Regulatory Headwinds?

If airlines are to survive the impact of the escalating oil price, and the global slowdown in economic activity, then they must become more efficient and increase their load factors, while maintaining their revenues per seat. Jet fuel now reportedly makes up about 40% of airlines' operating costs, and the recessionary mood means that people will fly less, because the demand for air travel is highly cyclical. But the Competition Act and the Consumer Protection Bill are additional sources of drag for struggling airlines.

Colluding to increase fuel surcharges is certainly not the answer – in 2006 the Competition Tribunal fined SAA and SA Express R20 million for this type of price fixing. Instead, airlines can deal with rising costs by entering into alliances on certain routes, for example agreements on code-sharing, joint marketing, pricing and capacity allocation. By combining their complementary routes