What it would take to drop flight prices in South Africa

Although the temporary shocks created by the COVID-19 pandemic have subsided, airline ticket prices haven’t really come down, and this is due to the price of oil, the rand exchange rate, and the drop in locally synthesised fuel.

This is according to FlySafair’s Chief Marketing Officer, Kirby Gordon, who told BusinessTech that the change in fuel supply dynamics in South Africa has had a material impact on airline ticket prices.

Gordon noted that while the exit of Comair from the local market in May 2022 certainly had a temporary impact, any removed seats were replaced within a year.

However, prices haven’t come down, and he pointed to a handful of reasons, but the main one lies in the steep climb of jet fuel prices in the background.

A study conducted by Discovery Bank, in partnership with Visa, showed that the cost of aviation fuel increased by more than 80% in 2022.

This was partly due to the start of the Russian and Ukrainian war when Russia invaded Ukraine in February 2022, which shook global oil supplies.

“With 55% of the direct operating costs of a flight going to fuel, airlines need today’s prices to keep their heads above water and justify their existence to shareholders,” he said.

Additionally, Gordon said that the rand-dollar exchange rate fluctuations pose another significant risk, as they impact the costs of jet fuel, maintenance parts, and aircraft leasing.

He explained that the exchange rate compounds the cost of fuel because local refineries are no longer producing enough jet fuel to serve South Africa’s market, which means that it now has to be imported, increasing costs and off-setting that correlation.

Interestingly, the exchange rate also impacts operating costs, which can significantly increase if the rand weakens against the dollar, as aircraft and maintenance parts are purchased in dollars.

FlySafair said ticket prices are expected to remain relatively flat in the near future unless there is an unforeseen fundamental change in the industry.

“Airlines are working hard to ensure efficiencies in their processes to avoid additional increases. However, with the economy growing very slowly, the exchange rate remaining steady, and jet fuel prices not decreasing, we do not expect ticket prices to change dramatically,” it said.

Commenting on what it would take to drop air ticket prices, the airline said that with all things remaining equal in terms of the number of airlines operating, the major factors that will determine the prices will then be general seasonality, our exposure to the oil price, and the rand/dollar exchange rate.

“Given the current economic environment, a significant reduction in ticket prices would likely require an improvement in fuel costs and exchange rates,” it said.

“While we don’t foresee pricing coming down significantly in the immediate future, customers can always find lower-priced seats by booking on less busy days, such as Tuesdays and Saturdays,” it added.

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