in and decimate the nationally-owned carriers, so in order for this plan to succeed the South African government must also prevent competition. The whole situation is a mess.

admin
By admin April 14, 2016 20:28