The airline industry is having a torrid time, with no sign of when things will return to anything close to normal. But kulula founder Gidon Novick has picked this moment to start a new domestic airline.
Novick tells the FM that the Covid-19 pandemic has turned the global airline industry upside down, and this means a new business model has to emerge. "There is a once-in-a-generation opportunity to start with a fresh, efficient and unencumbered business model," he says.
When kulula started nearly 20 years ago, it disrupted SA’s traditional airline model using smart internet distribution, cheeky marketing, high-density seating and light-hearted on-board communication.
Novick says a viability study he has done shows there is space for his new airline. He says the study suggests SA’s air travel market will take at least two years to stabilise, and will mature at less than two-thirds the size of its pre-pandemic levels. "Our working assumption is that people will travel less for business and combine regular video conferencing with fewer but potentially longer business trips."
While Novick said a launch date hadn’t yet been finalised, he expected it to still be before the end of the year — if the regulations allow. But when it came to providing details of his business partners, or how the new airline would be funded, Novick played his cards close to his chest. However, Novick did say the airline would fly "high-density domestic routes", which presumably means between Cape Town, Joburg and Durban.
"We’re very bullish, though, on SA’s incredible potential as a top global tourism destination in the medium and longer term," he says.
Either way, it’ll be launched into an industry in flux. In April, Comair was placed in business rescue after it broke a proud 74-year history of profitability, though it expects to begin operating again towards the end of this year.
SAA has been in business rescue since last year, after incurring losses of R28bn over the past 13 years. Even so, the government says it plans to launch a new airline, using taxpayer funding, to replace it, which will affect competition.
On SAA, Novick says it would be difficult for any state-owned entity to compete with private airlines in terms of costs. "But on the flipside, they don’t have to be efficient," he says.
Novick should know. When he was at kulula and Comair, he routinely called for the scrapping of state subsidies for SAA and its low-cost airline, Mango, saying this amounted to unfair competition.
The current level 3 lockdown regulations allow business flights, but take-up has been unsurprisingly subdued. CemAir and Airlink (which traditionally operate smaller aircraft) have started flying, as have Mango and FlySafair.
With low load factors, the sustainability of the sector is precarious. Any new entrant would tilt this equation further. Still, Novick says this particular point creates an opportunity for a new airline to launch with a low-cost structure unburdened by legacy issues. This, he says, is part of the opportunity.
"It’s essential to get in at the right cost base. If you buy the wrong aircraft and are indebted it becomes almost doomed from the start".
Novick is well known in the industry He worked for 13 years at Comair, the last five (until 2011) as CEO. His father, Dave, headed the airline for 51 years until his retirement in 2012, after which the family sold their stake in the airline.
One of the reasons Novick left is that he didn’t see eye to eye with Brian Joffe, then CEO of Bidvest, which bought 20% of Comair in 2007. However, Novick was instrumental in linking up Comair with health and insurance company Discovery in the highly successful Vitality loyalty reward partnership, and starting the Slow Lounge concept at SA airports.
After he left Comair, Novick spent three years running Discovery Vitality. He then started a R400m hospitality fund, Lucid Ventures, which created the Home* Suite boutique hotel brand. He’s still running the venture, which is focused on section 12J venture capital opportunities.
About two-thirds of Lucid’s funds are deployed in the hospitality industry, which has taken a beating in the pandemic. Novick still intends to run the fund.
He says his plan is to get the new airline off the ground, give it the early energy and focus and then find someone "better than me" to run it.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.