Kulula receiving new Boeing 737-800s

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Low cost airline kulula.com had received the first of seven new Boeing 737-800 passenger jets, and will receive another two later in the year as it rejuvenates its fleet.

The aircraft will join its five leased 737-800s, giving kulula.com the youngest fleet in Southern Africa, with an average age of five years.
“The new 737-800s utilise 18% less fuel per seat than the aircraft we are replacing, thereby saving two million-litres of fuel per aircraft per year for the equivalent total seats,” said Erik Venter, the CEO of Comair, which operates kulula.com and British Airways in South Africa. “Our decision to purchase these highly fuel efficient aircraft was not taken lightly and is a critical component in managing our exposure to the volatile fuel price.”

By the end of this year Kulula will operate eight aircraft, carrying 2.8 million passengers over 12 routes across the region.

Comair is investing R2.5 billion in its fleet, as new aircraft consume less fuel and require less maintenance, allowing for higher utilisation and lower operating costs.
“The sustainability of an airline is driven by its ability to generate sufficient profits to allow for reinvestment in its infrastructure and assets,” Venter said. “The ownership of aircraft as opposed to leasing thereof will significantly contribute to our profit/reinvestment cycle, and Comair’s history of more than 60 years of operating profitably can largely be ascribed to us owning at least 50% of our fleet. While this does add to the long term debt on Comair’s balance sheet, it is not onerous when compared to the comparative lease obligations on the aircraft that are being replaced.”

Robert Faye, director of Sales for Africa at Boeing Commercial Airplanes, said that the Boeing 737-800 Next Generation is a perfect fit for Kulula’s business model. “High fuel prices and maintenance costs are putting severe pressure on the total operating costs of airlines across the world and the new aircraft is designed to meet the needs of carriers like Kulula.”

The three new Seattle-built aircraft, which will be in operation before the end of the year, have been financed partly through equity (15%) as well as an 85% loan backed by USA-based Export-Import Bank, arranged through Investec Bank. The next four Boeings ordered by Comair will be delivered in 2015 and 2016.

All of Comair’s pilots have been trained extensively on the new aircraft as the operator invested in a new Boeing 737-800 flight training simulator in 2011 at a cost of R80 million.
“We are managing our assets very actively and will continue to do so – an example of this is that we decided to pre-sell the fourth aircraft, due for delivery in December, to an aircraft lease company due to pressure brought on by the poor trading conditions in the first half of the 2012 financial year,” Venter said.

In February this year Comair reported a loss for the last six months of 2011, mainly due to a massive increase in operating costs. The company recorded a loss of 4.6 cents per share for the six months ending December 2011, versus, earnings of 10.2 cents per share a year ago.

Although Comair’s revenue grew by 17% to R2.05 billion, costs increased by 24% to R2.008 billion, mainly driven by the highest average fuel price seen to date. Other factors that resulted in the loss included the weak economic climate and 70% rise in airport tariffs.

In addition, during the second half of last year, Comair lost R10.7 million due to the retirement and disposal of three Boeing 737-200 aircraft.

Comair said that prevailing high oil prices and a weak global economy prevailing into the foreseeable future will result in a tough environment for airlines. “Airlines that do not substantially reinvent themselves will not survive in this new environment, as demonstrated by the failure of a number of airlines globally in the first weeks of 2012,” the group warned.
“The weak economy and poor consumer spend, high oil prices, excessive ACSA charges, a weakening local currency and increased competition, all threaten the growth of local air travel. Worldwide, the airline industry has been forced to recognise the need for radical change to ensure sustainability and profitability. Cutting down on costs and increasing business efficiencies are top priorities for Comair,” said Venter at the end of January.

Consequently, Comair has embarked on a cost cutting programme, involving the setting up of a new crew base and catering unit and cancelling unprofitable routes, amongst other changes.
“We are confident that these short- and medium-term measures will significantly improve Comair’s financial performance in a consistently tough trading environment,” the company said.