Velvet Sky airline sold to Excalibur Aerospace

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Velvet Sky has been sold to Excalibur Aerospace by parent company Macdonald Holdings, only three months after the airline first took to the skies.

Cecil Reddy, the chairperson of Macdonald Holdings, said the deal was finalised and signed early this month. While he would not disclose how much Excalibur paid for the airline, he told The Mercury that Macdonald Holdings had recovered the ‘substantial sum’ it had invested in the airline.
“Excalibur Aerospace bought a majority stake of Velvet Sky and is seeking to profit from local demand for an affordable airline that services the nation at a discount to what the competitors charge,” Velvet Sky said in a statement last week.

Excalibur Aerospace, headed by lawyer and private equity entrepreneur Stephen Nthite, was founded in 2008 in Johannesburg. It is a part of Excalibur Holdings. The company will take the airline further into Africa. It will introduce another three aircraft to the Velvet Sky fleet within the next year, with the first aircraft being introduced by mid the middle of next month, Engineering News reported.
“Excalibur Aerospace will no doubt continue to grow the business through their service-oriented approach, expansion plans into Africa and commitment to providing affordable air travel to South African commuters,” said Reddy.
“Selling our stake was a business decision to rather focus on our core business at Macdonald Holdings, which is largely in the steel and engineering sector,” he said.

Excalibur chairperson Nthite told Engineering News that the company had ambitious expansion plans that will be assisted by a partnership with an unspecified low-cost Indian carrier.

Velvet Sky CEO Dhevan Pillay and COO Gary Webb have kept their positions at the carrier while Nthite has become the airline’s new board chairman.

Velvet Sky launched on March 22 with an inaugural flight between OR Tambo International and King Shaka International. The carrier is plying the ‘golden triangle’ between Johannesburg, Durban and Cape Town. Starting with a single Boeing 737-300 leased from Aergo, Velvet Sky ultimately may lease between six and eight aircraft.

Velvet Sky’s main routes between Cape Town, Johannesburg and Durban are currently served by almost all of South Africa’s biggest existing airlines, which include Kulula, Mango, 1Time, South African Express, South African Airlink and British Airways. Velvet Sky is competing directly with the likes of low cost brands such as Mango, Kulula and 1Time.

Further competition could come in the form of Santaco Express, a low cost airline based in Bhisho in the Eastern Cape, which is being set up by the South African National Taxi Council (Santaco). It will operate aircraft from AirQuarius and offer tickets at between R500 and R600 for a flight between Cape Town and Durban.

Low cost carriers have made big inroads into the air travel market and are taking a large market share held by bigger, better established companies like South African Airways and British Airways. For example, low cost carrier 1Time saw a 6.7% increase in passenger numbers between 2009 and 2010, up from 1.8 million to 1.921 million. In December 2010 low cost airline Mango took over all Durban to Cape Town flights from its South African Airways (SAA) parent as SAA was losing market share in this competitive area. According to Mango CEO Nico Bezuidenhout, there has been a big shift away from premium airlines towards low cost carriers, in line with international trends.

However, new entrants face stiff competition, according to Stuart Cochrane, who is executive manager of Comair (which manages Kulula and British Airways in South Africa). He warns that the Johannesburg-Durban-Cape Town route is oversaturated and not up to more competition.

According to British Airways marketing director Heidi Brauer, increased competition in the industry is ‘healthy’ but she added that the airline market is a difficult industry to be in as margins are very thin. According to IATA, the average airline profit margin stands at just 1.5%, which, together with the increase in the oil price, will resulting a challenging year for airlines.

The International Air Traffic Association (IATA) earlier this year predicted that strong growth and high oil prices will balance each other out in Africa, resulting in airlines on the continent breaking even this year.