Wednesday, 7 November 2012

Interview: Nico Bezuidenhout, Mango CEO

Mango spies east African expansion within 12 months

Mango, the low-cost subsidiary of South African Airways (SAA), expects to launch its first regional services within 12 months, chief executive Nico Bezuidenhout tells Flightglobal. The domestic carrier has secured rights for Mauritius and is close to gaining access to Zanzibar, Tanzania.

It had been planning to increase its six-strong Boeing 737-800 fleet by two aircraft over the next year, but that figure will likely rise in the wake of rival 1time's demise.

Bezuidenhout says the launch of pan-African low-cost carrier FastJet has placed a "competitive necessity" on Mango to "more aggressively pursue regional expansion".

"You'll see Mango in African skies very likely within a 12-month period," he confirms. "Mango is still to this day 60% leisure-orientated, 40% business. To that extent our likely expansion path lends itself more towards the east coast, up the eastern seaboard of Africa."

There is "no explicit statement of intent" by SAA to transfer domestic and regional routes to Mango, Bezuidenhout insists, but he acknowledges the low-cost carrier's role as a group "counter-vehicle" to price-sensitive competition.

While SAA has already handed over its Cape Town-Durban route to Mango - the third busiest domestic route in the country - Bezuidenhout does not expect a similar move for Johannesburg-Cape Town or Johannesburg-Durban.

"I would expect SAA to maintain a reasonable presence in the South African domestic market," the chief executive says.

He adds, however: "It would make sense for both the brands to be scaled in-line with market trends and demand. Mango is specifically geared towards defending and gaining share within the price-sensitive segment of the short-haul market - anything sub-four hours, with an initial focus on domestic."

The low-cost carrier had been planning to take delivery of "a minimum of one and most likely two" additional 737-800s to accommodate its upcoming expansion, he says, though that figure is expected to increase due to the liquidation of 1time.

"I'd be fairly hesitant to commit to anything exceeding an eight-year lease in terms of the current generation 737-800s," Bezuidenhout continues. Longer leases of between 12 and 15 years will be considered after the 737 Max has entered service.

Taking new aircraft on-balance-sheet is another option being considered, though the chief executive says he is "biased towards operating leases in the short-term".

"We do have the balance-sheet resources to procure a minimum of two aircraft over the next 12 months," he notes. "But taking assets on-balance-sheet brings with it the asset depreciation risk...I'm not necessarily that convinced that airlines by their nature are the best asset managers."

Mango's financial results are incorporated into SAA's filings and Bezuidenhout declined to give a specific breakdown of its performance since launch in 2006.

However, he says the carrier has achieved bottom-line profitability in three of its five fiscal years to date, as well as operational profitability in all five years. The airline recorded a net loss in 2011/12 due to start-up costs associated with entering Lanseria airport, but it expects a "marginal" net profit this year.

"We are focusing aggressively on achieving unit revenue growth," Bezuidenhout says. "Year-on-year RASK growth for the last three months has averaged about 50%.

"Our CASK growth is sitting in the order of about 12%. When you consider that oil prices and regulated charges in the country are up substantially - through airport charges and navigation charges - I'm not displeased at all."