Velvet Sky has leased two Boeing 737s from Aergo as it embarks on an expansion plan following its acquisition last month by Excalibur Aerospace. As its fleet grows, Velvet Sky aims to open up new routes in Africa.
Business Report said that Velvet Sky has already leased a DC9 in addition to its 148-seat Boeing 737. The newspaper cited Gary Webb, Velvet Sky’s chief operating officer, as saying that two additional Boeing 737s had been ordered from Aergo. Aergo is a private leasing company based in Dublin, Ireland, that opened an office in Johannesburg in February.
“We intend operating three Boeing 737 aircraft when we are at full strength. But as a new company we are adopting a prudent approach for now, and we will be phasing in our other two planes,” CEO Cecil Reddy said at the airline’s launch in March. Christo Kok, head of Airgo in South Africa, said that Velvet Sky could ultimately lease between six and eight aircraft.
The expansion comes as the airline sees rapid expansion of the local airline market following the global recession. Pillay told Business Report that the airline expected to benefit from an estimated 6% growth in the market. Webb said that the airline’s passenger loads were “above expectations” at more than 70%.
Velvet Sky has plans to expand to other African countries when it has a larger fleet – something competing airlines like 1Time and Kulula have done.
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. It currently offers three flights a day between Cape Town and Johannesburg and two flights a day between Johannesburg and Durban.
Velvet Sky was sold to Excalibur Aerospace by parent company Macdonald Holdings, only three months after the airline first took to the skies.
“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,” Reddy said at the time. “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.”
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.